The WSJ noted in an article this week that U.S. companies are repurchasing their own shares at a record pace, with stock buybacks expected to total over $1.1 trillion in 2025, which would mark an all-time high. The article notes that the pace of buybacks is led by financial institutions and technology companies, with the 20 largest companies accounting for almost half of repurchases.

What we do not hear now amidst this latest buyback frenzy is the steady drumbeat of criticism of stock repurchases from regulators and legislators. Over the course of the past several years, corporate share repurchase activity has gotten a “bad rap” from a wide range of sources, including the SEC, the media, legislators, academics and some investors and analysts. Much of their focus has been on the use of share repurchases to accomplish short-term objectives over long term investments, managing reported per-share earnings metrics, and enriching insiders who sell their stock at the rising prices resulting from the repurchase activity. We saw a significant amount of criticism of corporate share repurchases during the volatile markets of the COVID-19 pandemic and in the uncertain economic and market environment that followed the pandemic. At the time, Congress enacted provisions of the CARES Act that prohibited companies from conducting share repurchases if they received emergency loans from the government and a 1% excise tax on stock buybacks by publicly traded corporations.

It is hard to believe now that just a little over two years ago, the SEC adopted amendments to the share repurchase disclosure requirements that would have required companies to disclose detailed daily quantitative repurchase data at the end of every quarter (rather than on a daily basis as proposed) in an exhibit to their periodic report on Form 10-Q and Form 10-K. In a blog from back then, I tried to get to the “why” behind these rule changes, noting that the amendments reflected a mistrust of share repurchase activity even though the SEC’s own adopting release for the rules noted:

Existing studies, including a review by Commission staff in 2020, have considered the rationales and effects of repurchases. As our staff concluded, repurchases are often employed in a manner that may be aligned with shareholder value maximization. Together with dividends, repurchases provide an avenue for returning capital to investors, which may be efficient if the issuer has cash it cannot efficiently deploy. Such returns of capital may also send signals to investors that managers are operating the issuer efficiently rather than retaining excess cash for potentially suboptimal use.

The SEC’s repurchase rulemaking was doomed from the start, however, and in December 2023, the Fifth Circuit Court of Appeals vacated the SEC’s rule amendments. In March 2024, the SEC adopted technical amendments that restored the share repurchase disclosure rules back to their pre-2023 quarterly disclosure format. The SEC under former Chair Gary Gensler’s leadership did not seek to resurrect the share repurchase rulemaking following the defeat in the courts.

While today’s relative calm in the war against share repurchases allows companies to proceed with their share repurchase activity with fewer distractions, it is always important to consider all of the corporate, securities and governance considerations that go into developing, approving, announcing and conducting a share repurchase program. Be sure to check out all of the great resources that we have available in our “Share Repurchases” Practice Area.

– Dave Lynn