Legendary investor Warren Buffett had a few choice words for people like me who are alarmed by the growing trend of U.S. corporations manipulating their stock with buybacks to boost the value of their shares and ultimately enriching their CEOs.
“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett said in a 2023 letter to shareholders.
Fair enough, I didn’t study economics, and I’m mathematically challenged. Unfortunately for Buffett, my English reading and comprehension skills are adequate, and I can understand messages crafted by those who have some fluency in economics.
An economic thinktank called Groundwork Collaborative last week issued a report revealing how major U.S. consumer goods companies spent three times more on stock buybacks than they paid in federal taxes, underscoring how Donald Trump’s tax cuts during the first term didn’t result in corporations reinvesting the savings in their businesses as he promised. The salient point of the analysis was that while U.S. consumers are struggling to pay higher prices for food, healthcare, and other essential goods, American corporations are raking in record profits and redistributing the wealth to their shareholders, the most affluent people in America.
President Biden’s National Economic Council, Bharat Ramamurti, in 2023 estimated that 90% of U.S. corporate earnings were diverted to shareholders in buybacks and dividends. The wealthiest 10% of U.S. households own 93% of U.S. stocks, while the bottom 90% own less than 11% of the stock market. The top 0.1% hold a larger share of corporate equities than the bottom 80% combined.
Of course, the corporate media is always quick to point out that some 60% of American households own stocks via mutual funds or as individual shares, but the aggregate amount is tiny when compared to the holdings of the top 10%.
It’s understandable the corporate media, particularly NBC, CNBC, and MSNBC, ignored the Groundwork Collaborative study because Comcast, the networks’ parent company, was one of the most egregious offenders. MSNBC anchor Rachel Maddow, who in years past has railed about wealth inequality, understandably doesn’t want to bite the hand that feeds her $25 million a year.
“The figures are “startling”, Liz Pancotti, director of policy with the Groundwork Collaborative, told The Guardian, an alt-left nonprofit publication. “The companies are now throwing massive amounts of money at investors who are largely already wealthy people,” Pancotti added. “This is how you get the staggering wealth inequality in this country.”
Mmm. Pancotti sounds an awful lot like yours truly warning how share buybacks contribute to wealth redistribution. Notably, Pancotti holds a an economics degree from American University, so Buffett can’t accuse her of being an economic illiterate. In addition to Comcast, other consumer products companies called out by Groundwork Collaborative were Proctor & Gamble, General Mills, Kimberly-Clark, UnitedHealth Group, and Elevance Health, the parent company of Anthem Blue Cross and Blue Shield, Wellpoint, and Carelon.
But the company cited by Groundwork Collaborative’s study deserving of a very special mention is PepsiCo, the maker of sugary soft drinks and snacks that Health and Human Services Secretary Robert F. Kennedy Jr. has publicly warned are “poison.” According to the Groundwork Collaborative study, Trump’s tax cuts lowered PepsiCo’s federal tax burden by 11 percent, while its profits have increased by 58 percent.
That PepsiCo would be among the companies spending more on share buybacks than it pays in taxes is no surprise to readers of this blog who are familiar with the Starkman Approved Theory, which holds that companies professing the loftiest values and ethics invariably are among the most ethically and morally compromised. When it came to virtue signaling, PepsiCo in recent years ranked among the loudest in corporate America, despite its products causing great harm to consumers in the U.S. and around the world.
In March 2023, I published this post headlined, How Pepsi Woke Washes its Evil Business, highlighting Pepsi’s efforts to position itself as a leader in social responsibility.
As an example, Pepsi in July 2022 issued this news release boasting of the great strides it made since launching PepsiCo Positive (pep+), “a strategic end-to-end business transformation with sustainability and human capital at the center of how the company will create growth and value.” PepsiCo’s stated accomplishments included “economically empowering women” with “gender smart solutions along our agricultural supply chains in Dominican Republic, Ecuador, and Guatemala.”
DEI initiatives were among PepsiCo’s most touted competitive advantages.
“At PepsiCo, we’re guided by our overall vision, our CEO [Ramon Laguarta]’s vision of pep+ [pep Positive], which is our ongoing, end-to-end, strategic transformation of how we create growth and shared value with sustainability and human capital at the center,” Tina Bigalke, Pepsico’s then Global Chief Diversity, Equity, and Inclusion Officer, told Forbes two years ago.
“The DE&I agenda tucks under this PepsiCo positive vision of us wanting to create a space. That’s our mantra in DE&I: A space to be you. We want to create a space for our associates, for our business partners, and for our communities to thrive and be their best selves.”
I didn’t have a clue what Bigalke was talking about when I read her comments in Forbes two years ago, and indications are she might not have either. PepsiCo’s aggressive DEI initiatives not only didn’t give the company a competitive edge, but the company last year also lost its decades-long ranking as America’s No. 2 Cola to Dr. Pepper. And some of the company’s other drinks, including Gatorade, have also been steadily losing market share.
“Maybe we lost the focus,” Ram Krishnan, who heads PepsiCo’s U.S. beverage business, recently admitted in an interview with the Wall Street Journal.
Despite all its supposed diehard commitment to DEI, PepsiCo dropped its diversity, equity, and inclusion initiatives like a hot potato in February.
Bigalke was replaced as PepsiCo’s chief diversity officer in January 2024 by Monica Bauer Mengelberg, who last November was as recognized as the Diversity, Equity, and Inclusion Person of the Year by the Hispanic PR Association. Baurer Mengelberg’s LinkedIn profile says she is now PepsiCo’s Global Employee Engagement Senior Vice President.
Unfortunately, a man of the cloth and MSNBC anchor, Reverend Al Sharpton, has threatened to organize a boycott of PepsiCo products unless the company reinstates its DEI commitments. Sharpton claims that PepsiCo’s management has agreed to meet with him.
According to Sharpton, who sat on PepsiCo’s African American advisory board in the early 2000s, PepsiCo in the 1940s and 50s hired some of the first Black sales and marketing executives in corporate America, and by the 1980’s the company’s policies led to the creation of Black consumer advisory boards.
“You did this not because it was easy — but because it was right,” Sharpton wrote in a letter to PepsiCo earlier this month. “That legacy is now in jeopardy.”
PepsiCo faces other pressures. RFK Jr., President Trump’s HHS secretary, has advocated that the federal government stop allowing the nearly $113 billion program that serves about 42 million Americans to use benefits to pay for “soda or processed foods.”
“The one place that I would say that we need to really change policy is the SNAP program and food stamps and in school lunches,” Kennedy said. There, the federal government in many cases is paying for it. And we shouldn’t be subsidizing people to eat poison.”
Officials in Arkansas and Indiana moved today to ban soft drinks and candy from the program that helps low-income people pay for groceries, becoming the first states to ask the Trump administration to let them remove such items from the program long known as food stamps. Hopefully, more states will follow suit and further harm PepsiCo’s business.
If RFK is indeed serious about curbing sales of sugary drinks, he should lobby President Trump to not just rescind PepsiCo’s tax breaks but also impose a special tax on peddlers of harmful food products to cover the healthcare burden they place on society. Even an economic illiterate like me appreciates that would make it increasingly difficult for PepsiCo to sustain the share buybacks and dividends required to bolster the company’s stock price and allow CEO Ramon Laguarta to keep his job, which last year paid him $29 million in compensation.