Special Report: Stock Buybacks

What corporations are not telling you

Since 2010, over $3 trillion in cash has been taken from corporate accounts and sent to the stock market for buybacks, generating zero tangible benefit for stakeholders — mainly shareholders.

November 2017

 
 

The focal point of this report is on open market stock buybacks (often called share-repurchase programs).

We will establish that these open market stock buybacks (“buybacks”) are wildly excessive and investors are being harmed. Our main focus is on the harm to shareholders, especially index fund investors, pensions, retirees, and unsophisticated investors.

The proximate cause for buyback excess can be traced to two factors, each of which we’ll cover in detail in this report:

1. Rule 10b-18: This 1982 SEC rule change gave issuers of securities (i.e. corporations) a “safe harbor” from liability for certain market manipulation tactics when they purchase shares in the open market.

2. Executive incentives: Executives aggressively pursue buybacks because of poorly designed incentives that focus on short-term metrics, at the cost of long-term value creation.

Compounding the problem for investors is a notable lack of disclosure. Shielded by Rule 10b-18, corporations do not tell shareholders about the risks involved with buybacks, nor is it necessary to ask shareholder permission to engage in buybacks.

The purpose of this report is to inform investors. We’ll explain how buybacks are subject to executive conflicts of interests, increase risk for shareholders, and create additional shareholder burdens that have never fully been explained or disclosed.

Eric Markowitz