In 2016, Tapestry Networks and the Investor Responsibility Research Center Institute asked corporate directors on the boards of 95 public U.S. companies worth $2.7 trillion about their buyback decisions. In their responses, directors said that buybacks do not jeopardize corporate growth, and they do not unjustly enrich top executives. The survey also found that, since the global financial crisis, buybacks hit a high in the first quarter of 2016.
Compensation is increased when performance metrics such as earnings per share or stock prices rise. But directors said they are aware of the potential conflict and that they take steps to ensure executives are not rewarded for financial manipulation of share prices. Still, the study found, only 20 S&P 500 companies disclose how they make buyback decisions.
That is something investors hope to change.
"At a market level, it's a black hole. Companies undertake these but we don't have any disclosure," said Maureen O'Brien, vice president and corporate governance director for Segal Marco Advisors, Chicago.
It is a company-by-company quest "because the SEC hasn't acted," said Ms. O'Brien. "I am glad the conversation is starting."
Rather than taking a broad-brush approach, Calvert Research and Management prefers to take it case by case. Calvert is part of a share buybacks disclosure initiative launched in 2016 by a coalition of 11 institutional investors representing $500 billion in assets seeking more disclosure and transparency about companies' buyback decisions.
"Calvert wants real information to understand the motivation for the buyback," said John Streur, president and CEO of Calvert, in Washington. While comfortable with buybacks, and opposed to restrictions on executives selling after buyback announcement periods, "if there is a pattern of abuse by executives, we support proposals to impose a holding period," Mr. Streur said.
Former SEC commissioner Paul Atkins, CEO of Patomak Global Partners LLC, a Washington financial consulting firm, said that post-tax reform, companies are supporting economic growth in several ways, such as distributing cash through buybacks to shareholders, including those in and saving for retirement. "Buybacks are a basic function of capital markets that drive reinvestment. Share buybacks benefit those very shareholders, seniors and the broader economy," Mr. Atkins said.
Congressional Democrats, including Sen. Charles Schumer of New York, are also watching closely, particularly when it comes to how the corporate tax cuts are paying off for workers and the economy overall, as Republicans promised it would. "We don't hear a peep now that they've been announcing an avalanche of corporate stock buybacks," Mr. Schumer said on the Senate floor in March.
Mr. Clayton, the SEC chairman, declined to respond directly to Mr. Jackson's call for the SEC to study, and do, more. But in several congressional hearings he has expressed concern about potential abuses. While buybacks can be an efficient and appropriate way to return capital, the potential for short-term motivations could be troubling, Mr. Clayton told the Senate Banking Committee in September.