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WASHINGTON D.C. — In a letter to the New York Times’ editor, Rep. French Hill (AR-02) responded to an op-ed by U.S. Senator Chuck Schumer (D-NY) and U.S. Senator Bernie Sanders (I-VT) that called for the limitation of corporate stock buybacks.

Rep. Hill argued “[l]imiting stock buybacks disincentivizes aspiring entrepreneurs to go public and hinders individual shareholders and retirees from building equity,” and that “boards should take full responsibility for the decisions that impact their shareholders.”

Read Rep. Hill's full letter to the editor below.     




Stock Buybacks:  Representative French Hill warns against interfering in the free market.
The New York Times
Page A22
Congressman French Hill
February 24, 2019

I was disappointed to read the op-ed from Senators Schumer and Sanders, calling for the limitation of corporate stock buybacks. I was even more disheartened when just this past week, I learned Senator Marco Rubio also announced a similar plan. For some reason, these Senators believe they know how best to allocate capital across our $20 trillion U.S. economy. Limiting stock buybacks disincentivizes aspiring entrepreneurs to go public and hinders individual shareholders and retirees from building equity.

Management and boards of directors for public companies have a fiduciary obligation to maximize long-term appreciation for their shareholders. This fiduciary stewardship requires a thorough knowledge of the company’s growth, capital needs, and stock valuation. Policymakers interfering with this fiduciary obligation undermines the free market which could lead to unintended consequences for the investor.

To quote investment maven, Warren Buffett, chief executive at Berkshire Hathaway, stock buybacks are "sensible for a company when its shares sell at a meaningful discount to conservatively calculated intrinsic value. Indeed, disciplined repurchases are the surest way to use funds intelligently: It’s hard to go wrong when you’re buying dollar bills for 80¢ or less." Buffett reminds management, though, "never forget: In repurchase decisions, price is all-important. Value is destroyed when purchases are made above intrinsic value."

Management that miscalculates this all-important Buffett maxim do so at their own peril. As shareholder values fall, stock returns to investors will be noncompetitive and the spotlight will shine on the leaders of the company that made poor capital allocation decisions. Government policy has no business in meddling with capital allocation. Boards should take full responsibility for the decisions that impact their shareholders.