End Stock Buybacks, Save the Economy

Since the 1980s, corporate boards in the United States have embraced as dogma the position that companies should be run primarily for the benefit of their shareholders. The stranglehold of this doctrine of “shareholder-value maximization” over corporate decision making has been a leading cause of inequitable incomes, unstable employment, and sagging productivity.

The principal tool for extracting value from companies and handing it to shareholders is the stock buyback, which usually boosts a company’s stock price. Buybacks are favored by top executives, who are paid primarily in stock options and stock awards, and encouraged by ever-more-powerful hedge-fund activists. From 2008 to 2017, 466 S.&P. 500 companies distributed $4 trillion to shareholders as buybacks, equal to 53 percent of profits, along with $3.1 trillion as dividends.

The growing use of stock buybacks since the mid-1980s has warped the economy, worsening inequality, distorting corporate decision making and diverting resources from investment in employees and hard assets. Congress is taking notice: the Reward Work Act introduced by Senator Tammy Baldwin in March would ban stock buybacks done as open market repurchases. (It would still allow buybacks done through tender offers, which are used for different purposes.)

– The New York Times

Read the full article here.