I was greatly encouraged on Sunday to read in
Gretchen Morgenson's New York Times column that Domini Funds has issued a resolution to limit the way companies use stock buybacks to boost performance metrics. The reasoning for stock buybacks is simple: reduce the number of shares available and thus engineer a higher stock price by creating a lower supply of shares and the illusion of higher earnings. The Domini resolution would hobble firms ability to do this as a way to boost executive pay packages. Much excessive executive pay these days comes in the form of shares: and stock buybacks are primarily a way to spike share prices, short-term, to give sellers a quick, easy profit.
Some media called the stock buybacks, now at the highest level ever seen, a fad. It isn't. It is in fact a conspiracy to deceive. Companies do it because the financial community lets them get away with it. It has become something like an addiction. If the practice ever stops, the company get pummeled by the market and the financial community. So firms keep on buying back their own shares. Top management is fully engaged in this deceit, and it benefits undeservedly from it.
More...
