“It is time institutional investors took a firmer grip on buyout mania.” So wrote John Plender, a senior Financial Times writer, in a recent article to be found at http://www.ft.com/home/uk under ‘buyout mania’.
Share buybacks have long been a concern of UK Shareholders’ Association (UKSA). This practice is often described as ‘returning money to shareholders,’ private investors never see the cheques. Instead, it rather favours companies’ brokers and their clients, plus of course company directors who are so often given bonuses based on the resulting rise in earnings per share.
Last year, the Financial Reporting Council’s ‘Lab’, set up to scrutinise various features of company reports with a view to introducing improvements, published a report on how companies report their dividend policies and practice. This necessitated reference to share buybacks as an alternative use of profits, on which UKSA – a participant in the project – had from the start expressed particular concern. The eventual statement on this subject was not unsatisfactory, but this was only after UKSA’s policy team had insisted on successive revisions to the original text.
Page 12 of the published report, to be found here, makes a similar call to that in the FT article, in wanting boards to publish their assessment of whether each buyback was in the best interest of shareholders. This must begin to happen.