Wednesday, 31 January 2018


Dividends:  Holcroft Castings to Carillion & Capita  

 George Orwell said, I believe it was in 'The Lion & the Unicorn',
that 'England is a family with the wrong people at the top'.  
 The kind of people he had in mind were those who
spent their lives 'living off their dividends'.
IN the early 1980s, I was an electrical shop steward at Holcroft Castings & Forgings in Rochdale, which was in turn part of the Reynold Chain PLC group, and armed with a report from the Labour Research Department, I went to a meeting of shop stewards with middle management, and I questioned the high dividends being paid to shareholders by the company.  After an outburst from one manager called Eric Huff, the chair of the middle managers a bloke called Tommy Swan said that as he didn't understand 'dividends' he wasn't prepared to discuss them in the context of our pay claim.

Today, it is the reduction of shareholder dividends to a fetish that is being blamed for the collapse of Carillion, and the danger to business generally is now being blamed on the culture of the glorification of dividends.  

Last Saturday, in the FT, Miles Johnson wrote an article entitled 'Carillion collapse offers warning to dividend fetishists', arguing:
'Like many companies listed in the UK, Carillion held up its dividend payments as evidence of success and corporate virility.  In its 2016 annual report, the group finance director Zafar Khan boasted how "the board has increased the dividend in each of the 16 years since the formation of the company in 1999".'

No doubt it was this kind of smoke and mirrors that deluded the leader of Tameside Council and chair of the Greater Manchester Pension Fund, Kieran Quinn, into thinking that Carillion had the Midas touch and could do no wrong.  Certainly his bedazzlement with dividends can only explain his overwhelming passion for Carillion, which led him last August to urge other councils in Greater Manchester to engage more closely with the now derelict company?

Capita cuts Carillion risk by suspending dividends

This morning  in the FT the journalist Matthew Vincent writes:  'Capita copies Serco to avoid becoming Carillion'.

This morning the FT journalist Matthew Vincent asks:  ' 'What’s the most frustrating job in corporate Britain today?'

Then he answers his own question:  'Apart from middle manager at Carillion asking why on earth did the directors keep bidding for contracts?  And keep overlooking the pension deficit?  And keep reassuring the so-called auditors?  Arguably, it’s middle manager at any other UK outsourcer, trying to address similar questions.' 

Today his FT report continues:  'Capita [which today has] issued a profit warning for 2018 and new chief executive Jonathan Lewis - who only started in December - admitted that the outsourcing group had become “too complex” and “driven by a short-term focus” while “lacking operational discipline and financial flexibility”.  Mr Lewis has therefore suspended the dividend - a source of anger over misplaced priorities at Carillion - and instigated an overhaul of Capita’s finances.  This will involve sales of non-core assets and a emergency rights issue to raise as much as £700m from investors later this year. That is even bigger than the £500m fundraising needed at rival Serco a few years ago.  Dividends will not resume until the company is “generating sustainable free cash flow”,'

We all should clue-up on the dangers of overgenerous dividend payments and what is called 'short-termism' in the boardroom.  We shouldn't be like the middle manager Tommy Swan, who I knew as a shop steward while negotiating wages etc. at Holcroft Castings in the 1980s, and who seemed positively proud to not have grasped what shareholder dividends were.

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