Comment by terminalshort

> Share buybacks allow companies to reward executives directly as their compensation is tied to stock price.

To be fair share owners also like the stock price to go higher, they also like dividends (and higher dividends would tend to drive the stock price higher too), but an X% increase in share price caused by buybacks is favoured over an X% dividend because it isn’t immediately taxed.

If companies want to reward executives directly they can cut out shareholders entirely and pay salaries and bonuses. If companies want to reward shareholders (including executives) they can pay dividends (which Apple did do under Jobs). Nothing about the priorities of companies changed with share buybacks.

But dividends also result in a concrete financial reward for all shareholders, yes?

Dumb maybe question: Why couldn’t the companies with excess profits just pay they employees more in salaries?

Unfortunately CEOs have to do buybacks at every opportunity, because otherwise shareholders will sue them for failing to maximize shareholder value.

> Jobs was always thinking Apple could do better with the money in R&D than paying off shareholders. Wall Street did not approve of this position, but Jobs wasn’t one to listen to anybody, so it did not matter.

(Head spins) wait what?! No! You’re not supposed to do that! If you fail to always maximize short term profits, people might start thinking CEOs actually have agency, and they won’t be able to hide behind the “maximizing shareholder value” excuse!

The reality seems to be that only the genius founder is allowed to do any unorthodox moves as the CEO. Once he's out, the board selects a CEO that will basically continue business as usual without rocking the boat. The new CEO essentially won't have a mandate to use any controversial or original approach.

Having worked in corporate labs they really were great and it's a shame they're disappearing.

It's not only share buybacks, I would include offshoring, DEI, and a consolidation of management power as major factors in the destruction these labs. The pipeline has been so bad for so long now that it would take a miracle to get things started again.

The last org I worked at offshored the most promising work to China. Due to some high up international agreement the company had to spend $X on offshored workers so not only were they considered cheap they were considered free because the money had to be spent anyway and was coming out of someone else's budget.

I was working at a Research Org when the DEI push came through and it was a absolute disaster. A lot of projects ended their internship programs and avoided hiring in order to minimize the exposure. The bargain was always, you can have 6 seats but 50% need to be women and 50% need to be minorities, and since everyone got the push at the same time it meant that due to the intense competition for the same people you'd end up really having to scrape the bottom of the barrel. That made a lot of initiatives unviable.

I wasn't working at Yahoo Research but as I heard it was canned following a management rift. They were already bleeding talent for a while but had retained some good people that stayed out of comfort and inertia. The smart people cultivated in research orgs tend to be a competing source of power and management hates that.

And you can have a career track that normal people will actually want. The whole phd -> postdoc -> (maybe) tenured professor thing is such misery that I never even gave it a thought as a career.

Yeah if you go check almost any major scientific breakthrough of the past century it usually starts with "some guy was working in a corporate lab with an unlimited budget". We're stagnating as a species a lot more, but at least the shareholders got a payout for their hard work of doing literally nothing. Rent seeking at its worst.

> it was such a a huge loss seeing those corporate labs disappear.

A loss for whom? Society? Of course, and that's exactly why they don't happen anymore -- because while they were a boon for society they were a terrible bet for the company. And when a company has a choice between doing good for their bottom line or doing good for society, 100% of the time they choose their bottom line.

I mean, look at the legacy of Xerox Parc from Xerox's perspective. They invited this guy in, Steve Jobs, and he commercialized their ideas. Today Xerox is worth pennies on the dollar compared to their height, doing none of what Xerox Parc researched. Apple ate their lunch. The ROI for Xerox Parc was terrible for Xerox.

For all the amazing stuff they did, they were not rewarded by the marketplace for it, they didn't produce better products for themselves, they just did other companies' R&D.

That's where universities come in, and where they are vital. If you take them out, their role will not be filled by corporations, because corpos can't stomach the kind of dollars needed to do fundamental research. Only the government can stomach that, and if somehow the voters are convinced all this isn't worth funding, it just won't happen at any level.

That isn’t what they’re textbooks examples of.

GE (under Jack Welch specifically) is a textbook example of how financialization and focusing on numbers at the expense of products destroys companies.

Kodak is a textbook example of disruption. Yes they failed to capitalize on digital cameras specifically, but their research in all other areas was very much acted upon.

Xerox and Kodak, at least, stumbled into the future and then refused it.

The same thing will happen to Google & co.

And DuPont is very much alive doing DuPont things.

It can appear that some famous companies pursue pure research as a source of public luster.

The bigger problem today is that there is simply nothing more left to research. Everything that is being worked on are at most optimizations, which allways have a dollar spent vs dollar returned amount on them.

You state that as if it is a fact, but from what I see the tech industry has engaged in the longest term corporate strategies I have ever seen. Amazon took losses for the better part of two decades before it showed a profit, and public markets would never even fund a venture like SpaceX.

In tech it was the switch from creative corporatism, which is focused on opportunities, invention, and infrastructure, to extractive corporatism and oligarchy, which are focused on scams, exploitation, and the creation of rigid hierarchies of privilege.

We're now in the end stage of the latter in the US.

The US still plays at invention - or rather a few of its oligarchs do - but it's far, far behind what's happening in other countries.

This sounds like a much more reasonable explanation for the fall of the corporate labs.

The obvious retort would be, if the situation were so favorable for corporations before Bayh-Dole, why were so few licensing deals in place before the passage of Bayh-Dole (fewer than 5% of technologies were licensed)?

> So corporations largely stopped funding private research labs like Bell and instead entered into public-private partnerships

They didn't though. Bayh-Dole was 1980. All the big tech firms have invested massively in R&D since then, and I think it's also true for many non-tech industries or tech-adjacent (e.g. chip manufacturing, oil and gas).

Repealing Bayh-Dole is a terrible idea. A lot of research produces enough to get a patent but still requires a lot more development to get a product. Drugs are probably the best example.

And before buybacks they used distributions, which have always been allowed, so there has been no change there.

Something I haven't seen mentioned in this thread or TFA is just how high corporate taxes were (and even personal investment taxes) in the 50s and 60s, and this influenced spending on R&D immensely because that investment wasn't considered taxable income. Tax rates were over 50% for much of the era of Bell Labs and Xerox PARC.

Of course, I forgot how management's compensation used to be 'dividend options'.

Where do you think the capital being returned is going? If it's not being consumed but instead is mostly getting reinvested somewhere else than what is the problem? Capital markets are working as intended to move capital out of a firm that cannot generate high returns with it into ones that can.

Why would companies not want to maximize their value before share buybacks?

Buying back stock is just as a way to distribute money to shareholders. It's neutral when it comes to "shareholder value". It's the same as paying dividends and having some shareholders reinvest it.

It just saves an extra step and doesn't trigger tax event. It also makes more sense. If you prefer cash you sell it on the market to the company. If you prefer holding shares you don't do anything. You get a choice when it cash out instead of being forced to on regular basis.

Because before buybacks there were dividends. Did the difference between buybacks and dividends really make the difference between doing basic research and not?

On one hand, sure. They're able to make an informed decision to maximize return to shareholders.

On the other hand, a ton of amazing inventions came out of that system which created entire industries that went on to turbocharge the economy and create millions of jobs. I can see how someone may feel that a company being able to inflate it's stock price more is less useful to humanity and not worth the trade.

There may have been other reasons as well for the collapse of corporate research like changing tax rates, or maybe we were just in a golden age (1940s-1980s) as new advancements in physics and materials science allowed for a rapid amount of discoveries and now we're back in a slower period.

Yes yes, companies used to compensate management with 'dividend options' so switching to stock options totally didn't pervert management's incentives.

And management doesn't manipulate the stock using stock buybacks. Why would they? Their performance and compensation are only completely tied to stock price. But no, stock buybacks don't allow perverse incentives that lead to short term thinking different than dividends. Totally the same.