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How to become a Non-Executive Director – Liverpool 4 June 2015

Find out how you can obtain a Non-Executive Director position by booking a place on this interactive 1-day course. “A well structured and presented introduction to the responsibilities, challenges and attributes required of being a NED. It was thought-provoking. I have referred back to my copious comments in the comprehensive slide hand outs many times […]

How to become a Non-Executive Director – Bristol 19 May 2015

Are you thinking of becoming a Non-Executive Director as part of a Portfolio Career or to develop your boardroom skills prior to taking up an executive director role?

Join us on Tuesday, May 19 2015 to find out how you can become a Non-Executive Director.

“Excellent course giving a clear picture […]

Realising your business assets – Bristol 14 May 2015

It is never too soon to think about

Extracting value from your Business

Find out how you can get the most value out of your business with a business exit health check

Thursday 14 May 2015, Clarke Wilmott, 1 Georges Square Bath Street Bristol BS1 6BA 5:00pm to 8:00pm

How to become a Non-Executive Director – Manchester 28 April 2015

Find out how you can obtain a Non-Executive Director position by booking a place on this interactive 1-day course. “A well structured and presented introduction to the responsibilities, challenges and attributes required of being a NED. It was thought-provoking. I have referred back to my copious comments in the comprehensive slide hand outs many times […]

Takeovers, Restructuring, and Corporate Governance (5th Edition)

For undergraduate and graduate courses on Mergers and Acquisitions, or as a supplement for Business or Corporate Finance, Economics, or Strategy

This book brings together conceptual and updated empirical material in a systematic way. It provides students with a basis for understanding mergers and acquisitions and corporate restructuring within the framework of strategic planning issues […]

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

BlackRock Chairman and CEO Laurence Fink speaks at the Council on Foreign Relations in New York, February 29, 2012. Fink, who heads the $3.51 trillion asset management firm BlackRock, was speaking at the Council on Foreign Relations and discussing a series of objectives with chief executive officers.

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.


  • William A. Galston
  • Elaine Kamarck

Image Source: © Brendan McDermid / Reuters […]

Stock buybacks: From retain-and reinvest to downsize-and-distribute

A man looks at a board showing graphs of Japan's stock price indexes outside a brokerage in Tokyo June 5, 2012. (Reuters/Toru Hanai)

Stock buybacks are an important explanation for both the concentration of income among the richest households and the disappearance of middle-class employment opportunities in the United States over the past three decades. Over this period, corporate resource-allocation at many, if not most, major U.S. business corporations has transitioned from “retain-and-reinvest” to “downsize-and-distribute,” says William Lazonick in a new paper.

Under retain-and-reinvest, the corporation retains earnings and reinvests them in the productive capabilities embodied in its labor force. Under downsize-and-distribute, the corporation lays off experienced, and often more expensive, workers, and distributes corporate cash to shareholders. Lazonick’s research suggests that, with its downsize-and-distribute resource-allocation regime, the “buyback corporation” is in large part responsible for a national economy characterized by income inequity, employment instability, and diminished innovative capability.

Lazonick also challenges many of the notions associated with maximizing shareholder value, an ideology that has come to dominate corporate America. Lazonick calls for a decrease, or even a ban, in stock buybacks so companies will be able to use these funds to finance capital expenditures but more importantly to attract, train, retain, and motivate its career employees. And some of the funds made available by a buyback ban can even flow to the government, he argues, as tax revenues for investments in infrastructure and human knowledge that can underpin the next generation of innovation.


  • Download the paper


  • William Lazonick

Image Source: Toru Hanai / Reuters […]

10 things Non-Executive Directors can do to satisfy their legal responsibilities

Falling foul of the law can have serious consequences for Non-Executive Directors – here are 10 steps you can take to avoid it happening

The 2006 UK Companies Act, which sets out the legal duties and responsibilities of Company Directors, is one of the longest pieces of legislation ever written. Falling foul of the law […]