For someone who grew up in Canada, William Lazonick sure is earning a lot of recognition and citations these days from lawmakers in the United States.
For example, Democratic Senator Tammy Baldwin released a staff report in March blasting buybacks for suppressing wages, driving inequality and decreasing investment. It was acknowledged the report “would not be possible without the help of William Lazonick,” among others. However, buybacks could become a bigger talking point as Canada draws closer to this fall’s election, and as investment in future competitiveness looks to be flagging.
They are also not “long-term commitments,” as dividends are, the report said, and they offer another use for extra cash lying around in a business, which “should result in additional capital discipline, ensuring that spending on any and all projects does not get unbridled support.” Repurchasing shares can demonstrate confidence in a stock, or simply look like a safer bet to an executive at a company facing trade-related uncertainty.
In Lazonick’s 2014 article for the Harvard Business Review, he tied increased buybacks to executives’ considerable stock-based pay packages. A rising stock price can be good for someone whose compensation is connected to it. “Basically, the companies doing … the bulk of the buybacks are companies that, for various reasons, have been successful in various parts of the economy, like a Microsoft or an Intel,” he told the Financial Post in an interview. “They didn’t get successful by doing buybacks. They got successful by retaining their money and reinvesting and paying out a reasonable amount of dividends.”
Meanwhile, capital expenditures among those companies were up approximately 9.5 per cent, to about $96.7 billion in 2018 from nearly $88.4 billion in 2015. Common dividends grew to $52.3 billion last year, a 31.3-per-cent increase over 2015. De Verteuil said there has also been a proliferation of Substantial Issuer Bids, which allow companies to go above and beyond the amount of stock they can repurchase under a normal course issuer bid.
But Richard Leblanc, a professor of governance, law and ethics at Toronto’s York University, said executives, particularly at companies that report quarterly results, tend to focus on the short term. And boards of directors, which authorize buybacks, are often inclined to listen to management.
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