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offer. That's douglas.ca/canadalland. Hey

1:13

everyone, it's Archie here. First off,

1:15

I hope that you all had a lovely

1:17

holiday. And as you're getting back in

1:20

the swing of things, I've got an

1:22

episode that commons listeners are sure to

1:24

enjoy. It's an episode of Canada Land

1:26

that takes a look at the grocery

1:29

industry, which if you've listened to our

1:31

Monopoly season, you know we've taken a

1:33

particular interest in. And it's

1:35

looking at the issue of stock

1:37

buybacks. Now I love this

1:39

episode because as a former business reporter,

1:42

I can tell you that stock buybacks

1:44

are a pretty hotly debated thing within

1:46

the business press, but the issue never

1:49

seems to break into the wider media

1:51

ecosystem. Even when the profit margins of

1:53

Canada's big grocery chains are one of

1:56

the biggest issues in the country. So

1:58

without further ado, here's Here is the

2:00

episode, and I hope you enjoy. I

2:17

got a tip from a listener the other week. Hi,

2:20

Jesse. I'm reaching

2:22

out regarding a potential story about

2:25

the Big Three grocery chains, Loblaws,

2:27

Metro, and Sobies. For

2:29

context, I work in finance in Toronto, and as

2:31

part of my day, I routinely

2:34

read the granular financial statements of

2:36

a number of the country's public

2:38

issuers. A story

2:40

that has not been picked up

2:42

by the mainstream press concerns

2:44

the considerable size and

2:47

expansion of stock buyback

2:49

programs by the country's

2:51

largest grocers over the past few years.

2:54

To give you a sense of the gravity, over

2:56

the past two years, these three companies have spent

2:58

more than $3 billion buying

3:00

back their shares. Listener,

3:05

I read that email, and I thought

3:07

to myself, so

3:10

what? Charisse,

3:13

you're here to tell me, so what?

3:15

Okay, well, I will tell you

3:17

so what, because I think it is a big so

3:20

what. I'm going to guess I'm

3:22

ready to hear it. Ready for

3:24

it. This

3:34

episode is brought to you

3:36

by Nels Anderson, Danny Gui-Bélanger,

3:38

Helen Hejidis, Nicole Rodick, Robert

3:41

Arnold, Kimberly Hamilton, Sampan

3:43

Chaddah, and Jason. My

3:46

name is Jason. I listen to

3:48

Kenanland because they are a small

3:50

journalistic organization consistently threatened with legal

3:53

action by rich and powerful

3:55

institutions, and they're swearing. That's

3:58

my benchmark for trust. Jesse

4:00

is a great Canadian even though

4:02

he's never bothered to learn French. Workers

4:08

at 27 different Metro grocers

4:10

walked off the job Saturday. Those

4:13

locations are now closed. The workers

4:15

voted to reject the company's contract

4:17

offer saying they want more money

4:19

in the wake of high corporate

4:21

profits. Unfortunately we are living

4:23

in a time right now where

4:25

working people particularly working people at

4:27

grocery stores are just not making

4:30

ends meet. Interest

4:32

rates, inflation, CEO

4:34

profits, soaring, profits

4:37

in terms of what corporations are

4:39

gaining, soaring, while our

4:42

members are struggling to get by.

4:45

Right now as of this recording over

4:47

3,000 Metro workers in

4:49

Ontario have been on strike for weeks

4:52

trying to get an extra $2 an

4:54

hour from their bosses. I

4:56

try not to shop at Metro grocery stores but

4:58

even if I did I would be avoiding it

5:00

now. Why don't you like

5:02

Metro? I could pay premium for like

5:04

really good groceries or

5:06

I could go to a cheapo grocery store

5:09

and get value. But I

5:11

don't like to buy crappy low

5:13

value groceries at premium prices. Well

5:16

according to Unifor the higher ups at

5:18

Metro have been digging their heels on

5:21

this wage issue. So even though they're

5:23

asking for a premium for those supposedly

5:25

crappy groceries, allegedly they've been

5:27

claiming that they can't go any higher on

5:29

the current salary levels. Here's

5:31

what I read in the Financial Post.

5:34

Metro spokesperson Marie-Claude Bacon said the company

5:36

was offering wage increases well above inflation

5:40

as well as improved pension and benefits

5:42

building on working conditions that are already

5:44

among the highest in the industry. Cherise,

5:47

I'm generally sympathetic to these workers especially

5:50

because they did do heroic labour during

5:52

the pandemic and their

5:54

employers, the grocers were patting themselves on the back

5:56

and puffing their chests out saying like we're going

5:58

to give you hero pegs. because we're such nice

6:00

guys, and then they took it away. So

6:03

I'm happy to heap scoring upon the grocers for that,

6:05

but I don't know, there's like a lot of jobs

6:07

where I feel like they should probably be paying people

6:09

more money. Like why should I be particularly mad about

6:12

this? I'm not really gonna get into

6:14

an argument about how much these workers should

6:16

get paid, because there's a lot of roads

6:18

you can go down there. I actually think

6:20

the bigger story here is about how much Metro

6:22

and the other grocery stores could

6:24

afford to be paying workers. Because

6:27

I've been looking into Metro's spending on

6:29

this thing called stock buybacks. So

6:32

companies have to declare how much they've spent

6:34

on stock buybacks every year, so this information

6:36

is available. And Jesse, last

6:39

year Metro spent $470 million on

6:43

their own stock. In fact, the

6:46

Canadian grocery company is the biggest

6:48

one, so Loblaws, Metro, and Empire.

6:51

So they've all been collectively spending billions

6:54

of dollars in the past three years

6:56

on stock buybacks. And they

6:58

actually have kept increasing their numbers for

7:00

the past several years. So for example,

7:03

in 2022, Empire spent $248 million on

7:08

buybacks. For Metro,

7:10

as I mentioned, it was $470 million. And

7:14

for Loblaws, they spent $1.2 billion on

7:16

stock. I

7:20

get that, that like they've been making these

7:22

appearances before Parliament and speaking to the public

7:24

and kind of crying poverty. This was happening

7:26

at the exact same time when they were

7:28

taking public heat for greedflation.

7:32

It was happening exactly at that

7:34

point. I'm thinking of Gail and

7:36

Weston being in Parliament. And I would

7:39

just reiterate that our profit is $1 on

7:41

a $25 basket of groceries. And

7:44

if we invested 100% of our profits into lower prices,

7:50

the price of a grocery basket would still be $24. We

7:53

are working hard to lower prices for

7:55

Canadians in every way that

7:58

we can. And the profit that we do generate, we reinvest. back

8:00

in this country to create more

8:02

stores, more services, and more jobs.

8:05

But then here's this clip from Perlman

8:07

in 2020. So this is

8:09

when the big three grocers were brought in

8:11

to answer questions about why they all stopped

8:13

paying hero pay at the exact same time,

8:15

at the exact same day. The

8:18

person speaking is Sarah Davis, who

8:20

was president of Wabla's. This

8:22

is at least in part because people think

8:24

we have outsized profits from COVID-19. And

8:27

this is a false assumption. On

8:30

our April earnings call, we announced higher

8:32

profits from COVID, following an

8:35

unprecedented two-week customer buying binge. But

8:37

we also said we would be investing $90 million

8:40

per month for incremental pandemic costs,

8:42

and that these costs would offset

8:45

any benefits from higher sales and

8:47

would last much longer. Quite

8:50

simply, we have not been putting profit

8:52

ahead of our people. So

8:54

is this just like the same way that we might

8:57

scorn them for paying their CEOs too much or their

8:59

executives too much in bonuses? Is this just a question

9:01

of they've got more money than they're letting on? Or

9:03

is there something like particularly

9:05

egregious or problematic about

9:07

stock buybacks? Buybacks

9:09

are controversial. There are

9:12

financial experts who are passionately

9:14

for and against companies doing

9:16

this. And there are even

9:18

some experts who say buying back stock is

9:21

not only a cash grab on the part

9:23

of executives, but that it can

9:26

lead to wage stagnation, death,

9:28

and disaster. So

9:30

are Canadian grocery companies making

9:33

a big but for themselves

9:35

while rejecting raises and inflating

9:37

food prices? Let's

9:40

find out. And let's start at the beginning. What

9:42

is a buyback anyway? I got

9:45

in touch with Jim Stanford to help explain it

9:47

to me. He's the director of

9:49

Center for Future Work, which is an

9:51

economic research hub. What

10:00

happens when a company goes onto the stock

10:02

market and basically buys its own shares? What

10:05

it's doing is it's taking some of

10:07

its profits and it's using those to

10:09

reduce the number of shares that are

10:11

actually being traded on the stock market.

10:14

Because when companies go out and buy their

10:16

own shares back, inevitably the share price tends

10:18

to rise. And this is part of

10:20

the reason that companies do it. They like to reward their

10:22

investors and they want to look good on the stock market.

10:25

So here's an analogy that I'm hoping

10:27

might work. It's like if

10:30

I have a pizza and it's

10:33

going to be shared between 10 people. So I've got

10:36

me and nine other friends. But

10:38

then some people in that group, let's say they're

10:40

really hungry and kind of greedy and

10:43

just having one tenth of a pizza just isn't

10:45

going to be enough. So

10:47

the group then offers to get rid

10:49

of two people. They're going to

10:52

pay them out, pay them at the cost of a

10:54

slice, say, so that they leave. Now

10:56

there's only eight people left to share

10:58

the pizza amongst. So each slice then is

11:00

going to be bigger. Does

11:03

that make sense? I mean, I

11:05

appreciate you explaining it to me like I'm an eight-year-old.

11:07

Genuinely, I do. And I also appreciate that you put

11:09

it in food terms. Let me see if I can

11:11

explain this back to you and you tell me if

11:13

I got it right here. Publicly

11:16

traded company, the CEO's job is

11:18

to get the stock up, right? That's

11:20

their job, to increase the value of

11:22

the company. And they get like paid

11:24

a lot extra, huge bonuses if they

11:26

do that, right? And

11:29

my understanding before this conversation was that the

11:31

way that you get your company's stock to

11:33

be worth more is to increase your profits.

11:38

If you do better, if the company performs better, your

11:40

stock goes up. But you're telling

11:42

me there's this other thing they can do, which

11:45

is without actually creating

11:47

anything new, if

11:49

they have extra money to spend, instead

11:52

of paying their workers more money, instead of

11:54

expanding and opening new outlets and hiring more

11:56

people, they can just buy their

11:58

own stock. And

12:01

now there's less stock in existence. And so the

12:03

shareholders are happy because their stocks are worth more.

12:06

And the CEO is happy because they just raised the stock

12:08

price. Is that it? You know that's

12:10

pretty good Jesse. Okay, I think I got it.

12:12

And you're telling me that Loblaw at the same

12:14

time that they were they were crying poverty to

12:16

parliament, they spent $1.2 billion doing this. Yeah,

12:20

exactly. So I did reach out to all

12:22

three grocery chains and Loblaws gave

12:24

me a statement. They said, quote,

12:26

share buybacks were a regular practice

12:28

to return capital to shareholders, which

12:31

in this case includes Canada's pension

12:33

plans benefiting millions of

12:35

Canadians. So it actually

12:38

is an important point that pension plans

12:40

do hold shares in Loblaws and other

12:42

large corporations. But the

12:44

basic thing is that this is

12:47

completely elective spending, but primarily benefits

12:49

the people that already own a lot of the company.

12:52

So in the example of Metro, if

12:54

you take what they're spending on stocks in the year 2022,

12:56

for example, and

12:58

you spread that out amongst all of their Canadian

13:00

workers that could have totaled approximately

13:02

$6,000 in

13:05

the pocket of each of their workers that year.

13:07

So while we're seeing Metro put up this fight over

13:10

raising wages for these striking workers, you

13:12

can actually see from these documents what they're really

13:14

spending money on. Metro even spells

13:16

out in their financial plan for the next

13:18

year that they want to spend $400 million

13:22

more on buybacks. And

13:24

actually going through some of the information from their

13:26

recent investor calls, they talk about

13:28

their top three priorities for 2023. Two

13:31

of them were one, improving returns

13:33

on invested capital and

13:35

the other was containing operating expenses,

13:38

which I think means that they want to

13:40

increase stock price while containing the cost of

13:42

things like labor. Okay, so that's

13:45

Metro. And as we've discussed, Loblaw,

13:47

they're doing the same thing and Sobey's

13:49

empire, them too? So empire owned

13:51

Sobey's, so that's like the umbrella

13:53

company. And yep, they're both

13:55

doing the exact same thing and Loblaw is

13:58

kind of leading the pack here. spending

14:01

over a billion in the past two

14:03

fiscal years on stock buybacks, it

14:06

actually means that they were racking up that

14:08

amount in 2020, right

14:10

in the middle of the pandemic. So let's

14:12

look at the number that Loblaws threw out

14:15

what Sarah Davis said right before. They spent

14:17

90 million on PPE in one

14:19

quarter. So let's just say in

14:21

theory that they spent that same amount on each

14:23

quarter for the year 2020. So that

14:25

would be 360 million for that year. That

14:29

would actually only be one third of the

14:31

amount that they spent on stock buybacks

14:34

for that year. And

14:36

that's actually also the same year workers

14:38

at Dominion grocery stores in Newfoundland, which

14:40

is owned by Loblaws. They went on

14:42

strike for over 12 weeks over losing

14:44

their $2 an hour of pandemic hero

14:46

pay. And at that time, Loblaws

14:49

was refusing to negotiate, so those workers ended

14:51

up having to just take the deal that

14:53

they didn't want after being out of work

14:55

for three months. So I'm getting the sense

14:57

that they probably could have afforded to maintain

14:59

that $2 an hour pay bump. I

15:02

just figured there's got to be a counter argument

15:04

here. There has to be an argument in favor

15:06

of stock buybacks, and not just that

15:08

it makes a lot of money for the executives

15:10

and owners of these companies. Like,

15:12

why not invest in your own company? Like,

15:14

we're going to not let companies

15:16

buy their own stock? I mean, I don't

15:19

know. Is it possible that this is something

15:21

that can be done legitimately? I mean, there

15:23

are arguments in favor of them. They

15:25

can actually raise the price of a stock that

15:27

is undervalued for a company. Other economists

15:29

say it's a good way to make your shareholders happy,

15:32

which is something a lot of CEOs want to do. This

15:35

is how the Wall Street Journal explains

15:37

the main reasons why stock buybacks are

15:39

attractive to companies. Seeing the

15:41

company buy signals to investors that management still

15:43

sees the stock as attractive. It shows they're

15:45

putting some skin in the game. Second,

15:48

with growing uncertainty in the market, investors

15:50

are saying buybacks are what they want.

15:53

Warren Buffett is famously a fan

15:55

of stock buybacks. He once wrote

15:57

that anyone against buybacks is an

15:59

economic... illiterate or a

16:01

silver-tongued demagogue. Buffett

16:03

thinks that when a company is doing well and they have a lot

16:05

of cash on hand, and when

16:08

their stock price is undervalued, buying up shares

16:10

is a great strategy. And that's actually what he

16:12

told Steve Jobs. Steve Jobs

16:14

called me one time. He was thinking about repurchasing

16:16

shares. And I said, Steve, there's

16:19

just two questions. A, you have

16:21

all the money that you need to develop the

16:23

kind of business that you've got in your head

16:26

for the next five or ten years. Then

16:28

the second question is, is your stock selling for less than

16:30

a sort of. And he said,

16:32

oh, yeah, it's only for a lot less of

16:34

us. And I said, well, you've answered your own question

16:36

when the price is right. There's

16:38

no easier way to make money for your shareholders.

16:41

And it sounds like Apple eventually took

16:43

heed of that advice. Right

16:46

now, across the US and Canada, stock

16:48

buybacks are at an all time high

16:50

for large corporations, particularly with

16:52

tech companies like Apple. Companies

16:54

in the S&P 500 are on pace

16:56

to buy back more than one trillion

16:58

dollars worth of their own stock this

17:00

year, a record high. Goldman Sachs recently

17:02

authorized 30 billion dollars of planned stock

17:05

buybacks. And Facebook parent Meta announced plans

17:07

to buy 40 billion dollars of their

17:09

own stock. Data show that

17:11

both institutional investors and retail investors have

17:13

been selling stock in recent weeks. But

17:16

here's the thing. If we were in the

17:18

1980s, these big tech companies,

17:21

these grocery stores, these airlines, all

17:24

of these companies that are doing buybacks wouldn't

17:26

be ranking in profits for their shareholders by doing

17:28

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19:49

Until 1982, stock buybacks

19:52

were largely illegal in the US.

19:55

So share buybacks were once seen as

19:57

a type of insider trading or manipulation

20:00

of the stock market. But

20:02

then in 1982, the Reagan

20:04

administration introduced new rules, and

20:07

it allowed executives permission to do

20:09

these buybacks under specific rules, like

20:11

for example, they couldn't purchase more

20:13

than 25%, or they couldn't

20:15

buy stock at the beginning or end of the trading

20:18

day. But companies kind

20:20

of went wild with it anyway, and just

20:22

did as much as the rules allowed. Cherise,

20:25

I don't know if I'm going to

20:27

find myself defending Reaganomics here, but there

20:30

have been like steady

20:32

years of boom and growth since

20:34

those reforms, since I guess they

20:37

unrestricted stock buybacks, right?

20:39

Maybe, was he onto

20:42

something? Maybe he was. But

20:45

there is more. I spoke to William

20:47

Lazenik, so he's actually a major player

20:49

in this area of economics. He

20:51

is a professor at the University of

20:54

Massachusetts, Lowell, and he's taught economics at

20:56

Harvard and Columbia. And the

20:58

thing about Lazenik is that he's actually spent

21:00

decades looking at stock buybacks and writing

21:02

books about them. So what his

21:04

research is about is that buybacks are

21:06

not only not helping

21:08

economic growth, they're actively bad

21:11

for the economy overall. He's

21:13

found that by not investing in companies

21:15

development and progress, but in shareholders, it

21:18

actually goes against the entire idea of what the

21:20

stock market is supposed to do. And

21:23

so the levels of buybacks we're seeing right now,

21:26

in the upper millions getting into the

21:29

billions, historically, is this something companies would

21:31

do? They weren't doing it, at

21:33

least in the United States and the government

21:35

of Canada, before the mid-1980s in the United

21:37

States. But

21:40

after Ronald Reagan got elected, they

21:42

adopted this rule that

21:44

allows actually a company like

21:46

Apple without any charge of

21:48

manipulation. The last I looked to do, about

21:50

$4 billion a day. So basically,

21:53

I call that rule, at least as it

21:55

was adopted in the United States, a license

21:57

to loot. That is correct. markets

22:00

are the way in which companies grow. So

22:02

you have extra money because you have revenues

22:04

greater than cost in a given year and

22:07

you reinvest that. I call that a retainer

22:09

reinvest regime. And that's how companies grow. They

22:11

don't grow by going to the stock market

22:14

for more money. That's what I mean by

22:16

innovation. It really is productivity growth that can

22:18

be shared. What stock

22:20

buybacks are doing is actually taking money out

22:22

of the company. And eventually, if

22:24

they keep doing this, the business won't be good.

22:27

They start squeezing their employees to

22:29

get more profits to buybacks, gouging

22:32

their customers. Now I've seen,

22:34

for example, the pharmaceutical companies always make that

22:37

argument in the United States where drug prices

22:39

are unregulated. But we show through our research

22:42

that the argument is bogus because Merck

22:44

and Pfizer and Johnson and Johnson use almost

22:46

all their profits, sometimes even more, to just

22:49

prop up their stock prices. So we pay

22:51

higher drug prices in the United States so

22:54

they can get higher stock prices. So

22:56

in the past couple of years, the US

22:58

and Canada have introduced a tax on buybacks

23:01

of about 1% to 2% that

23:03

curb this type of spending. So

23:06

in the fall of last year, Krista Freeland made

23:08

it clear why she was doing that. We're

23:11

taxing share buybacks to

23:13

make sure that large corporations

23:16

pay their fair share and

23:18

to encourage them to reinvest

23:21

their profits in Canadian

23:23

workers and in Canada. But

23:26

Lazenik says that that small amount

23:28

of tax doesn't go far enough.

23:31

1% or 2%, he says, will do

23:34

nothing to actually curb buyback spending.

23:37

I argue that even if you tax it

23:39

at 40%, this would

23:41

be like taxing cigarettes, basically. And

23:44

then you should have on every website,

23:46

and I'm kind of semi-serious about this,

23:48

companies that still do buybacks, they have

23:51

to have a banner that's going across

23:53

that website all the time, says, stock

23:55

buybacks kill the middle class or stock

23:57

buybacks undermine innovation, because that's

23:59

really what it is. So if

24:01

the politicians really want to deal with this

24:04

issue seriously, they have to take it seriously.

24:06

And a small tax on buybacks is not

24:08

going to do that job. A lot of

24:11

the language about the 2 percent tax, or

24:13

even the 1 percent tax in the United

24:15

States, is all, this is going to improve

24:17

the situation of workers and productivity.

24:20

That's, in my view, not the

24:22

case. Or if you really

24:24

believe that's the case, then you

24:26

should really set that tax at maybe 40

24:28

percent. Right. So your argument is that

24:31

it's as bad for the economy as it

24:33

is as bad as cigarettes are for a

24:35

while. But buybacks are toxic. They're toxic

24:37

to productivity. They're toxic to wages. They're

24:39

toxic to the prices that consumers pay.

24:42

And what's interesting is that the attitude

24:44

around buybacks has crossed

24:47

political lines. In March

24:49

2020, former President Donald Trump

24:51

actually even spoke out about buybacks. I

24:54

don't want to have stock buybacks. I don't want some

24:56

executives saying we're going to buy 200,000

24:58

shares of stock. I want that money to

25:00

be used for the workers and also for

25:02

the company to keep the company going. I

25:05

haven't spoken to a lot of the

25:07

Republicans or Democrats on it. We discussed

25:09

it. And I don't like buybacks. So

25:11

this is like across lines. This is not tied

25:13

to whether or not you're coming at this from

25:15

a liberal or conservative point of view. There's a

25:18

backlash against these things. I mean, historically,

25:20

it's been aligned with the Democratic Party

25:22

and liberalism. For example, Bernie Sanders is

25:24

one of the most outspoken people about

25:27

stopping buybacks. But right now

25:29

there are people across the political spectrum

25:31

in favor of taxing or limiting stock

25:33

buybacks. Something else that

25:35

Lazanik brings up about this whole buyback

25:37

controversy is how they actually might lead

25:39

to real life disasters. Take

25:50

the Boeing 737 MAX incident in 2018 and 2019. There were two plane

25:52

crashes involving

25:58

Boeing 737 MAX. passenger

26:00

planes, and those crashes killed

26:02

all passengers and crew on both flights, so

26:05

a total of 346 people. Ultimately, the cause

26:07

was due to faulty technology.

26:13

But there are some experts that say there's a bigger

26:15

picture. So this is journalist

26:17

Peter Robinson, and he wrote

26:19

this book investigating the whole Max

26:21

disaster, and this is him speaking on Ralph

26:24

Nader's podcast. In the late 90s,

26:26

a CEO named Phil Condit took charge

26:28

of the company, and the prime thing

26:30

it started doing was really to start

26:33

buying back its own stock, which seems

26:35

like an arcane thing. But it

26:37

diverts a huge portion of the

26:39

company's cash directly to shareholders when

26:41

in the 80s companies were only

26:43

diverting about 4% of their profits

26:46

to shareholders through buybacks. And Boeing actually

26:48

took it farther in the period they

26:51

were developing the Max, they were sending

26:53

80% of their pre-cash to

26:55

shareholders. So what I

26:58

found over that over time, Boeing

27:00

moved from a company that was

27:02

an association of engineers to a

27:05

company that was ultimately financially oriented.

27:07

And part of that

27:09

strategy involved moving to lower

27:12

cost labor sources. And

27:14

so Boeing moved a

27:16

huge, at first, about half the production

27:18

to the 787, and eventually all of

27:20

the production of the 787 to South

27:22

Carolina. It's been to multiple

27:25

problems with cost, it's taken billions

27:27

of dollars in charges, it's manufacturing

27:30

defects that arose in part because of

27:32

the problems with the South Carolina workforce,

27:34

and also because of problems with this massively

27:37

outsourced engineering and

27:39

manufacturing on that plane. The

27:42

very next year following the crash, the

27:44

company significantly pulled back on their buybacks.

27:47

Cherise, I have to admit, that sounded really far-fetched

27:49

to me when you just said it, but

27:52

we took another break and I had to click

27:54

around, you know, blaming a plane

27:56

crash on a stock buyback in

27:58

like a direct one-time. to one case

28:01

of this like tragedy. I wasn't buying

28:03

it. But there is this like trend

28:05

that lends a lot of credibility. Here's

28:07

a study of the ratio of money

28:09

spent on equipment in relation to how

28:11

much money companies spent on buybacks. Just take

28:13

a look at this chart. In 1994, major

28:16

companies were dropping over $6 on physical equipment

28:18

for every dollar they spent on stock

28:21

buybacks. Nowadays, they're only showing

28:23

out 94 cents on new stuff

28:25

for every dollar they spend buying back their own

28:27

shares. Yes.

28:30

And that was a study from S&P in 2020. Whatever

28:33

happened in that one case, it does

28:35

seem like just like buying back your

28:37

own stock to pop your stock price.

28:40

I mean, that just is a much

28:42

more attractive concept than spending the money

28:44

on like literally anything else. And that

28:46

ultimately is harming everything from wages to

28:48

safety to innovation, research and development. Right.

28:51

Makes a lot of sense if you look at the actual

28:53

financial trends that we've been talking about. There

28:55

are also experts that say that a similar

28:57

pattern is happening with pharmaceutical companies. And

28:59

that's where research and development is really important.

29:02

A lot of that criticism comes from the U.S.

29:04

where the health care system is very different. But

29:07

the examination of how buybacks could

29:09

impact medical research and other innovations

29:12

is important for Canadians. Here's

29:14

a clip of U.S. House Representative

29:16

Katie Porter grilling Richard Gonzalez, the

29:19

CEO of pharmaceutical giant, AbbVie, in

29:21

2022. You

29:23

told us that you spent

29:25

$2.5 billion for R&D,

29:28

for Abruvica, even though

29:30

the drug didn't get any better. Mr.

29:32

Gonzalez, how much did AbbVie spend on litigation and

29:35

settlements from 2013 to 2018? I

29:38

don't have that number off hand. We'll be happy to give it to you.

29:41

Okay. $1.6 billion, $2.45 billion

29:43

on R&D, $1.6 billion in

29:45

litigation and settlements. What about marketing and advertising? How

29:47

much does AbbVie spend on that? Well,

29:50

marketing and advertising, we spend about

29:52

$4 billion a year. Yep,

29:55

$4.7 billion. How about executive compensation,

29:57

2013 to 2018? It's

30:01

probably on average about $60 million a

30:03

year. Try 334 on for size.

30:07

Now, how much did AVV spend

30:10

on stock buybacks and dividends to

30:12

enrich your shareholders from 2013 to 2018? It

30:16

would be about $13 billion. Stock

30:19

buybacks and dividends is the question, sir. Dividends

30:23

and they have to come back with a number for that over

30:25

that period of time. $50

30:27

billion. So,

30:30

Mr. Gonzalez, you're spending all this money

30:32

to make sure you

30:34

make money rather than spending

30:36

money to invest in, develop

30:39

drugs and help patients with

30:41

affordable life-saving drugs. The

30:43

idea that a company needs to maximize

30:45

shareholder value above all else is actually

30:47

a somewhat new concept. In

30:49

fact, Lasnick said that he was there when

30:52

it started to become entrenched in

30:54

economic thinking. And this came

30:56

out of business schools. I was at Harvard

30:58

Business School when they brought in a guy

31:00

named Michael Jensen who was the guru of

31:02

maximizing shareholder value among the professors at Harvard

31:04

Business School. Let's say when I was there

31:06

in 1984, by 1986, everybody is talking about this. And

31:13

the ones who were critical of it, most

31:15

of them didn't have the background in economics,

31:17

et cetera, as I did, that you could

31:19

mount a critique. So they just went with

31:21

the flow. So this

31:23

Michael Jensen guy. This guy

31:26

that William Lasnick knew in the 80s. He

31:28

was kind of a superstar. He co-wrote

31:31

one of the most widely read

31:33

economic articles of all time called

31:35

Theory of the Firm. And

31:37

this is the article that made the case

31:39

that companies prosper when their shareholders

31:42

prosper alongside them. So

31:44

that was foundational to this idea

31:46

of maximizing shareholder value to have

31:48

a successful business. And

31:50

that just sort of has become the

31:52

dominant belief in economics for the past

31:54

few years. But recently there's

31:56

become more and more of a pushback to

31:58

this. So you see

32:01

this come through business schools, boardrooms, and

32:03

now it's in every annual report. And

32:06

people just go, even people who are

32:08

being hurt by this, go around saying,

32:10

well, that's what companies have to do.

32:13

What was the argument for them around

32:15

the 80s when they were arguing for

32:17

maximizing shareholder value? The argument is that

32:19

the only people who make an investment

32:22

in the company without taking

32:24

a risk are shareholders. If

32:26

you are a common shareholder, your

32:28

dividend is not guaranteed. And

32:31

so that is the argument. And they say

32:34

everybody else gets a guaranteed yield on their

32:36

contribution. In the case of workers, which is

32:38

the most important one, I

32:40

get paid my wage, so I'm taking no risk. But

32:43

of course, there is a risk for workers and a

32:45

lot of concern from workers over how much they do

32:47

get paid. And Lazenik says the

32:49

productivity of a company actually

32:51

depends heavily on workers being happy

32:53

and wanting to work there, not

32:56

on how much shareholders invest. Now

32:58

why do most economists,

33:01

including many progressive economists, buy

33:04

into that argument? Because they don't

33:06

understand wage determination. But

33:08

economists have a view of the market in

33:10

general. I'm not just talking about the right-wing

33:13

economists, but economists in general, that the market

33:15

is just allocating resources here and there. If

33:18

a worker loses a job here, they can

33:20

get another job there. That's not the way

33:22

things work. That's not how we get a

33:24

strong middle class. That's not how we get

33:26

good wages. And that's actually not how companies

33:28

raise money. So you've got

33:30

to put organizations at the center of

33:32

this argument and saying how do organizations

33:35

become productive. And once you

33:37

make that argument, all these arguments

33:39

about maximizing shareholder value fall

33:42

away. So from what Lazenik

33:44

said, it's a combination of this focus

33:46

on shareholders getting their money back and

33:49

a basic lack of understanding of

33:51

how the economy actually works, which

33:54

explains why these buybacks are at an

33:56

all-time high. That's really interesting,

33:58

Theresa. I didn't even know that that... whole

34:00

philosophy of increasing shareholder value

34:03

can be traced back to an article. I just sort of

34:05

thought that's what the publicly traded company was, was it exists

34:08

to increase shareholder value. I didn't know that that was sort

34:10

of like a recent belief system

34:12

that was introduced by a specific article.

34:14

Yeah, prior to the 1980s, this was actually

34:17

illegal. And so the introduction of this new

34:19

idea that like, you should not only

34:21

be doing it, but you should be doing

34:23

it a lot and consistently is actually pretty

34:25

new. It's almost like the tale that wags

34:27

the dog because like if the pro-capitalism idea

34:29

is that it's good for your

34:31

shareholders to make a lot of money because that means

34:33

the company is being productive and doing well, and that's

34:35

good for everybody. But if there's almost like a trick

34:38

to increase the stock value without

34:40

increasing value or benefits for anybody

34:43

else, you've kind of like

34:45

short circuited the whole thing. And now

34:47

you're just saying this is good because the shareholders are

34:49

making money, not because that creates any good. Yeah,

34:52

exactly. And something that Lazenate likes to talk about

34:54

is how if you do

34:57

buybacks, the company spends money, but

34:59

unless that shareholder decides to eventually sell the

35:01

stock, that money just goes nowhere. It just

35:04

sits there. So it's not not actually getting

35:06

used. Right. It's not trickling down. It's not being reinvested.

35:08

It's just sitting there in the hope that they'll do

35:10

more buybacks and it'll just get more and more. Yeah.

35:13

And if they want to hold on to the stock

35:15

forever, then they can do that and it'll

35:17

benefit no one. Going back to

35:20

the earlier point that I was making,

35:22

grocery corporations have been spending billions on

35:24

what is literally just elective spending. They're

35:26

choosing to spend it on stock buybacks

35:28

when they've been saying that they can't

35:31

afford to pay workers this

35:33

extra $2 an hour and

35:35

at the same time when inflation

35:37

is creating literal bread lines. But

35:40

at the same time, I'm trying to be

35:42

objective here and not just

35:44

see these grocery stores, CEOs, these

35:46

tech CEOs as the villains. So

35:48

in order to sort of check

35:51

my biases, I asked him one last time what

35:53

he thought of all this. I do

35:55

want to maybe play devil's advocate for

35:58

a second. Is there any good reason

36:00

for a company like this or

36:02

any company to be increasing

36:04

spending on their stock buybacks that

36:07

maybe I'm not seeing or maybe I'm not understanding?

36:10

Well, from the company's perspective or a

36:12

financial investor's perspective, they think it's a

36:14

great idea. Investors buy shares

36:16

to try and make more money. They

36:19

aren't actually motivated by a mission of

36:22

funding innovation and supporting economic growth. In

36:24

reality, they do it to make more

36:26

money. There's no doubt that share buybacks

36:28

from that perspective are a

36:30

powerful and efficient thing to do. From

36:33

the perspective of investors, this is a

36:35

totally rational thing. The three supermarket chains

36:37

in their most recent fiscal years spent

36:40

a combined total of about $2.25 billion

36:42

on share buybacks. For less than half

36:44

of what they've given their own shareholders,

36:47

they could have paid every single worker,

36:49

including the managers and

36:51

the executives, an extra $2

36:53

an hour. Now, of course, $2 an hour to

36:56

an executive is SFA, but

36:58

for the actual workers on the

37:00

shop floor and the cashier in

37:02

the warehouse. Sweet

37:06

fuck all. I

37:08

shouldn't use that term on radio. At

37:10

any rate, the $2 an hour wage benefit for

37:14

people forgetting through the pandemic would

37:16

absolutely be affordable. They could still

37:18

spend over a billion dollars a

37:20

year on share buybacks. All

37:23

of this nonsense about how this was

37:25

a recognition of the heroism of the

37:27

grocery workers and then the sudden

37:31

and coordinated taking away of that $2

37:33

an hour bonus was

37:35

self-serving on both the beginning

37:37

and the end of it. Then as

37:40

soon as things calmed down enough or

37:42

got routinized enough that they weren't worried

37:44

about labor supply, then they took the

37:46

$2 away. They did it in, again,

37:48

three big chains control two-thirds of the

37:50

industry and they could all decide at

37:52

the same time to cut paid $2

37:54

an hour scandalous. But

37:56

again, it's just par for the course

37:58

in this industry. And to

38:00

drive home that point about law laws, Jim

38:03

also says that he can debunk the idea

38:05

that prices are higher just because of high

38:07

food costs. And there's more.

38:10

Jim also pointed out that according to law

38:12

laws financial statements, it's clear to him that

38:14

their costs were offset by significantly higher

38:16

revenue. So number one, this claim that

38:18

they're just passing on higher costs is

38:21

not true. You could have grade six

38:23

math and realize if all

38:25

you did was paid more in costs

38:27

and increased your own prices the same

38:29

amount, your profits wouldn't change. Okay, but

38:31

their profits have more than doubled. Secondly,

38:34

you can see that the profit margin as

38:36

a share of total revenue at the food

38:38

retail companies has also grown. So

38:41

another PR line that you've heard from the

38:43

CEOs is that, well, it's just a margin.

38:47

The margin is very small. We only collect

38:49

a couple of cents on each dollar of

38:51

food prices. So that hasn't really changed. In

38:53

fact, the margin has changed. And

38:56

both the company's own financial reports

38:58

and the Statistics Canada data, which

39:00

covers the whole industry, confirmed the

39:02

profit margin has swollen by my

39:04

estimates by about three quarters compared

39:07

to before the pandemic. And those little bits of

39:09

profit, you know, two cents or three cents

39:11

or four cents on the dollar, depending on what

39:13

you're buying, add up, add up

39:15

big time to billions and billions

39:17

of dollars of profits. You know what

39:20

really struck me from all this, Charisse, is that like we're

39:23

at this place where we're

39:25

hearing angry rhetoric from

39:27

policymakers against buybacks from everybody from Elizabeth

39:29

Warren and Bernie Sanders to Christie Freeland

39:32

and Donald Trump. So it

39:34

seems like there's like consensus that this

39:36

is like really, really shitty. And

39:40

yet one wonders like,

39:43

I don't know, when all

39:45

the politicians get really mad at

39:47

the corporate

39:49

sector, does that mean

39:51

something happens? That's a

39:53

really good question. I think so

39:56

far we've seen that nothing has

39:58

really happened. I mean, it

40:00

is interesting that right at

40:02

the same time that Biden announced

40:05

the tax on buybacks just a few months later,

40:07

Christopher Freeland did. And so it does

40:10

seem like Canada and the US are

40:12

moving in a bit of a lockstep when it comes

40:14

to this kind of policy. But

40:16

just like Laznick said, the 1% to

40:18

2% tax isn't necessarily going

40:21

to do very much. And

40:23

there actually is a movement now for completely

40:25

ending stock buybacks and making them

40:28

illegal. And it's a bit

40:30

of a more of a radical fringe movement, but it does

40:32

exist. People that are saying that, hey,

40:34

let's end this entirely. That's

40:41

your Canada land. We try to tell

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