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What the CEO wants you to know (2023)

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Re: What the CEO wants you to know (2023)

#31

Post by wdh505 »

piva00 wrote: post #28
darth_avocado wrote: post #22

I for one would really like to know why the CEO gets paid so much, why are the employees not getting paid proportionally, why RTO is absolutely necessary, why the stock buybacks are necessary when investment in the business is going down, etc.

> why the stock buybacks are necessary when investment in the business is going down Boeing is a very recent egregious showcase to how fucked up this behaviour can get. I'd like to live in a world where shareholders' returns are not the goal, just a side-effect of good business. I still cannot understand why stock buybacks aren't limited, actually I do not understand why it exists at all but since I'm not educated en…

Reasons for buybacks:

1)Buybacks can shake out the short term investors. 2)It can also signal that the company thinks its own stock is cheap. 3)It "has no effect assuming the market is perfectly efficient".

And these reasons are repeated ad nauseum. I could see this be a thing if a hostile takeover is on the horizon, but poison puts are common when issuing debt, so no hostile takeovers have happened in a while. Basically I see a buyback as a way to take cheap money accessible by a company for investment, and the company uses it to finance shareholders to get a return elsewhere because the company isn't creative anymore. (Companies hit hard walls regarding physics when they keep r&d over their few cash cows over and over, and r&d is too risky to go to an area that they don't already have internal proficiencies).

Re: What the CEO wants you to know (2023)

#32

Post by coldbrewed »

titanomachy wrote: post #30
piva00 wrote: post #28

Earlier quoted context omitted.

> why the stock buybacks are necessary when investment in the business is going down Boeing is a very recent egregious showcase to how fucked up this behaviour can get. I'd like to live in a world where shareholders' returns are not the goal, just a side-effect of good business. I still cannot understand why stock buybacks aren't limited, actually I do not understand why it exists at all but since I'm not educated en…

Can't comment on Boeing specifically, but if a company has a bunch of cash on hand and doesn't have enough plausible projects to invest in that could return better than the benchmark rate, then I think it makes sense to return it to investors. Even in a well-run company (Apple?) it's reasonable to imagine that cash on hand could exceed the company's present capacity for new research projects. Scaling up an R&D depart…

Apple is an edge case because of their incredibly strong market position, and their ability to maintain such high profit margins should be inviting a bit more antitrust investigation. But in this case, I'll accede the point for Apple's buybacks.

But while there are some cases that are still able to do stock buybacks while plowing resources into R&D, there are companies that are lagging due to ineffective or underfunded R&D (Intel) or are cutting safety critical corners (Boeing) to maximize shareholder return. These are significant companies that provide critical goods and services that aren't exactly fungible, and it would build a lot more trust in them and market systems as a whole to see them take the initiative to improve their situations over plowing money into buybacks while begging for public funding or regulatory exceptions.

Re: What the CEO wants you to know (2023)

#33

Post by piva00 »

titanomachy wrote: post #30
piva00 wrote: post #28

Earlier quoted context omitted.

> why the stock buybacks are necessary when investment in the business is going down Boeing is a very recent egregious showcase to how fucked up this behaviour can get. I'd like to live in a world where shareholders' returns are not the goal, just a side-effect of good business. I still cannot understand why stock buybacks aren't limited, actually I do not understand why it exists at all but since I'm not educated en…

Can't comment on Boeing specifically, but if a company has a bunch of cash on hand and doesn't have enough plausible projects to invest in that could return better than the benchmark rate, then I think it makes sense to return it to investors. Even in a well-run company (Apple?) it's reasonable to imagine that cash on hand could exceed the company's present capacity for new research projects. Scaling up an R&D depart…

> Can't comment on Boeing specifically, but if a company has a bunch of cash on hand and doesn't have enough plausible projects to invest in that could return better than the benchmark rate, then I think it makes sense to return it to investors.

Isn't that what dividends are for though? Stock buybacks distort the valuation detached from what the market is pricing the company, it still does not make sense in my mind.

Re: What the CEO wants you to know (2023)

#34

Post by pizzafeelsright »

darth_avocado wrote: post #22

I for one would really like to know why the CEO gets paid so much, why are the employees not getting paid proportionally, why RTO is absolutely necessary, why the stock buybacks are necessary when investment in the business is going down, etc.

Why don't you tip 1,000%? Why not just a flat $200 tip when you dine out?

Re: What the CEO wants you to know (2023)

#35

Post by office_drone »

OldGuyInTheClub wrote: post #21

I take Charan with a huge lick of salt. He was a consigliere to GE's C-suites for years. He is a sort-of Erdős-for-business. https://money.cnn.com/magazines/fortune/fortune_archive/2007...

That just makes it sound like he knows what he's talking about

Re: What the CEO wants you to know (2023)

#36

Post by office_drone »

darth_avocado wrote: post #22

I for one would really like to know why the CEO gets paid so much, why are the employees not getting paid proportionally, why RTO is absolutely necessary, why the stock buybacks are necessary when investment in the business is going down, etc.

> why the stock buybacks are necessary when investment in the business is going down

The business theory answer is that buybacks are used when there is no better investment opportunity.

Let's say the stock trades at 10 times earnings. Can you fund an internal project that's going to return 10% a year? [0] Can you buy another company that will return 10% a year? If not, then a buyback gives the best return to the company's owners (aka shareholders) because they owner larger slices of the same pie.

[0] Plus a small cushion for risk. And not just "we project this will return $HUGE amount" but something that can realistically happen.

Re: What the CEO wants you to know (2023)

#37

Post by OldGuyInTheClub »

office_drone wrote: post #35
OldGuyInTheClub wrote: post #21

I take Charan with a huge lick of salt. He was a consigliere to GE's C-suites for years. He is a sort-of Erdős-for-business. https://money.cnn.com/magazines/fortune/fortune_archive/2007...

That just makes it sound like he knows what he's talking about

I see your point. I was thinking about his wandering lifestyle and single-track mind. Maybe "Erdős wannabe" would have been more appropriate.

Re: What the CEO wants you to know (2023)

#38

Post by n4r9 »

OldGuyInTheClub wrote: post #21

I take Charan with a huge lick of salt. He was a consigliere to GE's C-suites for years. He is a sort-of Erdős-for-business. https://money.cnn.com/magazines/fortune/fortune_archive/2007...

Wow, getting strong vibes of Christoph Waltz' character in The Consultant.

Re: What the CEO wants you to know (2023)

#39

Post by anthuswilliams »

piva00 wrote: post #33
titanomachy wrote: post #30

Earlier quoted context omitted.

Can't comment on Boeing specifically, but if a company has a bunch of cash on hand and doesn't have enough plausible projects to invest in that could return better than the benchmark rate, then I think it makes sense to return it to investors. Even in a well-run company (Apple?) it's reasonable to imagine that cash on hand could exceed the company's present capacity for new research projects. Scaling up an R&D depart…

> Can't comment on Boeing specifically, but if a company has a bunch of cash on hand and doesn't have enough plausible projects to invest in that could return better than the benchmark rate, then I think it makes sense to return it to investors. Isn't that what dividends are for though? Stock buybacks distort the valuation detached from what the market is pricing the company, it still does not make sense in my mind.

From the company's perspective, dividends and buybacks are economically equivalent (i.e. they are giving a certain quantity of cash to shareholders)

However, from the shareholder perspective, buybacks are more tax-efficient since those who sell their shares pay taxes on the gains, and those who hold end up with a larger share of the company and no tax.

This is all according to theory. In practice, there does also seem to be a sort of received wisdom among managers that buybacks are better for companies because they can cut them in times of trouble, whereas investors will perceive cuts in dividend as somehow foretelling bankruptcy.

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