what’s at stake
Congress is in a standoff with industry groups over a push to limit stock buybacks for defense contractors.
A provision included in the Senate’s version of annual defense policy legislation would require defense companies that contract with the government to get approval from the Pentagon before buying back their stock from shareholders or paying dividends.
The idea has bipartisan appeal; the provision originated from legislation sponsored by Sens. Elizabeth Warren, D-Mass., Josh Hawley, R-Mo., and Mike Lee, R-Utah. President Donald Trump signed an executive order earlier this year that prevents defense contractors from executing stock buybacks or paying dividends if they are underperforming expectations.
Industry groups have lobbied forcefully against the proposal, characterizing it as a harmful federal intervention in the private sector that discriminates between publicly traded and private companies.
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who’s making the case
Neil Bradley, executive vice president, chief policy officer, and head of strategic advocacy at the US Chamber of Commerce, described the provision as a “power grab” by Congress:
“At its core, what this does is — the provision says that if you’re a publicly traded company and you do any business with the Department of Defense, then your ability to do stock buybacks or pay dividends is only with the approval of the federal government. That is an unprecedented intrusion into the private sector and the operations of private businesses. And so, there are lots of problems beyond that — the secondary effects that this creates — but at its core it’s basically one of the largest intrusions and power grabs by Congress into the private sector that we’ve seen in years.
“[If the legislation passes] you would have given the federal government the power and leverage over companies and how they return capital if they’re publicly traded to their investors. What you will see, particularly for companies for whom doing business with the Department of Defense is maybe a small part of what they do — this puts a real cost on it, and I think you’ll see companies say, ‘It’s not worth turning control of my business over to the federal government in exchange for this small contract.’”
Rep. Chris Deluzio, D-Pa., who unsuccessfully proposed a similar amendment restricting stock buybacks to the House version of the National Defense Authorization Act, argued that defense companies are prioritizing their own profits over research and development needed to power the defense industrial base:
“Defense contractors that plow profits from public money into stock buybacks instead of research and development are ripping off the American people. The data is clear: These contractors have shrunk their investments into capital expenditures and research and development while jacking up their own stock buybacks and dividends.
“My amendment is common sense. It would prevent defense contractors from issuing stock buybacks when they fail to invest properly in research, development, and their own infrastructure. The American military needs to be ready to defend our country and win any fight that comes our way, but corruption and corporate capture within the Defense Department are eroding that critical readiness. I am going to keep fighting to ban these swampy stock buybacks.”
Notable
- The Washington Post editorial board panned the proposal as a “shortsighted idea that would discourage needed investment in the defense industry.”