Not too long ago, a CEO had to prepare for the eye-rolls when they announced a significant share repurchase. Almost immediately, critics would form a line. At congressional hearings, in opinion pieces, and on cable business shows where the anchors leaned forward a bit too eagerly, the term “financial engineering” was used. However, the atmosphere in corporate boardrooms changed at some point. Silently. Without much fanfare. Buybacks used to be something you defended, but now you just do them.
You can hear it if you walk into any earnings call these days. The repurchase authorization is mentioned by the CFO almost casually, much like a new credit facility or a quarterly dividend. Analysts give a nod. No one recoils. The most intriguing aspect of the entire narrative may be this normalization—not the startling dollar amounts, but the change in tone. Executives used to express regret over buybacks. They now softly boast about them.
The confidence is explained by the numbers. Fifteen years ago, this amount would have seemed almost absurd, but American businesses have been aiming for a trillion dollars in yearly repurchases. At the time, the previous record of $589 billion from 2007 seemed outrageous. Critics never let anyone forget that it also came before a crash. Older fund managers believe that buybacks increase just before something goes wrong. Perhaps. Perhaps not. Market patterns are elusive.
Additionally, Warren Buffett didn’t always sound this at ease. He opposed the idea for years at Berkshire, saying he wouldn’t touch the company’s stock until it was significantly below intrinsic value. The regulations were then subtly relaxed in 2018. Berkshire had not made a significant acquisition in three years, had more than $100 billion in cash on hand, and the math had become problematic. Buffett once told CNBC that he wouldn’t be concerned about a 10% decline in Apple since it would only allow management to repurchase more shares, increasing his ownership stake without his having to do anything. Even if the results are different in a union hall, that kind of math is difficult to dispute at the country club level.
The most well-known dissident voice from within the tent has been Laurence Fink of BlackRock. He has argued in letters and interviews that businesses are lacking long-term investment to support their stock prices. The criticism is valid. However, it also encounters a persistent finding from a recent Villanova law review article by Richard Booth: approximately 95% of the money returned through buybacks is reinvested by shareholders in other publicly traded companies. In yachts, money does not vanish. It moves around. The economist you consult after dinner will likely determine whether that circulation is efficient or distorting.
The cultural moment is more difficult to ignore. Last year, roughly 75% of C-suite executives told Boston Consulting Group that they were concerned about macro uncertainty, which includes supply chains, rates, inflation, and other issues. Buybacks take on the characteristics of an insurance policy in that setting. Adaptable. reversible. quietly assuring investors that there are still options available to management. A dividend is an assurance. Repurchasing is a stance.
It’s difficult to ignore the softening of the language surrounding all of this. There is no longer any defensiveness. The humiliation has vanished. The question of whether that is beneficial to capitalism or just convenient for those in charge of it is still up for debate and most likely will be for some time.