Are stock buybacks a corporate scam?
Business Daily
BBC
4.4 • 816 Ratings
🗓️ 16 August 2019
⏱️ 17 minutes
🧾️ Download transcript
Summary
Share buybacks are when a publicly-listed company uses some of its spare cash to buy up shares in itself, in order to drive the share price up and benefit shareholders. The practice has become so common that the amount of buyback money extracted from corporations exceeds their profits. Rita McGrath, a professor at Columbia Business School, explains how stock buybacks emerged. But are stock buybacks a good idea? Is it perhaps better to use that money to grow the business in other ways? And crucially, with so many executives paid in shares, is this just a way for them to maximise their own take? Nell Minnow of Value Edge explains why she thinks buybacks are ripe for abuse. But Ken Bertsch, Executive Director of the Council of Institutional Investors says buybacks don’t need to be totally reined in, but can be used for good.
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Transcript
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| 0:00.0 | Hello there, I'm Ed Butler and welcome to Business Daily from the BBC. |
| 0:06.9 | Today we examine a Wall Street loophole that some are calling daylight robbery. |
| 0:11.9 | Are company bosses effectively stealing from their shareholders? |
| 0:16.2 | Well, tremendously. It don't have to be a rocket scientist to figure out that all those billions are not just going into the air, they're going into somebody's pocket. |
| 0:23.8 | It's called the corporate buyback. It's reached record-breaking levels, but is it time to clamp down? |
| 0:30.0 | I think that CEOs and members of the board of directors should not be allowed to sell their stock at all until three to five years after leaving the company, |
| 0:37.6 | because we want them to be focused on the long term. I think it's a very serious problem. |
| 0:42.4 | Share buyback or share scam. That's Business Daily from the BBC. |
| 0:51.6 | The collapse of one of America's biggest investment banks has sent shockwaves around the world. |
| 0:57.3 | Share prices are plummeted and thousands of jobs are in jeopardy. |
| 1:00.6 | Stock markets have gone into freefall after the collapse of Lehman Brothers, |
| 1:04.8 | but the US Treasury's secretary tonight insisted the American financial system is sound. |
| 1:09.9 | A former Labour secretary tells us more needs to be done |
| 1:12.5 | before confidence is restored. Yep, we all remember the occasion, don't we? 2008 and the global economy |
| 1:18.8 | went rapidly into meltdown as one bank after another revealed its exposure to financial contagion. |
| 1:25.9 | The key problem, it seemed, were derivatives, financial instruments |
| 1:30.4 | with complex names that allowed IOUs between banks to be traded around the world, effectively |
| 1:36.3 | hiding just how deep and far-reaching the overall debt actually was. Well, recent research has revealed |
| 1:42.6 | that there's another type of financial |
| 1:44.7 | manoeuvre out there now, one that's completely legal on the major exchanges and one which |
| 1:49.9 | critics reckon could itself be becoming a threat to global markets. It's called a corporate |
| 1:55.6 | buyback, essentially the decision by listed companies to use their own spare cash to repurchase some of the shares that are out there in circulation. |
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