Protecting the golden egg
Hamish McNicol reports on the golden opportunity for companies to invest $100 billion in growth.
The decades of New Zealand companies paying high dividends to investors needs to end, Simplicity managing director Sam Stubbs says.
Otherwise, a ‘‘golden opportunity’’ to invest nearly $100 billion in growth could be lost.
‘‘Companies have to get ready now for a new era of growth,’’ Stubbs said.
‘‘Only when companies reinvest do they create.’’
Stubbs’ not-for-profit KiwiSaver provider, last week put the country’s top 50 listed companies on notice about diversity.
Simplicity’s ‘‘diversity activism’’ initiative gave each company six months to come up with a diversity plan, and five years for it to be fully implemented.
The companies could define what diversity looked like for themselves, spanning gender, ethnicity, age and ability.
As a shareholder in each of the companies, Simplicity could go so far as to vote against director nominations and rally other shareholders against the board, though Stubbs said he would be surprised if it got this far.
Simplicity would also publish an annual diversity scorecard and new director Shamubeel Eaqub would spearhead the initiative, aided by Auckland University of Technology diversity researchers.
At the same time he met and spoke with chief executives about diversity, Stubbs had another play he wanted to push: the end of New Zealand’s traditionally high dividend payments.
‘‘A common complaint from the chief executives was the lack of support from traditional shareholders for long-term decision making, with too much focus on short-term dividends.’’
The value of the 10-year-old KiwiSaver scheme recently passed $40b, but was predicted to be at least $200b by 2030.
With about half of KiwiSaver funds invested in New Zealand, KiwiSavers would own an increasingly substantial amount of the country’s listed companies.
But as KiwiSaver members would be invested for up to 40 years, Simplicity had a very longterm view which was not interested in short-term dividends.
The increasing dominance of KiwiSaver in the market would therefore change it, Stubbs said.
‘‘Companies have been forced to pay high dividends to compete with real estate returns.
‘‘But with KiwiSaver, it’s not requiring of short-term dividends, it wants long-term growth.’’
Stubbs said companies had to get ready for the growth the $100b, ‘‘a lot of money’’, could bring.
Many of the bosses he met said it was the first time a shareholder had asked for the focus to shift from dividends.
‘‘Companies have a golden opportunity now to invest in growth.
‘‘Most of them say ‘We’d love to do it’, but an awful lot of them feel constrained by capital.’’
Stubbs said he thought a lot of New Zealand’s intellectual property had been sold for cheap overseas, because of the country’s poorly funded capital markets.
It had also been a very high dividend paying market for as long as he had been involved.
‘‘This is the most optimistic period I’ve seen in my life.
‘‘If New Zealand companies can create those investment opportunities, as a fund manager, we’ll happily invest.’’
Stubbs said the feedback to Simplicity’s ‘‘diversity activism’’ had been overwhelmingly positive.
More so, even, than when it divested from nuclear weapons, land mines and tobacco. ‘‘It’s clearly struck a chord. Nothing is as powerful as an idea whose time has come.’’ Chief executives had responded positively, with some naysayers.
Companies have been forced to pay high dividends to compete with real estate returns.