Buy-Backs: Pitchforks, Then a Rethink

by Brian Tomlinson, Research Director, CECP, CEO Investor Forum
Mar 27, 2020 11:00 AM ET
Blog

We’re going to want to reach for the pitchforks as we watch baggage-charging, space-squeezing airlines get a chunk of taxpayers’ money as part of the Covid-19 stimulus package, with very few strings attached. Particularly so after a decade of airlines shipping cash out the door in share buy-backs at an extraordinary scale. As a result, the debate on buy-backs may focus on the airline industry. But hopefully, the very concept of the buy-back will get a closer look (not just in the context of a bailout). In our work, we spend quite a bit of time thinking about long-term value creation; the concern being that incentives and short-term time horizons produce poor long-term outcomes, both for corporates, investors and citizens. Buy-backs aren’t intrinsically short-term or inherently suspect (and they can be an efficient means of recycling capital), but current practice and rationale seem laden with problems.

  • Buy-backs should be a tool for balance sheet management.
  • Buy-backs hapen at the wrong time and too much.
  • Buy-backs interact with incentives to create bad outcomes.
  • Buy-backs shouldn’t really be a tool to juice the stock.
  • Buy-backs do represent part of a distributional picture that has inflamed a crisis of confidence in capitalism.
  • Buy-backs should be accompanied by more rigorous disclosure.

Read the full post on the CECP Insights blog: https://cecp.me/2Ul8k0L