from Hacker News

Vanishing the People’s Wealth to Make the Bosses Richer

by zeeshanm on 7/12/16, 5:06 PM with 21 comments

• by rm_-rf_slash on 7/12/16, 6:34 PM

  The only situation where buybacks are generally considered a good idea is when the company is undervalued and has sufficient profitability and cash reserves to buy back a portion of outstanding stock. This shores up the share price in the short term, and once the company is trading at higher values it can raise much more money on additional stock offerings since investors are already willing to pay a premium for the scarcer shares.

  Unfortunately, asking a CEO whether their company is undervalued is like asking a barber if you need a haircut. That's how you run into situations where companies with absurd cash reserves like Apple and Microsoft are buying back their own stock, but for what purpose? They already have boatloads of cash! They don't need to raise any more!

  There are plenty of simple options to deal with this. A law could require stock buybacks to be matched with dividends or taxed at a punitive rate. Alternatively, it could be mandated that buybacks require a majority of shareholder votes, thereby aligning shareholder needs with company activities.

• by pilom on 7/12/16, 6:32 PM

  Stock buybacks have gotten popular over dividends because Shareholders ask for it not management. For the average long term institutional investor, dividends are taxed while increase in inherent value (as opposed to market value capital gains) is not taxed at all. So most large shareholders have been pushing companies to do share buybacks instead of increasing dividends for exactly this reason.

• by shawnee_ on 7/12/16, 6:50 PM

  An interesting delve into some of the deeper nuances of the Business Judgment Rule: http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=10...

  In the article, Nader is objecting to the extraction of wealth by 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.

  So the key distinction (at least in my mind) is the inclusion of stakeholders vs. just shareholders.

  Any company that wants to change the world should include a pledge of duty to stakeholders (the "Corporate Social Responsibility" Model), as well as to shareholders. As an investor, I'm more apt to invest in a company that acknowledges it is a part of the society that enables it to profit.

  Granted, companies that do this are less likely to be able to hide behind the Business Judgment Rule; but then again if you're an investor that's probably exactly what you want.

• by jonah on 7/12/16, 6:19 PM

  More companies need to restructure as benefit corporations with their triple bottom-line responsibility for financial, environmental, and social factors.

  http://www.nytimes.com/blogs/boss/2012/03/14/for-b-corps-a-n...

• by gonvaled on 7/12/16, 5:48 PM

  Capitalism is eating itself. It just happened to survive the first round against comunism, and go unchecked for some 30 years. Now inbalances are becoming obscene, and a breaking point will be reached.

• by kristianp on 7/13/16, 6:03 AM

  No mention of Apple's mounds of cash that its holding without using it profitably.