Long-term readers know that badly designed and executed stock-buyback programs - and especially those programs where buyback money goes straight to “money heaven” instead of into the pockets of shareholders - are one of our top bugaboos.
Lately - huzzah! - a lot of attention is being paid to these very subjects, starting, most notably, with BlackRock founder Larry Fink, who’s been telling top execs that big buybacks send “a discouraging message about a company’s ability to use its resources wisely and develop a coherent plan to create value over the long term.” Right on, brother!
More recently, and we gotta give her credit for it, Hillary Clinton has been saying that big buybacks don’t “leave much money to build a new factory or a research lab, or to train workers or to give them a raise.” We have to be in the Amen Corner here, as we expect The Human Capital Management Coalition to be too…like it or not.
And Hillary struck a note we tried to bang on several years ago (maybe she reads the OPTIMIZER): “Investors and regulators alike need more information about these transactions” - noting, as we did, that non-US markets require much earlier notice (and many require advance approval of the amounts from shareholders). And oops, let’s hope she calls for published info as to price levels, or other measures of intrinsic value above which the company will NOT engage in buybacks - and also for better disclosure of the actual effects on long-term stock prices, which right now would show that a majority of past buyback programs wasted stockholder money, even while enriching managers in the short-term by making it easier for them to make their bonus numbers.
And wow! The Wall Street Journal’s own political columnist Willian Galston told us in his July 29 column that “Hillary Gets It Right on Short-Termism” - adding several good suggestions of his own.
Let’s hope that more truly conservative economists come forward to talk up what should be plain old “common sense.”
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