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Stock buybacks are attracting more attention these days. Not only do companies have remarkable amounts of cash on their balance sheet, but the recent tax reform has only bolstered a company’s cash position. The US experienced a record number of share buybacks in 2018 (numbering over $1 trillion), and 2019 is off to a similar start.
In this episode, Paul DeNicola, a principal with PwC’s Governance Insights Center, frames the current landscape and offers advice to board members. What questions should they be asking their management team?
[Companies] have taken some steps with the cash: they’ve given one-time bonuses to employees or increased worker benefits; they’ve made some capital investments; they’ve reduced debt; but they’ve also taken significant steps to buy back shares or increase dividends.
— Paul DeNicola, Principal, PwC’s Governance Insights Center
Share buybacks are receiving increasing regulatory attention, explained DeNicola. Senators Bernie Sanders and Chuck Schumer proposed a bill that would limit share buybacks, requiring companies to first invest in their employees and the communities in which they serve.
“At the same time, you have both the issuers and the investment community…taking a very strong position against that,” said DeNicola. “[Both the business roundtables and the CII] have said publicly that they don’t believe legislators should play a role in telling companies how to allocate their resources.”
DeNicola outlines the questions boards should be asking their management team about share buybacks. For example, it’s the board’s job to seek the management team’s rationale for a buyback over other alternatives. How has management weighed other uses for the cash? In the episode, we dive further into this question and more.
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