An amendment to the fiscal 2027 defense policy bill that seeks to prohibit some defense contractors from buying back their stock is drawing fierce pushback from major industry groups.
In a June 26 letter to the House Rules Committee, 20 industry associations led by the U.S. Chamber of Commerce urged lawmakers to reject an amendment offered by Rep. Chris Deluzio (D-Pa.), that mirrors a proposal he tried to attach to the House Armed Services Committee’s version of the National Defense Authorization Act before withdrawing it due to jurisdictional issues.
Industry groups further urged Congress to “reject any further attempts to prohibit public companies from making decisions that are in their best long-term interests.”
“The amendment would create two classes of defense contractors: publicly traded firms that would be prohibited from returning profits to Main Street investors, and privately-owned contractors that can allocate profits without similar restrictions. A strong defense industrial base requires both public and private companies that have the ability to raise private capital, which itself requires the ability to return profits to investors, in both public and private markets,” the industry groups wrote in the letter obtained by Federal News Network.
“More fundamentally, this amendment raises serious concerns about an unprecedented expansion of the federal government’s role in restricting lawful corporate governance and capital allocation decisions made by businesses. Whether a company chooses to return capital to shareholders through dividends or share repurchases has long been recognized as a legitimate business judgment made by corporate boards acting pursuant to their fiduciary duties,” they added.
Deluzio’s amendment would prohibit the Pentagon from contracting with companies unless they agree not to repurchase their own stock during the life of the contract. The proposal would apply to companies that have received more than 50% of their annual revenue from DoD contracts in the last three years and that receive more than $100 million annually.
Under the proposal, contractors would be able to apply for a waiver, but the defense secretary would have the authority to revoke it at any time.
The lobbying push to kill the amendment comes ahead of a House Rules Committee meeting on Monday night where lawmakers will decide whether the proposal — one of more than 1,350 amendments filed to the annual defense policy bill — will advance to the House floor.
Earlier this month, the Senate Armed Services Committee adopted a far more sweeping amendment that would bar the Pentagon from contracting with companies unless they agree “to not purchase equity security, pay dividends, or make any other capital distribution with respect to equity securities unless the contractor has a waiver from the defense secretary.” Contractors would have to submit a “qualified defense investment plan” detailing how they will increase production capacity or face restrictions on shareholder distributions if they want to receive a waiver.
Lawmakers have pushed to codify President Donald Trump’s executive order restricting stock buybacks and executive compensation for certain defense contractors, arguing that for too long, major defense contractors have failed to deliver critical weapon systems on time and invest in production while spending billions on stock buybacks and rewarding investors.
“Giant military contractors are cheating our government out of billions in taxpayer dollars and lining their executives’ and shareholders’ pockets instead of investing in our national defense. It’s time to stop these contractors from putting Wall Street over our national security,” Sen. Elizabeth Warren (D-Mass.), who spearheaded the effort along with Josh Hawley (R-Mo.) in the Senate, said after the Senate Armed Services Committee adopted their amendment restricting stock buybacks.
Industry groups, however, contended in the letter that stock buybacks occur only after companies have already fulfilled their commitments to research and development.
“Prohibiting stock buybacks is based upon disproven theories that when companies elect to buy back their own stock, they are taking capital away from research & development, manufacturing, or other investments,” the letter reads. “A decision to repurchase shares is also a sign of financial strength — an indication that a company has already met its investment obligations and is generating surplus capital.”
The groups argued that stock buybacks are an important mechanism for returning value to shareholders and warned that restricting them would harm the retirement savings of millions of Americans while also discouraging companies from going public.
“Prohibiting covered defense contractors from engaging in otherwise lawful dividends, share repurchases, and other capital distributions unless they obtain a waiver from the Defense Department establishes a troubling precedent in which Washington effectively dictates how businesses manage capital allocation decisions that have traditionally remained the responsibility of corporate leadership and shareholders,” the industry groups said.
“Once Congress creates a framework that prohibits otherwise lawful capital distributions by government contractors absent federal approval, future administrations could readily expand that model to pursue entirely different policy objectives unrelated to national security or defense procurement. Congress should be cautious about establishing a mechanism that invites future political interference in routine business decisions well beyond the scope of this amendment,” they added.
The effort to restrict stock buybacks have gained traction among lawmakers and DoD leaders who are frustrated that major defense contractors are prioritizing “investor returns over the nation’s warfighters.”
“After numerous years of failing to meet contractual obligations, under President Trump’s order, defense contractors will no longer be allowed to leave our warfighters behind while giving themselves massive payouts from stock buybacks. This will give Department of War the ability to meet national security objectives and ensure efficiency and accountability. Our obligation is to our warfighters; not Wall Street,” Chief Pentagon Spokesman Sean Parnell said after Trump signed the “Prioritizing the Warfighter in Defense Contracting” executive order.
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