Expectations that Washington will have to dole out hundreds of billions of dollars to aid companies crushed by the coronavirus are helping liberal stalwarts like Elizabeth Warren make headway in their long-standing war on stock buybacks and soaring executive pay.
The Massachusetts senator and other Democrats are demanding that any bailouts — particularly one for airlines — come with strings attached. In press statements, television interviews and on Twitter, they’ve laid out their stipulations for companies that accept funds: permanent bans on repurchasing shares, curbs on CEO compensation and pledges to stand by deals struck with labor unions to protect workers’ rights.
For corporate America, it became clear Thursday that the requests were more than idle threats when President Donald Trump threw his support behind restrictions on buybacks and executive pay. It was an extraordinary moment of the pro-business commander-in-chief finding common ground with Warren, one of his favorite sparring partners on Capitol Hill.
“Some companies, as you know, did stock buybacks,” Trump said at a White House news conference. “It’s very hard to tell them not to but I would tell them not to.”
Read More: Trump Says U.S. Bailouts May Require Equity Stakes, Buyback bans
Even as Congress’ plans are still in the early stages, the corporate governance push is setting up a political clash with roots that date back to Washington’s $700 billion bailout of the banking and auto industries more than a decade ago. Though the 2008 financial crisis had a clear villain — Wall Street — this time it’s more difficult to cast blame for what essentially is a health crisis that is spurring an economic downturn.
Still, few lawmakers are eager to use taxpayer money to rescue corporations without getting anything in return. Demanding limits on buybacks and bonuses, as well as a possible equity share in companies, could give politicians any additional political cover they might need to back coming stimulus legislation.
Corporate buybacks have surged in the years since the 2008 meltdown as wide swaths of businesses got back on their feet. They have also generated intense scrutiny in Washington with progressives arguing that profits should be used to increase employees’ wages, not for transactions that have little purpose other than boosting stock prices.
Many corporations have already halted share repurchases to preserve capital as they weather the coronavirus outbreak. But what Warren and others have in mind could have a lasting impact on how companies are run even once businesses recover.
The biggest U.S. airlines spent 96% of their free cash flow in the last decade buying back shares, according to data compiled by Bloomberg. Meanwhile, executives from those firms cashed out as stock prices rose by selling millions of dollars of their own share holdings, according to filings with the Securities and Exchange Commission.
Now that Trump has endorsed restrictions on buybacks and executive bonuses, it’s much more likely that Republicans in Congress will get on board. The push is also gaining steam with some in the business community. Mark Cuban, the billionaire owner of the National Basketball Association’s Dallas Mavericks, is among those urging that share repurchases be reined in.
Stephen Myrow, who worked on the 2008 bailouts as an aide in President George W. Bush’s Treasury Department, said he sees some of the same forces at work today, whether it’s lawmakers pushing pet projects or imposing punishments on companies for political cover.
“It’s once again being perceived as the taxpayers being on the hook for a windfall for shareholders,” said Myrow, who is now managing partner at Beacon Policy Advisors, a Washington-based policy research firm. “There’s a political stigma being placed on buybacks.”
It’s unclear whether a permanent ban on buybacks will ultimately make its way into any bailout legislation. But a temporary restriction for companies accepting government cash seems increasingly likely.
— With assistance by Brandon Kochkodin, Mario Parker, and Jordan Fabian
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