Bullseye on Buybacks: Schumer, Sanders to Target Buybacks in Impending Senate Bill

February 08, 2019

Arguing that companies are overly obsessed with maximizing shareholder value, Sens. Chuck Schumer (D-NY) and Bernie Sanders (I-VT) lambasted “corporate self-indulgence” through excessive stock buybacks, pledging to introduce a bill prohibiting buybacks “unless [a company] invests in workers and communities first.”

A longstanding bellwether political target for Democrats, corporate stock buybacks are characterized in the op-ed as a decision to not invest in the company’s employees, the community, and other important areas, such as research and development.

Buybacks “do not benefit the vast majority of Americans” and “restrain [a company’s] capacity to reinvest profits more meaningfully in the company in terms of R&D, equipment, higher wages, paid medical leave, retirement benefits and worker retraining,” according to Mr. Sanders and Mr. Schumer.

Precondition, not prohibition:  The legislation will “set minimum requirements for corporate investment in workers and the long-term strength of the company as a precondition for a corporation entering into a share buyback plan.”

Dividends could be next target, according to Mr. Schumer and Mr. Sanders, if companies shift away from buybacks to dividends in response to the bill.

One of the main premises of the bill has been previously refuted by Professors Jesse Fried (an executive compensation critic) and Charles C.Y. Yang, who studied the issue and concluded: “The charge that S&P 500 shareholder payouts are starving the U.S. economy of investment does not stand up to the data.”