Finding the way forward when growth stalls

MANY management teams these days find themselves in intense debates over a pressing question. There is a lot of cash on the company's balance sheet right now. Should we buy back some of our shares or should we invest in growth?

Share buybacks have an obvious appeal and an obvious limitation. They give a quick shot in the arm to earnings per share and (usually) the stock price. They pacify activist investors clamouring for the company to return cash to shareholders.

But while buybacks may be viewed as a sign of a company's confidence in its future, they are pure financial engineering. They do nothing to stimulate growth. This failure to invest is bad news, both for individual companies and the economy. Investments in innovation are a key source of growth in jobs and GDP. A business that can't grow will eventually shrink or die, destroying jobs and value.