June 13, 2018
Eliminating Quarterly Guidance: BRT, NACD & NIRI Join Bandwagon
For quite some time, there has been a movement away from quarterly earnings guidance – and maybe towards foregoing quarterly reporting altogether (for example, see this blog from a few years back) – and John recently ran a blog entitled “Should We Lose the 10-Qs?”
Now, the Business Roundtable (BRT) (press release), the National Association of Corporate Directors (NACD) (press release) and the National Investor Relations Institute (NIRI) (press release) have joined the chorus – calling for an end to short-termism by eliminating quarterly earnings guidance. Also see this op-ed by Jamie Dimon and Warren Buffett supporting this view.
Insiders Selling More After Buyback Announcements?
In a recent speech, SEC Commissioner Robert Jackson called for rule changes to discourage insider sales during buybacks. Commissioner Jackson believes the Rule 10b-18 safe harbor – which protects companies from fraud liability if a share repurchase meets certain conditions – shouldn’t be available if the company allows executives to sell stock during a buyback. Here’s an excerpt from this WSJ article (also see this Cooley blog and Wachtell Lipton memo):
Insiders who sell stock into buyout bounces aren’t trading illegally, of course, and Mr. Jackson isn’t accusing them of that. And other investors also have the opportunity to take advantage of the bumps. But these price surges can be especially beneficial to corporate executives holding large chunks of corporate stock looking for an uptick to unload shares. “The SEC gives an exemption from market-manipulation rules to companies doing a buyback,” Mr. Jackson said in an interview. “The SEC shouldn’t be making it easier for executives to use them to cash out.”
Mr. Jackson, a former law professor, examined stock trades at 385 companies that announced buybacks in 2017 through this year’s first quarter. He found the percentage of insiders selling shares more than doubled immediately following their companies’ buyback announcements as many of the stocks popped. Daily stock sales by the insiders rose from an average of $100,000 before the buyback announcements to $500,000 after them. The sellers received proceeds totaling $75 million more than had they sold before the announcement, the study concluded. At 32% of the companies, at least one insider sold in the first 10 days after the buyback announcement.
And this blog from Steve Quinlivan notes that Commissioner Jackson is also attuned to the potential connection between buybacks & executive pay:
Commissioner Jackson also stated his view that corporate boards and their counsel should pay closer attention to the implications of a buyback for the link between pay and performance. In particular, the company’s compensation committee should be required to carefully review the degree to which the buyback will be used as a chance for executives to turn long-term performance incentives into cash. If executives will use the buyback to cash out, the committee should be required to approve that decision and disclose to investors the reasons why it is in the company’s long-term interests, according to Commissioner Jackson.
Sights & Sounds: “Women’s 100 Conference ’18”
This 45-second video captures the sights & sounds of the “Women’s 100” events that just wrapped up in Palo Alto & NYC (by the way, here’s what I learned last year at our events):
– Liz Dunshee