Who Is Watching Wall Street?


Lenore Palladino in Boston Review:

Executives decide which days to buy back shares and can then sell their own shares at the newly bumped up price. Top executives generally make the majority of their compensation through performance-based pay, which is either directly or indirectly tied to stock prices. Even though the rules of performance-based pay changed under tax reform, it is likely that executives will remain large shareholders.

But the problem with stock buybacks isn’t just frustration with the 1 percent getting even richer. Nor is it just the hypocrisy of how the tax bill was sold by the Republican Party—though there is plenty of that. While Republicans promised the bill would raise worker wages, all of the analyses about the ratio of spending on buybacks to spending on workers tell the same story: massive amounts of money are moving out to shareholders while very little is trickling down to workers. Moreover, Republicans promised improved innovation, but it should surprise no one that corporate investment as compared to profits has declined compared to historical levels—hurting corporate potential in the long-run—just as stock buybacks are on the rise.

Ending stock buybacks could be straightforward. Congress could amend the Securities and Exchange Act to simply make open-market share repurchases illegal. Or it could impose limits on buybacks for companies that aren’t investing in their employees or funding their pension commitments, or it could only allow buybacks when workers also receive a dividend. The Securities and Exchange Commission (SEC) could also repeal the “safe-harbor” rule, which lets companies spend massively on buybacks, or at the very least make companies justify why buybacks are a good use of corporate cash.

But the current surge of stock buybacks is a symptom of a much larger problem: how deeply corporate leaders are able to manipulate our economy for their own gain, without oversight from those who are supposed to hold them accountable. We’re in the grip of a shareholder primacy ideology, which posits that the purpose of corporate tax reform is to benefit shareholders because shareholders have the only right to the spoils.

More here.