chairman

Overcoming corporate short-termism: Blackrock's chairman weighs in


When the head of the world’s largest investment fund raises fundamental questions about U.S. corporations, we should all pay attention.

In a letter earlier this week to the Fortune 500 CEOs, BlackRock Chairman Larry Fink criticized the short-term orientation that he believes shapes too much of today’s corporate behavior. “It concerns us,” he declared, that “in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies. Too many have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.” And he concluded, “When done for the wrong reasons and at the expense of capital investment, [returning cash to shareholders] can jeopardize a company’s ability to generate sustainable long-term returns.”

Fink is correct on all counts. In a new Brookings paper out today, University of Massachusetts economist William Lazonick states that the 454 companies listed continuously in the S&P 500 index between 2004 and 2013 used 51 percent of their earnings to buy back their own stock, almost all through purchases on the open market. An additional 35 percent went to dividends. “Buybacks represent a withdrawal of internally controlled finance that could be used to support investment in the company’s productive capabilities,” he said.

This is bad for the economy in two ways. As the growth of the U.S. workforce slows dramatically, economic growth will depend increasingly on improved productivity, must of which comes from raising capital investment per worker. Failing to make productivity-enhancing capital investments will doom our economy to a new normal of slow growth.

Many business leaders say that they are reluctant to make long-term investments without reasonable expectations of growing demand for their products. That brings us to the second way in which corporate short-termism is bad for the economy. Most consumer demand comes from wages. If employers refuse to share gains with their employees, growth in demand is bound to be anemic.

Although he clearly cares about his country, Fink is also acting as the steward of $4.8 trillion in investments. In an article published by McKinzie earlier this month, he warns that although the return of cash to shareholders is juicing equity markets right now, investors “will pay for it later when the ability to generate revenue in the long term dries up because of the lack of investment in the future.”

Unlike most other corporate leaders who express concerns about these developments, Fink is unwilling to rely on moral suasion alone. Because current incentives are so perverse, he argued, “It is hard for even the most dedicated CEO to buck this trend.” The constant pressure to produce quarterly results forces executives to go along—or risk losing their jobs. That pressure comes from investors who are, in Fink’s words, “renters, not owners, who are going to trade your stock as soon as they can pocket a quick gain.”

This logic leads BlackRock’s chairman to propose changing the tax code by lengthening to three years the the period needed to qualify for capital gains treatment while taxing trading gains at an even higher rate than ordinary income for investment held less than six months. To encourage truly patient capital, the capital gains rate would be stepped down to zero over a period of ten years.

We can argue the merits of this idea, and we should. But the main point should be beyond argument. We need more builders and fewer traders, more Warren Buffetts and fewer Carl Icahns. And to get them, we’re going to have to change the laws governing corporate and investor behavior. Fink has opened up a crucial debate, and it’s time for Congress and presidential aspirants to join it.
Image Source: © Brendan McDermid / Reuters
     
 
 




chairman

Japan’s G-7 and China’s G-20 chairmanships: Bridges or stovepipes in leader summitry?


Event Information

April 18, 2016
10:00 AM - 11:30 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Register for the Event

In an era of fluid geopolitics and geoeconomics, challenges to the global order abound: from ever-changing terrorism, to massive refugee flows, a stubbornly sluggish world economy, and the specter of global pandemics. Against this backdrop, the question of whether leader summitry—either the G-7 or G-20 incarnations—can supply needed international governance is all the more relevant. This question is particularly significant for East Asia this year as Japan and China, two economic giants that are sometimes perceived as political rivals, respectively host the G-7 and G-20 summits. 

On April 18, the Center for East Asia Policy Studies and the Project on International Order and Strategy co-hosted a discussion on the continued relevancy and efficacy of the leader summit framework, Japan’s and China’s priorities as summit hosts, and whether these East Asian neighbors will hold parallel but completely separate summits or utilize these summits as an opportunity to cooperate on issues of mutual, and global, interest.

Join the conversation on Twitter using #G7G20Asia

Audio

Transcript

Event Materials

      
 
 




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Watford chairman questions integrity of 'distorted mini-league' at neutral venues

  • Scott Duxbury: ‘How is there any semblance of fairness?’
  • League would ‘bear no resemblance to the one we started’

Watford have joined Aston Villa and Brighton in voicing objections to the Premier League’s plan to play out the season at neutral venues on police advice, claiming it would be unfair to relegate clubs on the basis of a competition that “bears no resemblance to the one that was started”.

Sitting just above the bottom three when the league was suspended and uncomfortably aware Villa could leapfrog them if they play and win their game in hand, Watford were due to play five of their remaining nine fixtures at Vicarage Road and feel that being deprived of home advantage could affect the number of points they gather.

Continue reading...




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HSBC job cuts, US bank results and Metro Bank chairman departs

Patrick Jenkins and guests discuss HSBC's cost-cutting drive, what to expect from next week's US bank results, and the departure of Vernon Hill from Metro Bank. With special guest Jordi Gual, chairman of Spain's CaixaBank


Contributors: Patrick Jenkins, financial editor, David Crow, banking editor, Laura Noonan, US banking editor, and Nicholas Megaw, retail banking correspondent. Producer: Fiona Symon

 

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Saudi's plot to turn Newcastle into a global powerhouse with PIF boss set to become Magpies chairman

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SIR CLIVE WOODWARD: My 100-day plan for Beaumont after his re-election as chairman of World Rugby

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New World Rugby vice-chairman Bernard Laporte begs Agustin Pichot not to walk away from the sport

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Watford chairman questions integrity of finishing...

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Brexit Party chairman Richard Tice announces he WILL contest the general election

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Tottenham fans are starting to get restless with chairman Daniel Levy

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Coronavirus: Dave King steps down as Rangers chairman with investment in club put on hold

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SPORTS AGENDA: Shrewsbury's chairman suffers an identity crisis

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Labour Party chairman Ian Lavery is 'seriously considering' leadership bid

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Ligue 1: Nantes supporters unveil banners in protest against chairman's handling of the Ligue 1 club

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Ian Watmore has cleared a review into appointment as ECB chairman following Sportsmail investigation

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Karl Oyston's texts revealed the true nature of the Blackpool chairman... the club deserve a break from his obnoxious reign 

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Jimmy Hill was a player, activist, manager, chairman, referee and pundit, but above all an innovator... he transformed the game and that's how he should be remembered

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FA chairman Greg Clarke warns that football faces an economic crisis beyond our wildest imagination

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EFL chairman reveals plans to broadcast every match to fans with games set to be behind closed doors

EFL Chairman Rick Parry has described the coronavirus pandemic as football's most 'challenging issue' other than the two World Wars. He added that football could resume behind closed doors.




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EFL still set on completing the season as chairman Rick Parry sends letter to clubs

In a letter to the Football League's Championship, Leagues One and League Two clubs today Parry confirmed the EFL remain in talks with the government about a return date.




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Premier League told to help lower league clubs by EFL chairman Rick Parry

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Police called to seize two club cars worth over £100k each from ex-Charlton chairman Matt Southall

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Tories begging Brexit Party candidates NOT to stand in their seats, chairman of Farage's party says

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Republican senator Kelly Loeffler and her CEO chairman husband sell ALL their stocks

Republican Senator Kelly Loeffler of Georgia said she and her CEO husband will liquidate their stocks after weeks of criticisms for selling millions in shares during the coronavirus pandemic.