“Banning Buybacks”
“Profits without Prosperity”
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“Profits Without Prosperity” is the winner of the McKinsey Award for outstanding article in Harvard Business Review in 2014.
THE IDEA IN BRIEF
THE PROBLEM Corporate profitability is not translating into economic prosperity in the United States. Instead of investing profits in innovation and productive capabilities, U.S. executives are spending them on gigantic stock repurchases.THE RESEARCH These buybacks may increase stock prices in the short term, but in the long term they undermine income equality, job stability, and growth. The buybacks mostly serve the interests of executives, much of whose compensation is in the form of stock.THE SOLUTION Corporations should be banned from repurchasing their shares on the open market. Executives’ excessive stock-based pay should be reined in. Workers and taxpayers should be represented on corporate boards. And Congress should reform the tax system so that it rewards value creation, not value extraction.
THE PROBLEM Corporate profitability is not translating into economic prosperity in the United States. Instead of investing profits in innovation and productive capabilities, U.S. executives are spending them on gigantic stock repurchases.THE RESEARCH These buybacks may increase stock prices in the short term, but in the long term they undermine income equality, job stability, and growth. The buybacks mostly serve the interests of executives, much of whose compensation is in the form of stock.THE SOLUTION Corporations should be banned from repurchasing their shares on the open market. Executives’ excessive stock-based pay should be reined in. Workers and taxpayers should be represented on corporate boards. And Congress should reform the tax system so that it rewards value creation, not value extraction.
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