Letter: CEOs won’t give up addiction to short-term stock price gains

As a daily reader of the FT, your editorial entitled “Business leaders’ myopic reversal on Trump” (FT View, June 20) suggests that corporate chief executives, and the boards they report to, ought to pay more attention to the longer term strategic interests of their companies, rather than supporting Donald Trump for the (lower) tax, (looser) regulatory and other economic benefits they are presumably expecting under another Trump term.

This makes perfect sense if you assume that the CEOs and the boards that are supposed to look after the long-term strategic interests of the company actually see it as their responsibility. But unfortunately, it appears to me, many CEOs and company boards see it as their fiduciary duty to stand by while companies manipulate their earnings per share through share buybacks and boost the short-term stock price.

The past decade or so of increasingly out of control CEO pay packages incentivising short-term stock price gains, along with the fact that many of the largest US corporations devoted over half of earnings to share buybacks, thereby wasting hundreds of billions on “manipulative EPS-boosting share buybacks” — as reported by William Lazonick of the Institute for New Economic Thinking — have become standard practice, receiving what amounts to a seal of approval by regulatory and shareholder groups.

Investors and institutional managers have become addicted to short-term, stock price-boosting financial engineering tactics and until something forces them to focus on long-term, value-enhancing resource allocation goals and broader shareholder and stakeholder interests, any rational expectations that CEOs will voluntarily change their “predatory value extracting” priorities are naive.

Toby Bernstein
Skokie, IL, US