July 23, 2019

Buybacks: The “Replace” Part of “Repeal & Replace” Rule 10b-18

Last week, Liz blogged about a recent rulemaking petition filed by a coalition of labor & progressive groups requesting the SEC to repeal & replace the Rule 10b-18 “safe harbor” under which most buybacks have been conducted.

The request to “repeal” 10b-18 is pretty straightforward, but what’s the “replace” part of the equation supposed to look like? The petitioners suggest that the SEC look at some 1970s-era proposals to limit buybacks, and point out that those proposals included:

– Limiting repurchases to 15 percent of the average daily trading volume for that security.
– Creating a narrower safe harbor and allowing repurchases that fall outside this safe harbor to be reviewed and approved on an individualized, case-by-case basis.
– Providing that repurchases inconsistent with the safe harbor are expressly “unlawful as fraudulent, deceptive, or manipulative.”
– Requiring various disclosures, including whether any officer or director is purchasing or disposing of the issuer’s securities, the source of funds to be used to effect the repurchases, the impact of the repurchases on the value of the remaining outstanding securities, and specific disclosures for large repurchases.

Companies continue to repurchase “massive amounts” of their own stock, and the market seems to be addicted to buybacks as well. So far, the SEC hasn’t seemed inclined to do much to further regulate buybacks, and tinkering with 10b-18 seems unlikely. But a presidential election’s looming, buybacks are getting clobbered in the media, & Democratic presidential hopefuls have them in the cross-hairs. When you throw into the mix the recent introduction of legislation that would ban open market buybacks, the SEC may at some point be faced with a situation where if it doesn’t act, Congress might.

ISS Policy Survey: Board Gender Diversity, Over-Boarding & More

Yesterday, ISS opened its “Annual Policy Survey.” In recent years, ISS used a 2-part survey, with a relatively high-level “governance principles survey” accompanied by a more granular “policy application survey.”  This year, ISS is using a single survey with a more limited number of questions. ISS may have streamlined the process, but this excerpt addressing the topics covered in the survey shows that they’ve still covered quite a bit of ground:

Topics this year cover a broad range of issues, including: board gender diversity, director over-boarding, and director accountability relating to climate change risk, globally; combined chairman and CEO posts and the sun-setting of multi-class capital structures in the U.S.; the discharge of directors and board responsiveness to low support for remuneration proposals in Europe; and the use of Economic Value Added (EVA) in ISS’ quantitative pay-for-performance, financial-performance-analysis secondary screen for companies in the U.S. and Canada.

As always, this is the first step for ISS as it formulates its 2020 voting policies. In addition to the survey, ISS will gather input via regionally-based, topic-specific roundtables & calls. Interested market participants will also have an opportunity to comment on the final proposed changes to the policies.

SEC “Short- v. Long-Term” Roundtable: So What Happened?

Last week, the SEC hosted its roundtable on short-term v. long-term management of public companies. As Broc blogged when the roundtable was announced, the roundtable follows the SEC’s December 2018 request for comment on earnings releases & quarterly reporting.  If you’re looking for a fairly detailed review of the discussion at the roundtable, check out this recent blog by Cooley’s Cydney Posner.

John Jenkins