SHORT TAKES ON IMPORTANT STORIES #5: CORPORATE POWER AND STOCK BUYBACKS
Corporate greed and power are evident in stock buybacks and international actions by the U.S. government. Here are short takes on four important stories that have gotten little attention in the mainstream media. Each provides a quick summary of the story, a hint as to why it’s important, and a link to more information.
STORY #1: Corporations’ purchases of their own stock, known as stock buybacks, have increased dramatically over the last 40 years. Between 2010 and 2020, U.S. corporations bought back $6.3 trillion of their own stock. Stock buybacks were outlawed or severely restricted as illegal stock price manipulation until they were deregulated in 1982. Buybacks use profits to enrich stockholders and executives rather than investing in the business or in its workers (e.g., through research and development, upgrading equipment, expanding manufacturing capacity, better pay for workers, better working conditions, or improved safety). [1]
Furthermore, corporate executives use their inside, non-public knowledge of when and how these buybacks will happen to buy or sell stock to further and unfairly maximize their personal benefit. (This is one way the rich get richer.) The Securities and Exchange Commission (SEC) drafted a new regulation requiring corporations to disclose when executives had bought or sold their company’s stock shortly before or after the announcement of a buyback in an effort to control this unfair insider trading. However, the courts struck down the regulation before it could be implemented. Rather than rewriting the regulation to overcome the judge’s concerns, the SEC, under pressure from Wall St. and corporate executives, gave up on the new regulation.
Spending profits on buybacks rather than investments in the corporation’s business has serious consequences. For example, over the past ten years, Boeing has spent $39 billion on buybacks (and an additional $20 billion on dividends to shareholders). Over that period, Boeing’s planes have had two major accidents and numerous less serious accidents and safety issues. It has repeatedly failed to follow through effectively on promised safety improvements and insiders have reported numerous situations where safety was shortchanged to reduce costs. Norfolk Southern Railroad spent $18 billion on buybacks and dividends in the five years before the disastrous derailment in East Palestine, OH. Employees reported many cost saving strategies that reduced safety. Abbott Labs spent $5 billion on buybacks while allowing manufacturing conditions to deteriorate until its infant formula became contaminated resulting in infant deaths and a national shortage of formula when its manufacturing had to be shut down due to safety problems. Bed Bath and Beyond actually went into debt to buyback $12 billion of its stock, which caused it to go bankrupt.
STORY #2: Intel, the biggest U.S. computer chip maker, has been using huge amounts of its profits ($152 billion since 1990 or an average of $4.6 billion each year for 33 years) to buy back its own stock. Intel’s CEO’s compensation was $179 million in 2021, most of it linked to the price of the corporation’s stock, which is artificially boosted by the stock buybacks. [2]
What makes Intel’s stock buybacks particularly concerning is that Intel, rather than spending its own profits on expanding manufacturing capacity, is getting an $8 billion grant from the federal government along with $11 billion in loans on favorable terms. The government funding is from the CHIPS and Science Act and its goal is to incentivize corporations to expand chip manufacturing capacity in the U.S. and to create American jobs. However, there is no prohibition on Intel continuing to buy back its own stock or on it laying off workers. Intel has refused to pledge that it won’t buy back its own stock and that it won’t lay off workers while receiving federal money under the CHIPS Act. So, while it may create 10,000 jobs at a new manufacturing facility, it may be laying off workers elsewhere.
STORY #3: For decades, the $47 billion infant formula industry, led by Mead Johnson and Abbott Labs, has gotten the U.S. government to use its muscle around the world to support sales of formula. U.S. agencies have intervened with at least 17 countries. They have opposed those countries’ efforts to limit marketing of formula or require additional safety precautions, despite the well-documented benefits of breast feeding and links to obesity of feeding formula to toddlers. The countries range from those in the European Union, to Canada, Israel, China, and multiple countries in Africa, Southeast Asia, and Central and South America. U.S. agencies have complained about restrictions on formula advertising in bilateral meetings with other countries as well as before the World Trade Organization (WTO). The implicit threat is a formal WTO complaint that can lead to costly litigation. In 2018, officials in the Trump Administration were accused of threatening to withhold military aid to Ecuador over its support for breastfeeding. [3]
Formula obviously costs more than breast milk and requires clean water to prepare, which is not always available. It typically costs more than cow’s milk. However, aggressive marketing by the formula industry, often claiming unfounded benefits for formula, persuades parents to buy it even when they can barely afford it. The U.S. actions in support of the infant formula corporations have even undermined the work of other U.S. foreign aid and health agencies that have promoted breastfeeding for many years.
STORY #4: At the behest of the genetically engineered crop industry, led by Bayer (due to its acquisition of Monsanto), the U.S. government is challenging Mexico’s ban on using genetically modified (GM) corn for human consumption. Mexico’s president announced back in 2020 that he planned to phase out the use of GM corn for human food (as opposed to animal feed) and to ban the use of the glyphosate-based herbicides (very profitable Monsanto products) that are essential to growing GM corn. The U.S. objected and after negotiations failed to reach an agreement, the U.S. has submitted the dispute to the dispute resolution process established by the U.S.-Mexico-Canada Trade Agreement. GM corn was introduced commercially in 1996 and its safety assessments were done by the corporations working to grow and sell it. The heavy and increasing use of pesticides and herbicides to grow GM corn is also a concern, especially given the lack of systematic monitoring of human exposure to them. Bayer has paid billions of dollars to settle lawsuits over the health effects (especially cancer) of exposure to glyphosate-based herbicides sold under Monsanto’s Roundup brand name. [4]
[1] Reich, R., 3/13/24, “Disclose executive stock buyback manipulations,” Robert Reich blogpost
[2] Leopold, L., 3/27/24, “Intel brags of $152 billion in stock buybacks over last 35 years. So why does it need an $8 billion subsidy?” Common Dreams (https://www.commondreams.org/opinion/intel-subsidy-chips-act-stock-buyback)
[3] Vogell, H., 3/21/24, “The U.S. government defended the overseas business interests of baby formula makers. Kids paid the price.” ProPublica (https://www.propublica.org/article/how-america-waged-global-campaign-against-baby-formula-regulation-thailand)
[4] Corbett, J., 3/26/24, “Experts warn of toxins in GM corn amid US-Mexico trade dispute,” Common Dreams (https://www.commondreams.org/news/genetically-modified-corn)