The Unbearable Folly of Share Buybacks

My breakfast was spent poring over an interesting article from Reuters on share buybacks.

At the risk of making a comment interpreted as a sweeping generalisation (for there are always notable exceptions), it is often the case that share buybacks:

• Reduce innovation
• Are a tacit admission that the company's executive team does not have a strategy

A share buyback is a short-term legal high - much like M&A transactions that boost revenues but do nothing else (they should do more, given the hassle involved in making the transaction succeed).

The Reuters article is well worth a quick read (there has also been good coverage of the phenomenon in the NY Times and The Economist). While I agree with its list of forces at work, the article doesn't spell out lifecycle effects as a force - many of the firms are quite old/established.  And this raises an interesting point.  While executive rewards have outpaced shareholder returns, not all executive teams are rapacious.  The sad fact of the matter is that some executive teams just don't know what to invest in, and this point alone raises issues of governance, groupthink and diversity, among others.