Abdul El-Sayed — What's Brewing? Banning Stock Buybacks

music] >> Stock buybacks. It's one of those esoteric financial terms that nobody really knows what it means, but it's a big reason why big corporations put money in the pockets of their shareholders and not [music] in the pockets of their workers. So today, on What's Brewing, I want to talk about what stock buybacks [music] really are and how they work and why we need to ban them. >> [music] >> If you're a Fortune 500 CEO, chances are yes, you get a pay package, but a lot of your compensation comes in the form of stock. So you have an incentive to increase the value of that stock. Not only that, every quarter you have to talk about what you made and what you did and you're speaking not to your workforce, could be 80, 90,000 people, you're speaking to your shareholders, people who own stock in your public company. Now, your whole goal is to deliver for shareholders, at least that's what corporate capitalism tells you your goal is. >> [music] >> And if that's the case, then you have decisions to make about how you deliver. Let's say you had a quarter where you know you just didn't perform very well and you want to deliver for your shareholders and you want the value of your stock to remain high. And let's say you have some operating capital, some extra money [music] lying around. You could invest that money in your workers so that they have better benefits and better pay >> [music] >> and can do better work. Or you just go to the market, take that money and buy a whole bunch of your stock. >> Salesforce says the company reportedly [music] plans to sell up to $25 billion to fund stock buybacks. >> That's what a stock buyback is. Now, I want to explain the logic of that. Why would you buy a whole bunch of your own stock for the company? And yeah, why can a company own its own stock? Important question. But when you buy your own stock, what happens? You reduce the supply of stock on the market. Of course, you all remember supply and demand. If there's less supply of something, the price tends to go up. So, if you're trying to manipulate the stock price for your shareholders, and you buy all that stock and take it off the market, what you've just done is raise the price of the stock that everybody, including yourself, now holds with the goal of making you look on paper richer than you really are. But, here's the consequence of that. When CEOs start to manipulate in short term to increase the value of their stock, and they're not asking big picture questions about the long-term value of the company, the things that they actually make, whether or not they're running a really high-quality company, it starts to lead to decision-making that's less about the long-term profitability and more about whether or not every quarter the stock price looks as high as it can be. >> That email said cuts are coming to Target. Now, employees will have to wait through the weekend to find out if they still have a job. Amazon set to announce massive layoffs, as many as 30,000 corporate job cuts. That according to Reuters. CNBC reporting it will be the largest cuts in the company's history. >> There's a whole bunch of consequences to this. The logic of manipulating stock prices is directly opposed to the logic of running a long-term profitable company. If you're more interested in your short-term bottom line, and you're investing the company's money to artificially boost the value of the stock, what you're not doing is investing in workers or new lines of research and development, the kinds of things that make sure that not only those workers benefit, but that there's going to be quality jobs down the line. That's why stock buybacks are so dangerous. But, it's all part of this broader issue of financialization. Now, I know that's a big word with a lot of syllables. Financialization is what happens when the logic of running a company is less about the long-term profitability and value of that company and more about the short-term logic of how finances move and whether or not Wall Street thinks that you're going to be valuable. Because all these stocks trade on an open stock market. >> [music] >> And in that market you may be an automotive company, but you're trading relative to tech companies and pharmaceutical companies and everyone else. [music] So, if Wall Street thinks that you're going to be more profitable tomorrow than you are today, your stock price goes up. But if they don't, then [music] it's stays low or starts to trade down. And the hard part is that you can either invest your resources in the long-term profitability of the company or you can do things like stock buybacks to start manipulating the short-term value of a stock. >> [music] >> And the minute a CEO starts asking those questions, well, it costs workers both in the short-term in terms of the wages and benefits that they could be earning and in the long-term of the long-term quality of the company that they work for. >> [music] >> And for too long, too many of our corporations have been more interested in a quarterly bottom line than they have been in the quality of their company in the future. So, banning stock buybacks is just one thing we need to do to start addressing that long-term profitability question. Some other things that I think we could do is maybe put less value on quarterly bottom lines. Maybe put workers on boards so that there's an incentive to make sure that companies are also operating with the best interests of their workers in mind as well. So, stock buybacks offer a crisp choice for CEOs. >> [music] >> Do you want to manipulate your stock price or do you want to invest in the long-term quality and reliability of your business? And I think that choice should be obvious, which is why we should ban stock buybacks. >> [music] >> The whole point of capitalism was supposed to be the efficient allocation of capital [music] for the long-term well-being of the economy. Stock buybacks ain't it. So, let's ban them and until then,