Monday, August 5, 2019

Jonathan Ford - Boeing and the siren call of share buybacks

Fair-weather strategy carries risk for investors

Even the Financial Times thinks that stock buy-backs are not always a great idea, and would have preferred Boeing to have invested more in new technology instead, which would have been good for everyone - including the shareholders, the company, the country, the consumer, and the workers.

Jonathan Ford says how in the end not even the shareholders gain, only the management, who can make huge bonuses from the buy-backs.

CEO's make big money on the upturn, but if this upturn eventually causes a down turn, there is no penalty - pay isn't docked, or bonuses confiscated. The incentives are wrong.

In Britain, pension funds invested in house price bubbles, greatly inflating house prices, making huge profits on the upturn, and then payed big bonuses to the pension fund's management. But when house prices collapsed, there was no penalty and pension fund managers kept their bonuses.

Some people in the government (including Conservatives) tried to change the law and tax system to make pension fund managers invest in new industry, start-ups, and new technology instead. This would have created more employment, with more jobs for young people, who would have had exciting careers earning good money, while creating the profits for the pensioners. It would have been good for everyone, the country, the pensioners, the workers, and young people, while the consumer would have got better products. And with more people in work paying taxes, our taxes would have been lower. But the pension industry squashed the bill.

Conservative voters have no idea how much they have been done over by the system they claim to adore. Their children much poorer now, and laden with debt, with huge rents and mortgages, along with a shortage of good jobs, while having to do excessive hours at work.

The problem with buyback gains is that they are based on nothing more than making equity prices more volatile. So while profits and share prices are rising, the lucky executive cashes in on the favourable optics, pocketing bonuses that won’t be subject to subsequent disgorgement.


Jonathan Ford - Boeing and the siren call of share buybacks

1 comment:

Matt Franko said...

"but if this upturn eventually causes a down turn,"