Corp executives cannot profit from share buybacks

WHEREAS, corporate share buybacks have the potential to manipulate market prices and disproportionately benefit corporate insiders; and
WHEREAS, the integrity of corporate governance is essential for fair and transparent market practices;
BE IT ENACTED by the Senate and House of Representatives of [State/Country] in Congress assembled:

Section 1. Short Title
This Act may be cited as the “Corporate Share Buyback Fairness Act”.

Section 2. Definitions
For the purposes of this Act:

  1. “Share Buyback” means the repurchase of shares of a corporation by the company itself, leading to a reduction of the number of shares outstanding.
  2. “Executive Officers” include the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and other c-level executive positions within a corporation.
  3. “Board Members” refers to all members of the Board of Directors of a corporation.
  4. “Benefit” refers to any form of compensation, including stock options, bonuses, or profit sharing linked directly or indirectly to the financial metrics influenced by share buybacks.

Section 3. Prohibitions

  1. During a moratorium period of three years following any share buyback by a corporation, no executive officer or board member of the corporation may:
  • Receive bonus payments or non-fixed remuneration linked to the performance metrics affected by the share buyback, including earnings per share (EPS) or return on equity (ROE).
  • Exercise stock options or sell company stock awarded or accrued during and three years prior to the buyback period.
  1. Any profits realized by executive officers or board members violating this moratorium period will be subject to clawback by the corporation, in addition to any statutory penalties.

Section 4. Disclosure Requirements

  1. Corporations conducting share buybacks must publicly disclose:
  • Detailed reasons for the buyback, including expected benefits to shareholders.
  • A list of benefits restricted for executive officers and board members during the moratorium period.
  • A report on any scheduled compensation adjustments for executive officers and board members to prevent circumvention of this Act.

Section 5. Enforcement and Penalties

  1. The [appropriate regulatory body, e.g., Securities and Exchange Commission] shall enforce the provisions of this Act.
  2. Any corporation found to be in violation of this Act, as well as individual executive officers and board members, shall be subject to:
  • Financial penalties proportional to the amount of buyback.
  • Potential disqualification from serving as officers or directors of publicly traded companies for a period of up to five years.

Instead, require all corporations to distribute 100% of their annual earnings to shareholders either through share buybacks or dividends. Corporations should be required to raise their capital through active sale of shares or borrowing so that they must justify the value to a separate party.