How can companies which pay dividends to shareholders remain competitive?

cepheus

It seems the Bank of England chief economist Andy Haldane, one of the worlds most influential people, is questioning the value of firms which are accountable to shareholders. According to him these firms have a short term outlook resulting in lower investment and ultimately growth. Profits are being used to pay dividends to shareholders or buy back their shares. These could be potentially re-invested, however this hasn't happening enough over the past few decades.

Haldane claims that company law is the problem, because shareholders have primary importance rather than the wider stakeholders: clients, employees and customers, still less society. He also says the root of the financial crisis was caused by the banks attempting to maximise returns to shareholders.

Haven't we heard all this before? The difference is that he's no socialist idealist, but a capitalist with influence.

http://www.bbc.co.uk/iplayer/episode/b063cq7h/newsnight-24072015

I think he's right , but to play devils advocate we need to ask; how can a company which pays idle shareholders survive in a competitive economy? Isn't this the same as paying an idle workforce? Shouldn't a company which reinvests all its profits or pays them to acquire better staff be more competitive and drive these under?

Then again we don't have a truly competitive market. Perhaps the dominance of dividend paying firms is mere proof that monopoly and crony capitalism is in rude health?

chris_m

Surely it depends on the company.
Many (most? all?) large companies both invest to grow the business and pay dividends.
The one for which I work is investing millions in infrastructure (with a planned return on investment as long as 10 years or more) but is still able to pay shareholders a decent dividend, I'm sure many others are doing likewise.

Mistermeaner

Wow this takes me back to my dissertations

A scholar called Sternberg I think wrote extensively on this issue , could be sternburg or sternburger maybe.

Gist of it was that any company is automatically accountable to its stakeholders as they grant the license to operate, official or unofficial - ie !!!! off your customer suppliers or public at large and they'll vote with their feet and you won't be profitable. As long as you can get away with anything your doing and society is still willing to pay for your stuff then society is saying you're ok - see Starbucks and Amazon et al as recent examples ..... moo moo moo they don't pay uk tax, but their coffee is nice so we will still buy it.

Short termism is a slightly separate concern, but the current mechanisms still allow for long term investment; some industries more than others but look at the likes of astra and glaxo re the investment and return cycle on bringing new drugs to market. Still ever popular investments in the ftse

Mistermeaner

Quick Google, some interesting stuff here and reference to the work of Sternberg
http://www.lawteacher.net/free-law-essays/business-law/criticisms-of-shareholder-and-stakeholder-debate-business-law-essay.php

Carl31

Dividends are not always paid, the company will favour further investment if it benefits shareholders more in the long run, and the SH are ok with it

CLAPTON

any one that is the chief economist of a state institution is a failure.

why would anyone listen that a failure when we have every successful companies to invest in and learn from.

if he thinks he could do better then why isn't he a successful business making billions from long term investment.

the present isn't perfect but then most of the alternatives are worse.

Generali

Screw the 'stakeholders'. The duty of company management is to the owners of the company both morally (within limits) and in law.

Loughton_Monkey

Generali wrote: »

Screw the 'stakeholders'. The duty of company management is to the owners of the company both morally (within limits) and in law.

Nicely put.

Mr Cadbury and Mr Rowntree are probably turning in their graves at what their 'social responsibility' cost them, and more to the point cost the UK economy by allowing otherwise potentially profitable and successful businesses to die and be taken over by foreign true capitalists.

Truly successful and profitable firms rarely screw their employees and customers anyway.

Incidentally, I would rather my £1 share rise to £1.20 with no dividend than stay at £1 with 20 pence dividend.

chewmylegoff

the idea that a company that doesnt have to pay dividends to shareholders would somehow be more competitive rather ignores the fact that there is a cost to capital wherever you get it from...

cepheus

Generali wrote: »

Screw the 'stakeholders'. The duty of company management is to the owners of the company both morally (within limits) and in law.

That is precisely why Haldane wants the law changed. However, I'm not too sure you are strictly correct anyway.

A growing awareness of the responsibility of corporations to respect the rights of workers and consumers and human rights generally, in addition to the impact of commercial operations upon the natural environment – constant concerns for national regulation – has engendered a relative explosion of standard-setting regimes from international institutions such as the United Nations, the European Community, and the Organisation for Economic Cooperation and Development, as well as from non-governmental organisations, trade unions, and the corporations themselves in the form of such selfregulatory measures as private voluntary initiatives and codes of conduct.

http://www.wklawbusiness.com/store/products/international-corporate-legal-responsibility-prod-9041125965/hardcover-item-1-9041125965

chewmylegoff

cepheus wrote: »

That is precisely why Haldane wants the law changed. However, I'm not too sure you are strictly correct anyway.


http://www.wklawbusiness.com/store/products/international-corporate-legal-responsibility-prod-9041125965/hardcover-item-1-9041125965

You must love banks then - paying huge bonuses to staff at the expense of the shareholders. Employee power!