FacebookTwitterGoogle+RedditEmail

Vanishing the People’s Wealth to Make the Bosses Richer

shutterstock_259038038

Imagine you are a shareholder in a big company and the top executives are sitting on huge amounts of cash and are not interested in putting it to work through productive capital investments, research and development, reducing company debt or paying employees a higher wage. What would you want done about it? Since you and other shareholders are the owners of the company, you’d likely say “give us back our money in cash dividends.”

“No way,” say your hired hands, the company managers, who have spent a staggering $2.1 trillion of your money in the last five years on stock buybacks allegedly to increase the company’s earnings per share ratio, instead of increasing shareholder dividends. Overall this tactic has not been working over time except to make the corporate bosses richer, which is the real reason for many buybacks.

What is the incentive for this cash burning frenzy? According to University of Massachusetts scholar, William Lazonick, in 2012 the 500 highest-paid executives received 52% of their remuneration from stock options and another 26% from stock awards.

Call it self-interest, or conflict of interest with their shareholder-owners, they continue to get away with this massive heist, this clever transfer of wealth. They do not need to get the approval of their owners – the stockholders – under what is called the “business judgement rule” (BJR). Developed by corporate attorneys and adopted with few boundaries by the Delaware courts – the state where corporate bosses go for pioneering leniency – the BJR strips the owners of corporations of meaningful control over the company executives and boards of directors other than to sell their stock, thereby leaving the rascals in charge.

Here is the definition of the BJR by the Delaware courts: “The business judgement rule…is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation.”

How’s that for a legally entrenched entitlement during a growing decades-long corporate crime wave that largely goes unprosecuted by politically and budgetarily strapped enforcement agencies? A crime wave that in 2008 brought a criminally-speculative, self-enriching Wall Street down, draining trillions of dollars in pension fund and mutual fund assets – the very institutions that owned the most shares on the major stock exchanges!

Making matters worse, as Business Insider concludes, “all the evidence shows that – in recent years – they’ve [stock buybacks] not actually helped boost the stock values at all.” The bosses are eating the company’s seed corn. Indeed, before 1982 when the obeisant Securities and Exchange Commission (SEC) opened the floodgates for this executive rampage, buybacks were illegal. They were considered insider trading by the top company executives.

How do these trillions of dollars of inert money accumulate? From conniving management that doesn’t know how or want to deploy it to increase the value of the company and its stakeholders. The money flows from consumers, taxpayers (corporate welfare) and from the sacrifices of workers whose needs and increased productivity could be rewarded with better pay and pensions.

Walmart’s buyback binge brings the impact closer to Hometown, USA. The company, whose controlling stock is held by the super-rich Walton family, has spent $70 billion in stock buybacks since 2004. Its poorly paid laborers, often without full-time hours, have a high turnover rate and cannot make ends meet for their families, not to mention a harsh paucity of benefits.

Looking at Costco and other big competitors, that pay better and experience lower turnover and higher worker morale, Walmart has inched its workers toward a minimum of $10 an hour in the past two years. How much family anguish and deprivation would have been avoided over the years if Walmart’s bosses did not waste tens of billions of dollars and instead followed founder Sam Walton’s practice of “retain and reinvest,” that built the company’s model?

Warren Buffett, in his letter to shareholders back in 1999, declared that “all too often,” repurchases of stock are made for an “ignoble reason: to pump or support the stock price.” Only now it’s mostly not even working for that narcissistic objective.

Massive stock buybacks have bizarrely resulted, since the mid-1980s, declares Mr. Lazonick, in corporations “funding the stock market rather than vice versa. Over the past decade net equity issues of non-financial corporations averaged minus $376 billion per year.” So much for stock markets raising investment capital.

In 2009, President Barack Obama pushed through Congress a modest $831 billion stimulus bill spread over a decade. The money was allocated to federal tax incentives, infrastructure, education and expansion of social welfare benefits such as unemployment compensation.

Republicans in the Congress hit the ceiling, attacking the bill as wasteful government spending. In a private enterprise, free market economy, they say it is not the government’s business to create jobs. Apparently, their big corporate paymasters believe that it’s not the business of business to use trillions of dollars of profits to create jobs either.

More articles by:

Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! 

August 20, 2018
Carl Boggs
The Road to Disaster?
James Munson
“Not With a Bomb, But a Whimper” … Then More Bombs.
Jonathan Cook
Corbyn’s Labour Party is Being Made to Fail –By Design
Robert Fisk
A US Trade War With Turkey Over a Pastor? Don’t Believe It
Howard Lisnoff
The Mass Media’s Outrage at Trump: Why the Surprise?
Faisal Khan
A British Muslim’s Perspective on the Burkha Debate
Andrew Kahn
Inhumanity Above the Clouds
Dan Glazebrook
Trump’s New Financial War on the Global South
George Wuerthner
Why the Gallatin Range Deserves Protection
Ted Rall
Is Trump a Brand-New Weird Existential Threat? No.
Sheldon Richman
For the Love of Reason
Susie Day
Why Pundits Scare Me
Dean Baker
Does France’s Economy Need to Be Renewed?
Jeffrey St. Clair
A Mighty Voice for Peace Has Gone Silent: Uri Avnery, 1923-2018
Weekend Edition
August 17, 2018
Friday - Sunday
Daniel Wolff
The Aretha Dialogue
Nick Pemberton
Donald Trump and the Rise of Patriotism 
Joseph Natoli
First Amendment Rights and the Court of Popular Opinion
Andrew Levine
Midterms 2018: What’s There to Hope For?
Robert Hunziker
Hothouse Earth
Jeffrey St. Clair
Roaming Charges: Running Out of Fools
Ajamu Baraka
Opposing Bipartisan Warmongering is Defending Human Rights of the Poor and Working Class
Paul Street
Corporate Media: the Enemy of the People
David Macaray
Trump and the Sex Tape
CJ Hopkins
Where Have All the Nazis Gone?
Daniel Falcone
The Future of NATO: an Interview With Richard Falk
Cesar Chelala
The Historic Responsibility of the Catholic Church
Ron Jacobs
The Barbarism of US Immigration Policy
Kenneth Surin
In Shanghai
William Camacaro - Frederick B. Mills
The Military Option Against Venezuela in the “Year of the Americas”
Nancy Kurshan
The Whole World Was Watching: Chicago ’68, Revisited
Robert Fantina
Yemeni and Palestinian Children
Alexandra Isfahani-Hammond
Orcas and Other-Than-Human Grief
Shoshana Fine – Thomas Lindemann
Migrants Deaths: European Democracies and the Right to Not Protect?
Paul Edwards
Totally Irrusianal
Thomas Knapp
Murphy’s Law: Big Tech Must Serve as Censorship Subcontractors
Mark Ashwill
More Demons Unleashed After Fulbright University Vietnam Official Drops Rhetorical Bombshells
Ralph Nader
Going Fundamental Eludes Congressional Progressives
Hans-Armin Ohlmann
My Longest Day: How World War II Ended for My Family
Matthew Funke
The Nordic Countries Aren’t Socialist
Daniel Warner
Tiger Woods, Donald Trump and Crime and Punishment
Dave Lindorff
Mainstream Media Hypocrisy on Display
Jeff Cohen
Democrats Gather in Chicago: Elite Party or Party of the People?
Victor Grossman
Stand Up With New Hope in Germany?
Christopher Brauchli
A Family Affair
Jill Richardson
Profiting From Poison
FacebookTwitterGoogle+RedditEmail