The biggest use of cash among S&P 500 companies is making their public footprints smaller — a strategy that’s paid dividends in 2018.According to Goldman Sachs, aggregate share repurchases (or buybacks) rose by nearly 50 percent to $384 billion in the first half of 2018. That tops the $341 billion spent on capital expenditures, which are rising at the fastest pace in at least a quarter century.
We note SEC Commissioner Robert Jackson’s findings on executive stock sales into buybacks as a tangible example of the skewed incentives in addition to the problem of short-termism.
[T]here is clear evidence that a substantial number of corporate executives today use buybacks as a chance to cash out the shares of the company they received as executive pay. We give stock to corporate managers to convince them to create the kind of long-term value that benefits American companies and the workers and communities they serve. Instead, what we are seeing is that executives are using buybacks as a chance to cash out their compensation at investor expense.
Executives often claim that a buyback is the right long-term strategy for the company, and they’re not always wrong. But if that’s the case, they should want to hold the stock over the long run, not cash it out once a buyback is announced. If corporate managers believe that buybacks are best for the company, its workers, and its community, they should put their money where their mouth is. That’s why I’m here today to call on my colleagues at the Commission to update our rules to limit executives from using stock buybacks to cash out from America’s companies. [footnote omitted]
Many thanks to Rosanna Weaver of As You Sow for this reference.