 There's so many ways that our policy makers could take on stock buybacks, which is really a representation of the broader underlying problem of shareholder primacy. Stock buybacks are virtually unregulated. We're totally out of step with other advanced market countries in Europe and Japan and Canada, in that we basically let companies do whatever they want. There's lots of technical details, but they're not held accountable to any kind of limit on stock buybacks, even though in the 1970s, the Securities and Exchange Commission went through 10 years of rulemaking, recognizing if companies engaged in high levels of stock buybacks, that would manipulate the market. That's against securities law, and still in Reagan's Securities and Exchange Commission in 1982 said, nevermind, we're not going to regulate them, and we've seen an explosion ever since. My name is Lenore Paladino. I'm an assistant professor of economics and public policy at the University of Massachusetts Amherst. Shareholder primacy is this false idea that the whole purpose of a corporation is to make money for shareholders, rather than what do corporations actually do? They produce goods and services that people buy, they employ millions of people to engage in the production process, and they have shareholders that trade their shares on financial markets, but don't really actually have anything to do with the day-to-day functioning of a corporation. But for all kinds of historical and political reasons, economics coalesced around this idea that the whole purpose of the corporation was to increase shareholder wealth, or to practice what we call shareholder primacy, and this idea became entrenched in corporate law. It's actually in the books as what corporations are supposed to do. What that has meant is that so much of the activity of corporations and their leadership has become focused on increasing share prices to increase shareholder wealth, and by the way, increase the wealth of executives who are also paid in shares a lot of the time. But what that has meant is that the focus of corporations on increasing share wealth means that the profits, the gains that corporations make for our overall economy, disproportionately flow only to the people, the households that actually hold corporate shares, hold corporate stock. And because we have history in the United States that starts with shadow slavery that goes through decades and centuries of racial stratification, who holds corporate equity? It's disproportionately wealthy white households. It's an asset that we have this cultural idea that lots and lots of us hold corporate equity or corporate stock because we have a little bit in our retirement accounts, but it's incredibly concentrated. The top 1% of US households, which is of course almost entirely white, holds almost all of the corporate equity that's circulating out there in our economy. So when we have corporations practicing shareholder primacy or putting all their energy, all their productive capacities towards increasing share prices, the value of that share prices is disproportionately captured by a very small portion of the US population, which is heavily white households who own the majority of that corporate equity. One thing that I think is really not as well understood by people who care about the racial wealth gap and who focus on the racial wealth gap is that actually the contribution of the disproportionate ownership of corporate equity has become more and more important over time as a percentage of the overall gap in wealth by race. So in other words, what that means is that even as we put a lot of our energy towards public policies to close the racial wealth gap by focusing on crucial issues like home ownership, we've been I think leaving out the fact that without dealing head on with shareholder primacy and problems of corporate equity, we're not gonna be able to really address the racial wealth gap. Stock buybacks are a corporate financial practice that sound pretty boring, right? Corporations go to the open markets and they repurchase shares of their own corporate stock from whoever wants to sell it, a institutional investor or a retail shareholder, whoever. What that does is it really artificially increases the value of the remaining shares of stock that are out there because as you take away some of the stock, the ones that are left over are worth more. Putting all this corporate energy and funds into repurchasing shares of stock, what that does is presents really an opportunity cost for reinvesting in the productive capacity of the corporation itself, right? So we have to always go back to what is the purpose of corporate activity? It's to produce goods and services that are useful for the society that actually innovate over time by which we mean that they are able to produce better goods and services at lower costs. By engaging so much in stock buybacks, and corporations spend around $6.3 trillion with a T, dollars on them in the 2010s, that's a lot of real money, right? By engaging so much in stock buybacks, corporations are not using that money to improve their production process. They're certainly not using it to pay living wages in many cases in our economy to workers who are sustaining the growth of these corporations over time. And so we have to ask, what are the harms of stock buybacks? And in my work, I've focused on a couple of different areas. One is quite simply, they are a form of market manipulation. Companies are not supposed to be able to juice the price of their own stock. That's pretty basic to our securities laws, but we've allowed this practice to continue and it has a real effect on manipulating the price of the stock in the open markets. Second, it has the effect of increasing executive pay because so much of executive pay is tied directly and indirectly to share prices. And so when we increase share prices through this mechanism, we're increasing executive pay in ways that executives have control over, which is also I think incredibly problematic. But third and most importantly, sort of hardest to quantify, but most significant, it just presents an opportunity cost for companies to not make the kinds of long-term real investments in improving their productive capacity. So in terms of sectors, we have really important examples and research where we see companies that were critical to our survival during the pandemic, the companies that produced our vaccines, the companies that produced our PPE, who had not done the kinds of productive and innovative investments that we so desperately needed them to have done. And so the public sector had to step in because they had focused obsessively on stock buybacks. We have stories from GE, the paradigmatic company, my grandfather was a GE worker at a factory in Lin, Massachusetts for his whole life. It's a sort of central story in the American economy. They drove themselves into the ground through the practice of stock buybacks. They lost their innovative capacity. But it's also important to know that companies in the, even in the healthcare sector, private education companies, private childcare companies, like Bright Horizons, these companies that we would think would never be engaged in these kinds of practices are also engaged in stock buybacks. So this really is not just an old company or sort of manufacturing company problem. This is really at this stage an economy-wide problem. There's so many ways that our policymakers could take on stock buybacks, which is really a representation of the broader underlying problem of shareholder primacy. Stock buybacks are virtually unregulated. We're totally out of step with other advanced market countries in Europe and Japan and Canada in that we basically let companies do whatever they want. There's lots of technical details, but they're not held accountable to any kind of limit on stock buybacks, even though in the 1970s, the Securities and Exchange Commission went through 10 years of rulemaking, recognizing if companies engaged in high levels of stock buybacks, that would manipulate the market. That's against securities law. And still in Reagan's Securities and Exchange Commission in 1982 said, nevermind, we're not going to regulate them and we've seen an explosion ever since. The current Securities and Exchange Commission has taken up really important rulemaking. It's going through the process right now and I think it can be strengthened, but they've started the process to really bring some common sense guardrails around the practice of stock buybacks. There's also, of course, legislation that has been proposed in the Congress. Senator Tammy Baldwin has proposed the Reward Work Act, which would ban open market share repurchases because there are plenty of other ways for companies to repurchase their shares of their stock without them manipulating the market price of the stock that's outstanding. There's also, I think, crucial legislation that's been proposed to limit the ability of corporate executives from benefiting from the practice of stock buybacks because that's, I think, one of the most perverse incentives that anybody should be able to agree is incredibly problematic. And then something that's been really, I think, important is that we've seen the policymakers in the Biden administration who are leading the way on industrial policymaking, who are putting, for example, the CHIPS Act into effect through the rulemaking process. They've put really clear proposed rules out there to limit companies that are receiving CHIPS Act funds from being able to conduct stock buybacks, offer excessive executive compensation, other types of rules that would really limit the ability for corporations to continue to extract value from all the public funds that are flowing in. And importantly, use the public investment that we're making in these companies to improve their own productive capacity, to improve the production of semiconductor chips, to improve, as we'll see in the IRA, improve the production of clean energy. So something that I've been working on a lot recently with so many colleagues is how do we really make sure that we have appropriate corporate guardrails in our industrial policymaking even while we don't yet have the SEC rulemaking process, we don't yet have legislation in Congress. So it's incredibly important, especially heightened by the fact that this is public investment being made in these companies. It's especially important that we have really clear guardrails around their ability to engage in practices like stock buybacks with public investment. One of the main arguments made on behalf of this idea of shareholder primacy, that shareholders are the main actors in the corporation, is that they're the only ones taking any kind of risk. And I could talk for many hours about the specific details of how that idea has been put forward by economists, but it really comes down to a misunderstanding of risk. So if you are a worker and you work at, let's say GM or Ford or Apple or Google, you hopefully most likely have just one job. If your company drives itself into the ground because it's focused completely on juicing its share price and not investing in its productive capacity and you lose your job, you might lose your pension, you might never get another job. That's risk, right? That's real risk. If you are a customer or you are a person living in a society and you're not able to, for example, we had all these issues in the last couple of weeks with access to children's Tylenol, I have two children, why can't I get children's Tylenol? That's a real risk to me. Today, shareholders, those of us who are what we think of as household or retail shareholders, those of us who are fortunate enough to have the economic ability to do so, we might hold some of our financial assets in retirement accounts or mutual funds. Those funds are then intermediated through the entire financial system such that we might hold one tiny, tiny portion of one share of a particular company. I don't have any idea what that company is and even if I did, if I bought the stock from somebody else who sold it to me on the secondary market, my purchase of the stock paid that person who's selling it to me. My money never interacted with the company directly. So what that means is that, yes, as people who hold shares, we do have risks from the entire market going up and down and we have risks that come from the kinds of negative externalities that our financial system and our corporations can perpetuate, right? We have the risks of what's going to happen if we have even further catastrophic climate change. Those are the risks that we face, but we don't face kinds of risks that are tied to the specific decisions of a particular corporate executive such that we should be the only ones engaged in voting on who the decision makers at a particular corporation are. It's a very backward system that evolved historically, evolved politically and has been justified by this really false conception of shareholder risk.