The UK Corporate Governance Code should address the use of share buy-backs, according to George Dallas, policy director of the International Corporate Governance Network (ICGN).
A new revision of the code is currently under consultation, but includes no provision in relation to buy-backs.
In a letter to the Financial Times, Dallas says that at the very least companies should be required to disclose the buy-backs they make, either as part of their financial reporting, or as part of a larger report on capital allocation.
The UK government’s department for business recently announced a review of buy-backs.
Dallas writes: “It is worth noting that the UK corporate governance code is silent on the practice of share buybacks, including the draft code that is now under consultation.
“The Financial Reporting Council may wish to consider incorporating this issue into the new code it is developing—if nothing else to call for companies to disclose their buyback and capital allocation policies as part of their annual reporting practices.”
Dallas points out that buy-backs can be part of a legitimate capital allocation strategy. But there are also concerns that this can be used to gain earnings-per-share ratios, which in turn could help boost executive bonuses.
Dallas also writes that shareholders should be prepared to vote against buy-backs that support “asymmetrical rewards to company managers”.
Last week the government said it was undertaking research to see if companies were using share buy-backs to inflate executive pay.
Business secretary Greg Clark said that “there are concerns that some companies may be trying to artificially inflate executive pay by buying back their own shares.
“This review will examine how share buyback schemes are used and whether any action is required to prevent them from being abused,” said Clark.
The government’s statement said: “This new research will help to understand how companies use share buybacks and whether any further action is needed to prevent them from being misused.”