Coronavirus Highlights Lack of Corporate Contingency Plans


The spread of the Coronavirus has placed a spotlight on how public companies spend excess cash and the plan to weather a crisis such as this one.  As recently reported by Bloomberg, S&P 500 companies used over 50% of free cash flow to repurchase company shares with certain industries, like U.S. airlines, spending an astounding 96% over the past decade.  CNN noted that S&P 500 companies spent over $1.5 trillion on share repurchases in 2018 and 2019 alone and that repurchase programs were still being announced “as the coronavirus crisis mounted” in early March.

Now, only three months since the Coronavirus was identified and two months since the first reported case in the United States, many of those companies are asking for government assistance due to the still-to-be determined economic impact from the pandemic.   While it may be true that no one could have predicted the current global crisis, this is not the first economic crisis nor will it be the last, which begs the question, at least in this author’s opinion, with such exorbitant spending on share repurchases, what economic disruption or emergency were these companies planning to weather, or have government bailouts become the contingency plan?
 

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About Michael Van Gorder

Michael Van Gorder's practice is focused on securities litigation. Michael is a Partner in the firm's Delaware office. Prior to joining F&F, Michael served as a law clerk to the Honorable James T. Vaughn, Jr. of the Delaware Supreme Court (2015-16). While attending law school, Michael served as the Editor-in-Chief of the Delaware Journal of Corporate Law and was selected as a Josiah Oliver Wolcott Fellow with the Delaware Supreme Court. Before law school, Michael worked in the private bank of a global financial services firm where he held multiple securities licenses.Michael has authored the following article: Boilermakers v. Chevron: Are Board Adopted Arbitration Bylaws Valid Under Delaware's General Corporation Law?, 39 Del. J. Corp. L. 443 (2014).Michael received his J.D., magna cum laude, from Widener University School of Law (2015). Michael received his B.S., Business Management, 2008; M.B.A., Finance, 2011, from Wilmington University. Michael is licensed to practice law in the state of Delaware and is admitted to the United States District Court of Delaware.

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