Collecting subsidies while paying dividends sends wrong signal
Nadine de Gannes, an assistant professor of accounting at Western University, sometimes includes a discussion about labour unions in her lectures. It rarely goes well.
“Everything we look at in the last 30 or 40 years is that labour has lost so much voice, and yet it's become highly political,” de Gannes, a member of the London, Ont.-based university's Ivey Business School, said in an interview earlier this month. “I can't even talk to the students about labour unions without immediately falling into some sort of left and right conversation.”
It's not just unions, nor is it only de Gannes's students.
Wide swaths of the business and political establishment are incapable of having a normal conversation about anything that might require them to tweak their world views.
Suggest that Canada's banking oligopoly could use some competition, and a Bay Street fund manager will ask if you'd rather have Deutsche Bank AG, Wells Fargo & Co. and Credit Suisse Group AG, three mega-banks that have paid hundreds of millions of dollars in fines in recent years to resolve various charges of wrongdoing.
Observe that free-market capitalism isn't working well, and one columnist will counter by asking if you'd prefer “Soviet capitalism” or the “Chinese techno-authoritarian” model?
Straw men are the last line of defence for the complacent and the comfortable.
The COVID-19 crisis has exposed the same fissures here that have caused so much upheaval in Europe and the United States over the past decade. For instance, some of us grumble over the generosity of federal emergency payments to households, without stopping to consider that $2,000 per month barely covers the cost of rent, internet and groceries. People are angry, but they are fighting about superficial issues rather than confronting the root causes of our various problems.
A few of those problems are that three-company oligopolies control the price of communication and food, while a terrible mess of demand-side sops has made shelter pricier than it would be if there wasn't such a gulf between demand and supply. It is impossible to miss that those who happened to own property before 2010, and the managers and owners of the telecommunications and grocery oligopolies, are doing better than most.
Inequality isn't as acute in Canada as elsewhere, but it's still an issue: Wages are now equivalent to about 44 per cent of gross domestic product, compared to around 52 per cent in 1970, when Milton Friedman, the Nobel laureate economist, published his famous essay on shareholder primacy in the New York Times.
“My deep frustration when I teach the Friedman article is that he doesn't own up to his assumption that the world is flat and there are no power differentials,” de Gannes said. “I love the hypothesis. There's nothing fundamentally wrong with Friedman if the world was flat and governments protected labour.”
I hadn't called de Gannes to talk about unions. Western offered her up as someone who could offer perspective on the ethics of claiming the emergency wage subsidy while continuing to pay dividends, which at least 68 publicly traded companies have done this year, according to the results of an investigation the Financial Post published last week. We ended up talking a lot about the inability of a polarized society to discuss the underlying issues those findings exposed.
The corporate elite hide behind armies of public-relations professionals and verbiage designed to satisfy legal disclosure requirements, not actual transparency. Political messaging, meanwhile, is designed for those party members most likely to send cheques. That means politicians steer away from complex subjects that can't be easily used to demonize their opponents, or might expose some of their own vulnerabilities.
There is nothing illegal about companies claiming emergency benefits while continuing to pay dividends. But the findings raise all kinds of questions that are worth debating, including whether the Canada Emergency Wage Subsidy (CEWS) could be tightened a little, since most of us would agree that resources aren't unlimited.
The main parties in Ottawa aren't interested in having that discussion. Pierre Poilievre, the Conservative finance critic who has complained at great length about the size of the debt and a $12-million federal grant that Loblaws Cos. Ltd. used to buy energy-efficient fridges, didn't ask any questions about the possibility that companies might be abusing the wage subsidy when Finance Minister Chrystia Freeland appeared at the House finance committee last week, though he did raise it two days later in the House of Commons.
Freeland, who did get a question about the results of our investigation from NDP finance critic Peter Julian, only reiterated that CEWS can't be used to compensate owners and managers.
That's not the point, of course. The Post's findings suggest that dozens of companies opted to let taxpayers subsidize their payrolls, rather than ask their shareholders to make a temporary sacrifice.
The issue is less about the money and more about the signal it sends when systemic unfairness has become undeniable.
By making all those CEWS claims that they didn't necessarily need, executives will have emboldened those who claim that Corporate Canada can't be trusted to steward the economy on its own.
“You want to have a credible, and even a costly, signal to the population that we are in it together,” said Nicola Lacetera, a professor of strategic management at the University of Toronto's Rotman School of Management. “When we come out of this, hopefully, we won't come out of it with even less cooperation, which was already quite low.”
Capitalism is held together by trust, but when that trust is gone, it exposes another blind spot in all those neat theories about the way the world should work.
“In every instance, there should have been a pressing of the pause button on dividends,” de Gannes said. “Why not have taken the opportunity to at least demonstrate deeper thinking?”
You want to have a credible, and even a costly, signal to the population that we are in it together.