The dividend game
LEGISLATION JOCK BRUCE-GARDYNE
I suppose most of us, during our schooldays, came across the schoolmaster whose hold on his class was notoriously weak, and who, from time to time, made desperate efforts to reassert his slipping authority. He would suddenly announce that the boys' hair was getting too long, and that in future every boy must show half an inch of clear neck above the collar. In no time at all he would have a tape-measure out, and furious arguments would follow with pupils who tempted him as to whether the line was to be drawn at the length of the longest hairs, or just the average. Everybody, except the hapless schoolmaster, vastly enjoyed them- selves.
When we left school we imagined that we had left such childish diversions behind. Until Harold Wilson and his henchmen came along. Suddenly we found ourselves back in the world of the hapless schoolmaster. In order to avoid having to pay 27s 6d a week for every member of the office staff who happened to work in a separate block from the factory workers we had to construct a connecting bridge between the machine shop and the offices. We forgot to call the Governor of Rhodesia, whom we had known since childhood, Your Excellency, so we had our passports confiscated. We paid a sightseeing visit to Radio Caroline and were threatened with a sojourn in the Tower.
The great Prices and Incomes adventure has afforded endless opportunities for devotees of the sport of Minister-baiting. During the period of the 1966 freeze my 629 fellow-legislators and I spent many an evening tracking down the fifteen shoe-shine operatives of Walsall or the twelve charladies of Newcastle-under-Lyme who were out to bring the nation to ruin. In his budget speech this spring the Chancellor gave the pastime a new twist. The Treasury, he announced, would be watching eagle-eyed to catch those public companies which dared to increase their dividends by more than the magic 31 per cent.
To make sure that this ponderous warning had gone home, the Treasury was swift to strike. After sleepless hours with the slide-rules it revealed that Grattan Warehouses had over- shot the mark by .01 per cent. Throughout the night the wires hummed, and as the first light of dawn penetrated the dusty windows of Great George Street the victory was won. Grattan Warehouses trimmed their total payout by £600. The pound in our pockets was safe once more —for twenty-four hours at least.
Now let us admit right away that the large majority of boards of directors of public com- panies are only too delighted to have an excuse to limit their distributions. The money saved can be used to redecorate the boardroom, badly in need of a coat of paint, or to commission a portrait of the former chairman. But let us suppose, for the sake of argument, that a board of directors has the eccentric view that its prime obligation is to enable the owners of the com- pany to share its prosperity: how do they go about it?
From a careful scrutiny of the Treasury's adjudications to date, a variety of possible courses of action suggest themselves. One is to announce that the company had already fore- cast its intention to double its previous dividend rate, and that its shares had been bought and sold on that basis. That, however, is dicey. The Treasury says that if it has entered into a 'near- contractual obligation,' ox: but if it was just an `other forecast' it won't wash.
Next, you could try a scrip issue. But this is equally hazardous. The Treasury reckons that the 'general public'—by which it means the trade unions—don't understand scrip issues, and therefore they are to be frowned on. But apparently the 'general public' does understand share splits. So don't irritate Great George Street by distributing one-for-one: split your El shares into lOs shares instead.
Then there is the fringe benefit scheme. Berni Inns hit upon the bright idea of giving its shareholders meal vouchers for use in the com- pany restaurants, and the Treasury was charmed. If you make machine tools this ob- viously presents certain difficulties : your share- holders will not necessarily be grateful for a centre-lathe with their dividend warrant. le cases like this it may be necessary to diversify into a new line of patent bottle-openers.
If a company is greatly daring it could follow the example of that splendid champion of free enterprise Sir Halford Reddish: he declared a special interim dividend in respect of the coming year, to be distributed at the same time as the final for 1967. The Treasury was not amused and hinted darkly at terrible retribu- tion. But so far as I am aware Sir Halford is still at large.
Another device is the Parkinsonian technique of gratuitous complication. Let us suppose you distributed a total of 15.50 per cent last year. First tell the Treasury that you have it in mind to distribute 16.115 per cent this time. Give them a week to digest that one, and then write again to remind them that during the course of 1967 a convertible matured and there was a rights issue as well, so that although the total amount to be distributed will be up by 10.67 per cent, the actual distribution per share will only be up by 2.07 per cent. Leave it another week, and then remind them that last year's distribu- tion included a capital distribution which ought to be deducted (er taken into account, accord- ing to taste). The civil servant responsible will probably have committed suicide by this stage: but if he has not he will get his sums wrong. Of course he may get them wrong to your disadvantage: but think what innocent amusement you will have enjoyed.
If this sounds over-fanciful, I can only cite chapter and verse. A number of companies have already got by by pointing out either that although the total value of dividends has risen by more than 31 per cent, the actual percentage figure on the coupon has not—or vice versa. But the prime example is Messrs Gill and Duffus Ltd. They increased their dividend from 18.66 per cent to 19.32 per cent, but the Treasury assured me that this was an increase of pre- cisely 31 per cent. You work it out.
What else? Well, one chairman I have heard of has decided that if the Treasury blocks his planned increase in dividend he will contri- bute the difference between what he intended to pay and what he is allowed to pay to Tory party funds: a fine example for those who are interested in poetic justice. If you are feeling desperate you could always go down the road and persuade your neighbours to make a take- over bid. Then you can double, treble or even quadruple your dividend, as a defensive move. This is possibly the most foolproof (surely the mot June in this context) method of all.
All this is shockingly irresponsible stuff, of course. As the Government is always telling us, it is our duty to cooperate in the 'voluntary' prices and incomes policy whether we are directors or shareholders, retailers or workers. Thus we can together ensure that the most in- competent companies are able to look the most efficient squarely in the eye; that wages (given the dreadful propensity of three million engin- eering workers to slip by while the Government is busy dealing with the twenty-three refuse operatives of Lambeth) outstrip prices and make a nonsense of the Chancellor's devalua- tion strategy; .and that the pound is in due course submerged under a wave of speculation following either a national strike in pursuit of a 41 per cent wage claim or the 41 per cent settle- ment following such a strike. But no one will be able to say that the directors of Grattan Ware- houses were not brought to heel.
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