Value creation by companies has been the topic of multiple COMM 101 classes; business model canvasses and value proposition canvasses assist a company in enhancing value for its customers.

15 Companies with aggressive stock repurchase programs

However, the CEOs of “the titans among giants”, companies like IBM, HP and Cisco seem to be missing the point. Value building, for them, seems to be through stock buy-backs, as a quick internet search of the term “stock buy-back” will reveal. What is stock buy-back? A stock buy-back is the repurchase of a company’s stocks from its shareholders. Buy- backs are harmless per se, but questionable when they drive companies’ liquidity into the ground. In recent years, IBM has spent over $ 160 billion on stock repurchase despite stagnating revenue. HP too has spent billions on its buy-back program despite declining revenue. Instead of reinvesting in research and development or acquisitions that benefit all stakeholders, these companies chose to enhance value only for their shareholders. These decisions will hamper their legacy, and return to haunt them.

Buy-back expenditures of various companies

The lessons to learn from this discussion: a) Commerce classes are important, so don’t miss them and b) Value generation is a key aspect of organizational development. Do not take shortcuts to enhance value.

Links

• Brettell, Karen, David Gaffen, and David Rohde. “How the Cult of Shareholder Value Has Reshaped Corporate America: The Cannibalized Company.” Reuters, n.d. Web. <http://www.reuters.com/investigates/special-report/usa-buybacks-cannibalized/>.
• Bens, Daniel A., Franco Wong, and Douglas J. Skinner. “What Drives Companies to Repurchase Their Stock?” Chicago GSB | Capital Ideas. Chicago Graduate School of Business, Fall 2003. Web. 20 Nov. 2015. <https://www.chicagobooth.edu/capideas/fall03/stockrepurchases.html>.