Stock Buybacks Surge

Done right, they can be a good deal for shareholders.

- Ryan Ermey

THE TOPIC OF STOCK BUYBACKS is on the minds of politicians and investors alike, and it’s no wonder: 2018 was a banner year for companies buying shares of their own stock. Flush with cash, thanks to friendlier corporate tax policies, companies in Standard & Poor’s 500-stock index repurchased $806 billion of stock last year, up 55% from the previous year and 37% from the record set in 2007. The spending continues: Investment firm Goldman Sachs expects S&P 500 firms to spend $940 billion on buybacks in 2019.

With companies having already spent $4.7 trillion over the past decade on their own stock, politicians are beginning to wonder if that money would be better spent elsewhere. Earlier this year, Senators Chuck Schumer and Bernie Sanders announced plans to introduce legislation that would require companies to meet conditions—such as paying a $15 minimum wage and providing certain health care benefits, including paid sick leave—before they could repurchase shares.

Large-scale buybacks, the senators argued in a New York Times op-ed, benefit major shareholders and executives at the expense of workers, and also divert corporate spending from research and development. Experts say such a bill would be unlikely to become law and question whether, in its current form, it would have the desired effect. “I get nervous when I see legislation that attempts to fix an ill in the corporate system by just addressing one part,” says Tamara Belinfanti, a professor at New York Law School who specializes in corporate governance. She says rules limiting stock buybacks wouldn’t necessarily promp companies to deploy money in the way Schumer and Sanders want it spent.