On Friday, Democratic presidential candidate Hillary Clinton will give a speech in which, among other things, she will call for greater transparency and oversight of a tactic companies use to inflate their stock prices and reward shareholders, often at the expense of other investments like workers’ pay.
Clinton will call for a greater disclosure of stock buybacks, or when companies buy their own shares to decrease the available pool and thus inflate the value of those that remain. The move serves to enrich the shareholders who already own shares and give a short-term boost to the company’s stock price. In previewing the speech to the Wall Street Journal, the campaign noted that some countries require stock buybacks to be disclosed daily, but in the U.S. they only have to report them every quarter.
Clinton will also call for a review of securities rules related to shareholder activism. In April, Sen. Tammy Baldwin (D-WI) sent a letter to the head of the Securities and Exchange Commission (SEC) about the growing use of buybacks, noting that it issued a rule in 1982, Rule 10b-18, that changed the way it regulates stock price manipulation — and therefore stock buybacks — reducing how much it investigated whether these kinds of tactics constituted manipulation. “It will be interesting to see how Clinton characterizes the economic damage that buybacks do and whether she calls for the repeal of SEC Rule 10b-18,” William Lazonick, a professor of economics at the University of Massachusetts Lowell who has long studied this issue, told ThinkProgress in an email.
Clinton’s speech on Friday laying out specifics comes after she brought up the issue of buybacks in her first major policy speech on the economy earlier this month. As part of “reforms to help CEOs and shareholders alike to focus on the next decade rather than just the next day,” she said, she will “mak[e] sure stock buybacks aren’t being used only for an immediate boost in share prices.”
Shareholder payouts through buybacks as well as dividends have been eating up more and more of American corporations’ profits. Between 2003 and 2012, stock buybacks consumed 54 percent of earnings for S&P; 500 companies, while dividends ate up another 37 percent, leaving just 9 percent to spend on everything else, including investments in higher employee compensation or equipment. Buybacks and dividends have nearly doubled over the last 30 years.
And they have recently been hitting records. Shareholders can expect to get $1 trillion this year through buybacks and dividends. That comes after companies returned $914 billion to them last year, which consumed about 94 percent of their earnings.
With all of this money going toward shareholders and boosting stock prices, there is very little left over to give workers raises or make other long-term investments. That’s part of why wages are growing at a just 2 percent annual rate even with a steadily falling unemployment rate. The bottom 60 percent of Americans have experienced a decade of stagnant or declining wages.
Clinton isn’t the first candidate to make buybacks an issue. In a June op-ed, current Sen. Bernie Sanders (I-VT) argued, “We must demand an end to stock buybacks.”
Clinton will talk about other ways to curb the focus on short-term performance at the expense of long-term investments. She will propose a change to the way capital gains investments are taxed, which are currently subject to a much lower rate than regular income. Her plan would involve higher rates on short-term investments but lower rates for longer ones. She also laid out a profit-sharing proposal last week that would give companies a tax credit for sharing the money with employees.