There is a story in The Australian this morning described with the word “Exclusive”.
The over-distribution of capital through dividends or share buybacks can be a drain on corporate performance over the longer term, according to provocative analysis by a high-powered international firm backed by the world’s biggest asset managers, including Australia’s Future Fund.
Hardly provocative. I seem to remember that being on the second year Business Finance syllabus in the mid-1980s.
So the story was this – if the management of the firm had positive – NPV projects available to them they should re-invest. If not, they should return capital to shareholders via a tax-advantaged mechanism.
Okay – so fast forward some decades.
Her [FCLT Global chief executive Sarah Williamson] comments come after a chorus of Australian chief executives backed Josh Frydenberg’s call last August for companies to prioritise investment over capital returns, lamenting the growing pressure on boards to deliver short-term results.
Chief executives such as Macquarie Group’s Shemara Wikramanayake, Wesfarmers’ Rob Scott and Seek’s Andrew Bassat backed the Treasurer’s call for business to make productivity-boosting investments rather than returning cash to shareholders in buybacks or special dividends.
Josh, maaaate, there are good reasons why Australian corporates are choosing to return capital to shareholders and not make “productivity-boosting investments”.
The Australian corporate tax rate is too high. The top marginal personal tax rate in Australia is too high. Red tape to too constricting. Electricity prices are too high. Corporate regulators are both arrogant and unaccountable to anyone.
All of these things Josh – all of them – are policy choices within your control. So rather than bitching that people respond rationally to the very incentive structures that you control maybe, just maybe, you can get off your bum and do something about it.
Cut red tape.
Cut green tape.
Bring regulators under democratic control.
Take some responsibility for the policy choices you make.