How the pursuit of shareholder value weakened the economy

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CEOs have thrived under shareholder capitalism as never before. A report this August from the Economic Policy Institute (EPI)—issued five days before the Business Roundtable’s pronunciamento—showed that CEO compensation has risen by 940 percent since 1978, a period that roughly coincides with the onset of conducting business to maximize shareholder value. During the same four decades, median worker compensation rose by a bare 12 percent.

How to Really End Shareholder Capitalism - The American Prospect

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House Democrats on Thursday released a report that found that the 14 leading drug companies paid out more in stock buybacks and dividends from 2016 to 2020 than they spent on research and development. 
The report from the House Oversight and Reform Committee finds that the 14 companies spent $577 billion from 2016 to 2020 on stock buybacks and dividends, $56 billion more than the $521 billion they spent on research and development over the same time period. .

House report: Drug companies spent more on buybacks, dividends than research | TheHill

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The growing involvement of private equity, hedge funds and real estate investment trusts in the care sector in recent decades has brought about a rise in the use of predatory financial techniques, justified in the name of enticing capital into a sector that the government has persistently failed to adequately fund. According to data from the Care Quality Commission, these firms now own one in eight care home beds in England.

A screen of financial jargon helps investors avoid public scrutiny, but a slew of recent reports has begun to detail the many tactics used to ensure “healthy” returns on investment – and the profound and troubling consequences that these strategies have for the care sector.
In 2012, the UK-based private equity firm Terra Firma Capital bought Four Seasons Health Care in an £825m debt-leveraged buyout, backed by US-based hedge fund H/2 Capital Partners.

Leveraged buyouts are a common technique used to increase return on investment. They allow investors to pay only a fraction of the purchase price using their own capital; the rest is covered with a loan. In theory, the target social care company then pays off the debt using their cashflow, increasing the equity portion owned by the investment firm, meaning a larger windfall for investors if the care company is sold on.

However, recent research has found that these kinds of buyouts are associated with an 18% increase in risk of bankruptcy for the target company. In the case of Four Seasons Health Care, onerous debt payments contributed to the company’s collapse into administration in 2019. Two of the other largest care home providers in the UK – HC-One and Care UK – have also undergone leveraged buyouts and, as a result, their corporate group structures remain saddled with significant debts.

The implications of this debt-heavy model are significant. Among the five largest care home chains backed by private equity in the UK, interest payments on leveraged buyouts and other debt obligations absorb about 16% of the average weekly bed fee. But interest payments on debt aren’t the only additional cost some care providers face. Other strategies for increasing return on investment see investors selling off care home properties for a one-off lump sum, then leasing them back – sometimes from a new landlord, sometimes from other entities within the corporate structure.

Care UK’s accounts, for example, state that it paid £4.1m in rent in 2019 to Silver Sea Holdings – a company registered in Luxembourg, a low-tax jurisdiction, which is also owned by Care UK’s parent company, Bridgepoint. These financialised structures demand an ever-growing revenue stream, not to fund more and better quality care or higher wages, but to keep up with growing interest repayments on the debts they carry and rising rents, and to line the pockets of investors, some of whom are astutely located in low-tax jurisdictions.

Predatory financial tactics are putting the very survival of the UK care system at risk | Christine Corlet Walker | The Guardian

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The Congress members said in the letter that guaranteeing the paid sick leave would cost the rail industry $321 million, which is less than 2 percent of annual profits.  “If the rail industry can afford to spend $25.5 billion in stock buybacks and dividends to enrich their wealthy shareholders, they can afford to treat their workers with the respect and the dignity that they deserve,” the lawmakers wrote.

More than 70 lawmakers send letter calling on Biden to grant rail workers seven sick days | The Hill

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Jan 12 (Reuters) - A campaign by U.S. Republican state officials to bar financial institutions from winning business because of their stance on issues like climate change could have cost taxpayers as much as an estimated $708 million in higher interest payments, according to a study backed by environmental activists and released on Thursday. 

The study, commissioned by non-profit The Sunrise Project, attributed the higher costs primarily to reduced competition to underwrite government bonds in six states furthest along in restricting financial firms or considering doing so. The restrictions would mean fewer banks seeking to underwrite municipal bond issuance, a common way for cities to raise money. Republicans last year stepped up their backlash against firms that incorporate environmental, social or governance (ESG) goals into their business, arguing they should focus more on investment returns.

Anti-ESG drive in U.S. could have cost taxpayers up to $708 mln