ON THE QUESTION OF CEWS AND DIVIDENDS, SHAREHOLDERS WILL ULTIMATELY DECIDE
Many are struggling to understand choice to give payouts, Kevin Carmichael writes.
Transcontinental Inc.'s response was typical of what we heard from the companies that received the emergency wage subsidy while continuing to give a stipend to shareholders: Dividends are close to sacrosanct, while staffing levels depend on economic conditions.
“We have distributed dividends to our shareholders without interruption since 1993, as our financial situation has allowed it,” spokesperson Patricia Lemoine said in an email. But if not for the Canada Emergency Wage Subsidy (CEWS), the Montreal-based maker of paper and cardboard “could not have supported some services deemed essential.”
The company “would have had to proceed to more temporary layoffs and for longer periods,” she continued. “We would have reduced work schedules to an even greater extent and for longer periods, and we could not have provided direct financial support to our affected employees, which they much appreciated.”
This is usually where owners and earners part ways since many who received taxable benefits from the Canada Emergency Response Benefit (CERB) this year will struggle to understand why they should help subsidize Transcontinental's workforce. (Postmedia Network Canada Corp., publisher of the Financial Post, also received CEWS, but does not pay a dividend.)
There is academic literature that shows it makes good sense to keep workers around during temporary slumps, because training new staff costs money and hurts productivity. That means smart owners have a good reason to sacrifice a little during a downturn, as it could mean keeping their company fit for the long haul.
Combine that with a renewed emphasis on “stakeholder capitalism,” which emphasizes a role for corporate leaders that goes beyond making as much profit as possible, and you have a good argument for passing on the wage subsidy, even if your company qualifies for some money.
The Financial Post's sweep of financial disclosures shows that the leaders of more than five-dozen publicly traded companies opted to claim their fair share of CEWS while continuing to pay dividends. Their determination to do so shows that “shareholder capitalism” is alive and well, much to the dismay of some.
“They blew it,” said Cheryl Kim, a Toronto-based consultant who advises corporate leaders on reputation issues. “You saw a bunch of leaders who were not willing to make a hard decision and say, `You know what? That money was given to us to help keep our company functioning well.' The fact they gave it to their shareholders, to me, is an absolute abdication of leadership from the CEO, CFO and the board.”
The owners probably don't see it that way.
It's easy from the lower rungs of the social ladder to accuse them all of greed, but there is also plenty of academic literature that supports paying dividends, at least if you define your job as protecting a corporation's share price. The corporate research catalogue is also heavy with evidence that dividends correlate with stock prices.
If you were running an oil company this year, a dividend might be one of the few things propping up your company's value. If that's the case, maybe the moral obligation is to do all you can to avoid wiping out your shareholders.
“There are valid reasons why companies don't cut dividends, even in current times,” said Preetika Joshi, an assistant professor of accounting at Mcgill
University in Montreal. Still, she admits that it's no longer clear that running a publicly traded corporation is as straightforward as that.
Joshi's research focuses on international tax dodging, and she said it's clear investors reward companies that find legal ways to lower their tax bills, even if those methods test a standard definition of ethical behaviour. At the same time, the demand for shares in companies that can demonstrate commitments to environmental, social, and governance (ESG) concerns is growing rapidly. The sustainable investing market was worth almost US$40 trillion at the start of 2018, a 34-per-cent increase from 2016, according to the Global Sustainable Investment Alliance.
The ESG movement has tended to focus on climate change and gender and racial diversity, but it wouldn't be a stretch if managerial ethics became a focus. Rest assured, the managers of that money will be watching. Outfits such as Truvalue Labs Inc. already use artificial intelligence to monitor headlines and give companies ESG scores.
“We're seeing increased shareholder activism around corporate responsibility, where shareholders want officers to make decisions not only keeping profits in mind, but also being socially responsible,” Joshi said.
“Where on that spectrum this fits is a difficult question to answer,” she said of companies that claim COVID-19 benefits while paying dividends.
One test is the sheepishness with which our investigation has been met by some members of Corporate Canada. Telus Corp., which last month launched the $100-million Telus Pollinator Fund for Good, appeared on the list. A spokesperson acknowledged a request for comment on Dec. 1, but the company still hadn't provided a response at the end of day on Tuesday.
The Canadian Chamber of Commerce had nothing to say, either. The Business Council of Canada, which represents our biggest corporations, including several that accepted wage subsidies while paying dividends, put the onus on the government.
“We are not aware of which companies are receiving CEWS, but it is the federal government that established the eligibility requirement,” a spokesperson said in an email. “Our focus from the beginning has been on measures that governments at all levels can take to reduce the spread of the virus so as to allow the safe reopening of the economy and to reduce the need for subsidies of any sort.”
Skeptical? Investors will sort it out.