Putting shareholders on pedestal might backfire this time
It turns out BCE inc. belonged near the top of the Financial post’s table of big companies that claimed the federal wage subsidy while continuing to pay dividends. Calgary-based imperial oil ltd., which received $120 million from the Canada Emergency Wage subsidy (CEWS) through the third quarter, ended up at the top of Financial post’s list when we finished sifting through financial information that publicly traded companies are required to file with securities regulators.
some of those disclosures were transparent, others were translucent. a smattering of companies disclosed that they had received the subsidy, but declined to provide an amount. some said the benefit was “immaterial,” therefore relieving them of any obligation to share a number with their investors.
among those companies were the three members of Canada’s telecommunications oligopoly: BCE, rogers Communications inc. and telus Corp., the last of which, after some prodding, provided a ballpark figure, saying it had received “less than" two per cent of the roughly $1.5 billion it paid in dividends through the early part of December.
but The downup, a digital newsletter about the Canadian communications industry, on Jan. 21 reported that bce had claimed $122.8 million, putting it up there with Imperial. It found the information in the Alberta government’s lobbyist registry.
rogers received about $71.3 million and Telus claimed $30.2 million, as of Nov. 30, the downup reported, citing provincial lobbyist registries. That means the big Three, whose rates for mobile data are among the highest in the world, received almost $225 million from the federal government during the pandemic, offsetting operational costs, thus relieving any pressure management might have felt to temporarily curb dividend payments.
There is, of course, nothing illegal about any of this. bce, rogers, Telus and all the other companies that received CEWS were able to show that they had lost enough revenue to qualify for help. Nor is there necessarily anything wrong with a company claiming benefits for which it qualifies, even if it didn’t need the money, although that will depend on your point of view.
The most common response to our reporting on this issue has been dismay: from some at the suggestion that dividends might be something other than sacrosanct; and from others at the sight of cash-rich corporations exploiting an emergency program instead of drawing on their own resources.
We might be on the verge of a real-time test of whether shareholders’ interests are always best served by being given the biggest possible stake of a company’s revenue.
The telcos have for decades used their market power to mostly get their way, even though they operate in a highly regulated industry. They will soon be counting on a number of decisions to once again tilt in their favour, including rates the resellers must pay to use their networks, conditions related to an upcoming spectrum auction, and the divvying up of the federal government’s $1.75-billion rural broadband fund.
but Parliament might not be so quick to bend the knee this time. Nathaniel erskine-smith, a Liberal MP from Toronto, pushed back against a bce executive’s suggestion that resellers were a burden, saying, “without the resellers, you would gouge Canadians even worse.” robert Malcolmson, the company’s top lawyer, testily replied that he “wasn’t sure that was even a question.” erskine-smith countered that it wasn’t: “It’s a fact,” he said.
The telecom companies’ actions show that they put their shareholders on a pedestal. but they know it’s a bad look to do so during a national crisis. If they weren’t worried about it, they wouldn’t refuse to disclose the same numbers to reporters that they are obligated to disclose in order to lobby various provincial governments.
bce fired at least a couple of hundred people in its media division this week. At the same time, the company announced it would spend an additional $1 billion on its networks over the next two years, an investment that chief executive Mirko bibic said would create more than 5,000 “direct and indirect” jobs. Amidst all that, he told analysts on a Feb. 4 conference call that he was “equally pleased” to say that the company’s board had decided to increase the dividend by 5.1 per cent.
The telecom oligopoly is spinning two stories that don’t quite jibe.
It wants the public to see it as central to the recovery, and forget that decades of underinvestment left us vulnerable when hundreds of thousands of people suddenly had to work and learn from home. but its leaders lack the courage to invest to the fullest degree they can.
bce’s spending plans look impressive, but it’s money the company intended to spend anyway; bibic advanced his plans in part to take advantage of a federal tax break on capital investment. The company doesn’t plan to continue investing at this pace beyond its two-year horizon. but it remains committed to pumping out dividends. If it stops, its leaders say investors would abandon them.
“The only way you get investment capital is from shareholders that are willing to invest their money with your company in order to fund your network expansion,” Malcolmson, bce’s chief legal and regulatory officer, told the house industry committee on Jan. 26, when pushed to explain why the company claimed the wage subsidy instead of drawing from its own cash pile. “If we don’t have investment capital and we’re not delivering shareholders returns, Canada will not have the level of investment that it needs.”
It was a statement that only a near-monopolist could make. The thing is, the post-covid-19 political climate has become hostile to monopolists and oligopolists. bce and others could come to regret operating like dividend machines instead of ambitious companies committed to growth.