In the past I’ve ruminated on whether or not investors are the most important part of the corporate program, and come down against it; I believe that there’s much evidence showing that customers and employees – no particular order – are as important as, if not moreso, than investors in the great corporate equation.
This position has been unpopular out in the corporate world, as I understand it. The link above is to a post concerning Megan McArdle’s negative reaction to an article in which corporate C-suite types are signing a statement to the effect that investors do not belong at the front of the cafeteria line.
But I think we’re about to get more evidence for my side of the teeter-totter. WaPo has this report on how some large companies are treating their employees – and their investors:
Since the coronavirus pandemic was declared, Caterpillar has suspended operations at two plants and a foundry, Levi Strauss has closed stores, and toolmaker Stanley Black & Decker has been planning layoffs and furloughs.
Steelcase, an office furniture manufacturer, and World Wrestling Entertainment have also shed employees.
And as thousands of their workers were filing for unemployment benefits, these companies also rewarded their shareholders with more than $700 million in cash dividends. They are not alone. As the pandemic squeezes big companies, executives are making decisions about who will bear the brunt of the sacrifices, and in at least some cases, workers have been the first to lose, even as shareholders continue to collect.
Executives say the layoffs support the long-term health of their companies, and often the executives are giving up a piece of their salaries. Furloughed workers can apply for unemployment benefits. But distributing millions of dollars to shareholders while leaving many workers without a paycheck is unfair, critics argue, and belies the repeated statements from executives about their concern for employees’ welfare during the coronavirus crisis.
It’ll be interesting to see how the various companies perform in the future. First, cash, their lifeblood, is being sent away to the faceless entities who hold shares in them. In some cases, this isn’t a big deal, depending on the liquid cash reserves available, but for many companies, the dividend, usually paid quarterly, is less a welcome result of good business and more a tradition which the CEO is expected to continue to award, and increase, as the years pass; it becomes the metric by which his or her pay is increased – or they’re fired. Some CEOs resort to borrowing money in order to pay the dividend, borrowing against a hypothetical future prosperity – and putting their charges in existential danger.
Second, by favoring investors over employees, they risk losing trained, seasoned employees permanently. Now, it’s certainly true that some employees will welcome that call, maybe a year away, asking them to return to their jobs, maybe even at a pay cut “while their employer gets back on their feet”. Some former employees will be desperate, while others simply lack that self-respect which would have them tell their former employer to go join the fifth circle of Hell, and the smart ones will accept the offer while seeking employment at any other entity – and leave as soon as they can. This may be the smart middle course.
Third, these corporations risk blotting their reputations with customers. If news like this is properly weaponized, these corporations may find their standing in the business world severely crippled, their competitors who managed their funds and employees more wisely now picking up market share.
And, finally, speaking as an investor myself[1], I will not be in the least upset if every dividend-generating company in my portfolio were to stop sending those dividend checks and, instead, took care of business. Yes, I do mean, take care of the employees first, by which you then take care of the customers.
I don’t live on dividends, and if I did, this is the part of my life where adversity is accepted and dealt with, not whined about.
1 And for all those investors reading this piece who think I’m a socialist not worth listening to, no, you’re just a bunch of entitled, spoiled brats who haven’t got a lick of business sense in you. And you can go fuck yourself.
Yes, I’m annoyed today by selfish halfwits trying to trade lives for their economic comfort. Crabby, I am.
I work at Caterpillar. I was there the day they announced the layoffs. I was there the day they announced that everyone’s merit increase had been rescinded . . . 1 day before they were to go into effect due to the business slowdown caused by COVID-19 and other business conditions. And then the very next day our CEO announced that the stock dividend for the quarter would remain the same as it was the previous quarter. And I remember thinking at that time, uh oh, this is not going to look good. In fact, it looks like our salary increases and the salaries of those let go went to pay for the quarterly dividend. That is the executive board’s decision to make, but it strikes me as a clear message that shareholders are valued over employees. As an employee, I understand the need at this time to cut costs, but it seems to me that shareholders also need to have some skin in the game. But what really irritated me was when the CEO released a video talking about the quarterly results and when explaining why the dividend was not reduced, he actually used the proverbial “We have many investors who rely on that dividend income in their retirement.” And those people that were laid off didn’t rely on that income, I suppose? Very tired of corporate America always trying to con us into thinking Grandma and Grandpa are the investors counting on stock dividends and prices when it’s so obvious that the shareholders who have the majority of the stock are investment firms and other companies, not Joe and Mary from down the street.
Thanks, Jerry.
http://huewhite.com/umb/2020/05/10/corporate-foolishness-ctd/