In Europe, the dividend remains the undisputed king. Indeed, it represents 70% of the money distributed to shareholders, against only 30% in the United States. This is the reason why when, in France, it is the dividend which is considered as the symbol of financial capitalism, in the United States, it is share buybacks (share buybacks) which are doomed to complaining by the Wall Street slayers, like Elizabeth Warren, the senator from Massachusetts (northeast), who belongs to the left wing of the Democratic Party.
The amounts involved are astronomical. According to a discussion paper from the Roosevelt Institute think-tank released in May, U.S. listed companies spent $ 6.3 trillion (approximately € 5.5 trillion, at current price) between 2010 and 2019 to purchase their shares. .
After a decline in 2020, 2021 is shaping up to be a record year, at $ 850 billion, which has contributed to the surge in stock market indices. Apple, Microsoft and Morgan Stanley took part in the celebration. Even car rental company Hertz, which went bankrupt in May 2020, announced a $ 2 billion plan.
“Under-investment” and “unpreparedness”
For the two authors of the Roosevelt Institute, economists William Lazonick and Lenore Palladino, these unproductive expenses weighed on the innovation of the companies concerned. In addition, they have led to “Under-investments” and to a “Unpreparedness” in parts of the economy as the Covid-19 epidemic hit.
According to them, the explanation of the cult devoted by American companies to share buybacks can be found in the method of remuneration of American bosses. “With the majority of their compensation coming from stock options and share plans, managers have used buybacks on the market to manipulate their stock market price for their benefit,” denounces Mr. Lazonick in an article published in January 2020 in the Harvard Business Review.
In response to these recurring criticisms, the Securities and Exchange Commission, the American “policeman” of the Stock Exchange, announced in December that the transparency rules on this practice were tightened up. The introduction of a 1% tax on these transactions is, moreover, provided for in the stimulus plan of President Joe Biden, chained to Congress.
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