At Hearing, Warren Rings the Alarm about Need for Strong Corporate Stock Buyback Guardrails in CHIPS and Science Act Implementation
“Secretary Raimondo says CHIPS funds won’t be used for buybacks on her watch, period. Commerce said CHIPS money is not ‘a subsidy for companies to make them more profitable or enable them to have more cash for stock buybacks or to pad their bottom line(s)’”
Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) raised concerns about the need to protect $52 billion in CHIPS and Science Act funds from being used by semiconductor companies to line the pockets of corporate executives instead of investing in strengthening supply chains, creating good union jobs, and bringing down prices for consumers. Senator Warren called on Secretary of Commerce Gina Raimondo and the Commerce Department to strengthen buyback protections in the CHIPS program.
Senator Warren highlighted that CHIPS funding frees up other funds for companies to put toward stock buybacks. Between 2011 and 2020, five of the largest semiconductor companies – Intel, IBM, Qualcomm, Texas Instruments, and Broadcom – spent $250 billion, or 70% of their collective net income, on stock buybacks.
Senator Warren called on Secretary Raimondo to strengthen the stock buyback prohibition in the CHIPS and Science Act by setting up tougher rules, like requiring companies to attest on the application form that they won’t engage in stock buybacks, giving additional preference to companies that commit to longer buyback moratoriums, and clawing back funds from companies that go back on their word.
Transcript: Examining Outbound Investment
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Thursday, September 29, 2022
Senator Elizabeth Warren: Last month, President Biden made a historic investment in our future by signing the CHIPS and Science Act into law. So in addition to boosting federal funding for scientific research, yay, the law provides $52 billion in subsidies to revitalize our domestic semiconductor manufacturing industry.
Now, semiconductor chips are critical ingredients for everything from cell phones to cars. So this is a very important investment to strengthen our supply chains, create good union jobs, and bring down prices for consumers.
But to ensure that corporations exclusively use CHIPS funds for these purposes, rather than simply for boosting their own profits, Congress put guardrails up. And one of these guardrails prohibits semiconductor manufacturers from using CHIPS funds for buying back their own stock.
Stock buybacks mainly serve to manipulate share prices and boost corporate executives' profits, money that could instead be used to build a factory, or hire workers, or invest in worker training.
So Dr. Bauerle Danzman, you're an expert on investment in critical sectors like semiconductors. So let me just ask you. The CHIPS and Science Act clearly prohibits chip manufacturers like Intel or IBM from using CHIPS funds to conduct stock buybacks. But, could Intel or IBM accept CHIPS funds, and then use its own money for stock buybacks?
Professor Sarah Bauerle Danzman, Associate Professor of International Studies, Indiana University: Possibly.
Senator Warren: All right, so here's the issue. If Intel is awarded CHIPS funds, it is required to use those funds to fulfill the purposes of the CHIPS program. I totally get this, but money is money. Money is fungible. By taking CHIPS funds, Intel would have more money, which might free up other funds that it could then use for stock buybacks.
You know, this is not a hypothetical risk. Between 2011 and 2020, five of the largest semiconductor companies, Intel, IBM, Qualcomm, Texas Instruments, and Broadcom, all of which heavily lobbied for the CHIPS Act, spent $250 billion, or 70% of their collective profits, five times more than we put into the CHIPS Act on what? On stock buybacks. Just a few weeks ago, Texas Instruments authorized a new $15 billion stock buyback program.
Now Secretary Raimondo says CHIPS funds won't be used for buybacks on her watch, period. Commerce said, CHIPS money is not quote, a subsidy for companies to make them more profitable or enable them to have more cash for stock buybacks or to pad their bottom lines, end quote.
So Dr. Bauerle Dazman, why is it important that the Commerce Department lives up to its promises that taxpayer funds in the CHIPS programs aren't used directly or indirectly, to fund stock buybacks or other shareholder payouts?
Dr. Bauerle Danzman: Thank you for the question. It's important. You know, when you're designing these sorts of subsidy programs, it's important to get the balance right, because you want the companies to actually take the funds, and to expand production, which is good for national security, and good for American workers.
That said, you know, as taxpayers are investing billions of dollars in the semiconductor manufacturing industry, on the basis of two things, right? The US will be physically safer and more economically resilient if we build back more of this capacity, and that reshoring is not commercially viable without government support.
And so if we see a lot of stock buybacks, this is going to undermine the US public support for these sorts of programs. And that will make it harder to appropriate such funds in the future, as well as if you know, we're not expanding domestic production as much as we should, that could have national security consequences.
Senator Warren: So thank you very much. That's a, you got a lot of points in there about why it is important that the money we invest means that the companies are spending money on reinvesting, and not on something like stock buybacks.
How do we get there? That means tougher rules like requiring companies on the application to attest that they will not engage in stock buybacks, by giving additional preferences to companies that commit to longer buyback moratoria, by clawing back funds from companies that go back on their word.
So I'm looking forward to working with Secretary Raimondo and my colleagues to ensure that this critical investment onshores our supply chain, creates those good union jobs, lowers prices for families, and powers our economy into the future in ways we intended, rather than helps line the pockets of the CEOs of these giant corporations.
I appreciate your work in this area and hope we can work together to get this done. Thank you.
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