A year or two ago, the phrase “share buybacks” was a phrase only known to those in and around the world of corporate finance. It refers to a company’s use of available cash to purchase its own shares in the open market. The effect of this is to reduce the total number of shares outstanding, which makes the remaining shares more valuable. Recently, however, share buybacks have become enmeshed in political debates as shorthand for actions taken by corporate America and encouraged by Wall Street that are not in the best interest of workers and society generally. For example, The New York Times recently reported on how cash freed up by the recent tax cuts are being spent on share buybacks, as opposed to more worthy uses such as hiring new employees.
Matt Levine, writing in Bloomberg View, makes a good point about Spotify’s reported direct listing plan: When Spotify flips the switch, and trading of its shares on a public stock exchange commences, that won’t be the first time Spotify shares have traded hands. Like other large private companies that have been around a while, some of its early investors and employees have had the opportunity to sell some of their shares to existing or new stockholders, either in purely private transactions or ones facilitated by service providers that specialize in secondary market transactions. These private transactions help to establish a valuation for the company and ensure that, when public trading commences, investors won’t be flying completely blind in determining what the price should be in the absence of an initial price set by an IPO.
In the past few years, my private company clients have been flocking to online, cloud-based cap table services, such as Capshare and Carta (formerly eShares), as a platform to manage the company’s back-office functions for their capital structure. Aside from presenting an online cap table for reference by potential new investors and others, these sites provide a number of other services, such as being an online repository for documentation like stock option agreements and facilitating company valuations under Section 409A of the Internal Revenue Code.
President Trump’s inimitable personal attorney, Michael Cohen, was reported by the Wall Street Journal to have used a Delaware LLC as a vehicle for payment to a porn actress of $130,000 for her silence about an alleged consensual affair with Trump. The purpose of this arrangement, apparently, was to keep Trump’s involvement quiet by using an LLC with a generic name, Essential Consultants LLC, though this goal was undermined by the fact that the publicly-filed Certificate of Formation of that entity was signed by “Michael Cohen, authorized person.” This sort of filing does not need to list any owners, and in practice is usually signed by the person with the law or accounting firm, often a paralegal, that actually prepares the filing at the client’s direction. (It’s amusing that the operation that has the financial wherewithal to pay six figures in hush money is too cheap to pay a law firm three figures to maintain the confidentiality of the principal’s involvement.)
I read with interest an essay in the Wall Street Journal by a management professor, Morten T. Hansen, arguing that the key to success in business is selectivity, i.e., figuring out which tasks were the most important to complete, doing them well, and focusing less on the rest. Workers who take this approach are not the “hardest” workers as commonly understood, usually measured by hours spent, but they are the most effective and ultimately successful. This is an application of Occam’s Razor, which generally states that when assessing two competing theories attempting to explain a problem, the simpler one is usually the right one. Applied in this context, the correct approach to completing business tasks is to simplify the steps.