The issue with share buybacks is they are designed to increase the share price rather than provide a cash return to existing investors. To a common stockholder, the two outcomes are basically the same (minus maybe some tax differences). But to a common optionholder, they are vastly different. Optionholders typically can't benefit from dividends, whereas they do benefit from the share price increasing.

This matters because management is often paid in options. So, managements have an incentive to allocate capital to share buybacks to boost their pay packages instead of reinvesting money in the business. If share buybacks were illegal and the only two options were dividends and keeping the capital in the business, managements might behave very differently.