March 27, 2015
In a recent op-ed, Washington Post economics columnist Robert Samuelson analyzed a report on economic growth that refutes the oft-repeated theory that returning money to shareholders via stock buybacks and dividends is driven by executive greed, noting that the "economic indictment" has "some truth—and much exaggeration." Stock buybacks in particular have come under criticism because the excess cash corporations have on hand is not being used for positive investments that create jobs and improve infrastructure. However, Samuelson points out that a new report from the Bank for International Settlements finds that a lack of certainty of strong future economic conditions is causing many companies to lay off investments due to concerns over the ability to realize reasonable returns from those investments. With respect to the argument that stock buybacks are simply a means to increase executive pay by increasing the stock price, Samuelson explains that even Harvard Law School Professor and frequent pay critic Lucien Bebchuk notes that executives would benefit more from highly profitable investments than through stock buybacks because "stock prices and executive compensation would rise even further." According to Samuelson, Bebchuk explains that returning money to shareholders is merely a reallocation of investment funds from slow-growing to fast-growing sectors. Samuelson's piece is consistent with one by Holman Jenkins in a Wall Street Journal opinion earlier this year titled "Are Shareholders Obsolete?" in which he indicated that the arguments are more nuanced than critics concede. Jenkins concluded that "getting companies to invest more, hire more and pay higher wages won't come from hectoring them to invest more, hire more and pay higher wages. It will come from creating a policy environment more conducive to growth, confidence in the future, and workers getting a chance to improve their skills and productivity."