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> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid prog

> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs... Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Buying back shares I’m fine with. While that could actually be seen as a form of “reinvesting”, I get the point. What sense does the “registered in tax havens” part make though? If they’re a foreign-registered company would they ever have been eligible for aid? Plenty of companies in Europe are employing thousands of people, but are “owned” by a company elsewhere, so how do we define that ownership and “tax haven”?

toomuchtodo 7y ago
Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders. If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout). These are very reasonable conditions for a nation state bailout.
- gruez 7y ago
  >If you didn’t keep enough cash on hand [...] This is implying you could keep enough cash on hand. Outside of tech giants, how many companies keep enough cash reserves to survive months without revenue?
  - toomuchtodo 7y ago
    There is a wide expanse between running your business razor thin as a profit extraction machine and keeping 12 months of cash reserves. This policy simply looks upon the former as a poor choice.
    - bzbarsky 7y ago
      Almost no one keeps 12 months of cash reserves. Apple, with is famous cash hoard, is around that mark.... I can't think of other large companies offhand that are.
      - toomuchtodo 7y ago
        That was only used as an example as the other extreme. Edit: Very few business have that cash on hand, but will usually have access to credit revolvers that could carry them through this. I am aware of many firms that have drawn down their entire revolver.
        bzbarsky 7y ago
        And I'm aware of a bunch of companies that are explicitly not drawing on their available revolvers because the banks involved are not necessarily in a position to provide that liquidity right now... This is the issue with a systemic problem that affects the entire economy, which is quite different from a single company being affected. And note that even "cash on hand" would be in practice money markets or bank accounts, which would make drawing it down look a lot like a bank run. Now whether we should be bailing companies out, that's a separate question. Fundamentally, if 2020Q1/Q2 GDP is effectively down 30% or whatever the number is, and we want to "replace" that loss, it's hard to see where that sort of money can come from except "all of us" in various forms (higher taxes due to government bailouts, higher prices, higher inflation, etc, etc). The main question is where the incidence of the economic pain will fall. Letting companies go out of business places that incidence partially on the shareholders and partially on the ex-employees and partially on the ex-customers. Unemployment insurance and the like can partially help the employees in the short term. The shareholders seem to get little sympathy, understandably, though note that they include things like pension funds and whatnot. Customers (who can no longer get the goods the company used to provide) may be just out of luck or other companies might at some point spring up to address the demand. In the short term they are just out of luck. It seems to me that a lot of economic readjustment will take place no matter what, with open questions about speed and smoothness.
      - bigfudge 7y ago
  - ethelward 7y ago
    There is a middle ground between having enough cash reserves to survive for months, and not having cash at all because everything has been bled out in dividends and buybacks; namely, having enough cash reserves to survive for some time, but not for several months.
    - bigfudge 7y ago
      Why not for several months. If you are a large corporate doing share buybacks why the f shouldn't you be able to weather several months of disruption?
      - ed312 7y ago
        Because your competitor who ploughs all their money into growth and rewarding shareholders would crush you within a year. Everyone loves to watch their 401k go up every quarter but hates the reality of how that happens. Sort of like people who love cooking meat but are disgusted by an image of a slaughterhouse.
- chrismeller 7y ago
  No, I don’t think the two are the same. Like I said, dividends are usually the “salary” an employer takes at the end of the year. It could be $1, it could be $100,000, but it all depends upon how the business did. This is exactly how everyone is constantly complaining that a business should be operating - pay all the employees, then the owner/CEO/etc. takes part of what is left over.
  - toomuchtodo 7y ago
    Depends on scale. American Airlines in the US used 80 percent of their profits for several years for share buybacks ($12.5 billion from 2010-2019). Not R&D, not salary increases for workers. Does that deserve a bailout that preserves existing ownership? That’s the target. That sort of behavior should be nuked from orbit. I’d agree it’d be different if your business is small (less than $10M/year in turnover); you’d look at the books with a less critical eye.
    - chrismeller 7y ago
      That’s the point. You are assuming that every applicant is AA size... the reality is that 99% of businesses are not, and you’re killing those business, their employees, their owners, and their families.
      - deleted 7y ago
        [deleted]
      - bigfudge 7y ago
        I don't think anyone has clarified the actual rules in play here. Why should the taxpayer bail out firms which go on to pay dividends within 5 years? Why shouldn't the state simply take stock as a guarantee for loans in these companies?
    - 0xffff2 7y ago
      Why? Where exactly is the tipping point where dividends/buybacks become unacceptable? Unless you want to completely outlaw dividends and share buybacks (in which case you might as well do away with public companies), you're inherently putting the government in the position of defining completely arbitrary rules about how profitable a company is allowed to be.
- moron4hire 7y ago
  >> mechanisms for enriching shareholders It's important to point out that "shareholders" could include "managed retirement plans", especially when talking about stocks that pay dividends.
  - toomuchtodo 7y ago
    This is a fair point, and I would be supportive of carving out an exemption to ensure the ownership value in retirement plans for workers is not wiped out and they’re made whole.
  - hkeide 7y ago
    Old people own stuff. Why is that important in this context?
    - moron4hire 7y ago
      Gee, I don't know, I guess I'm concerned that retired people don't get their major source of living income ripped out from under them just because of an ill-conceived notion that "dividends are only for rich people".
smnrchrds 7y ago
I think the "in tax havens" part applies to "pay out dividends" as well. Perhaps someone who speaks Danish can refer to the official sources and confirm?
- Saaster 7y ago
  Firms applying for Danish state aid must promise not to pay dividends or make share buy-backs in 2020 and 2021. Companies would be allowed to pay dividends again if they pay back the aid. This makes perfect sense, otherwise it's a textbook case of socializing the losses and privatizing the profit. Paying dividends (and stock buybacks) is a trade-off that companies make, that makes the company less resilient. Risk/reward needs to work in both ways, both in terms of gains as well as losses.
  - rvnx 7y ago
    Can't say it better.
  - smnrchrds 7y ago
    Thank you for the explanation.
  - bigfudge 7y ago
    I personally don't see why it's such a limited time frame.
    - ed312 7y ago
      Agreed - repayment of the loan/bailout should be the contingency. Your business has wild post-COVID success? Great! Pay back your bailout and start issuing dividends! No moral hazard in returning capital in a successful business.
frgtpsswrdlame 7y ago
Dividends and share buy backs are effectively the same thing. Treating them differently is what makes no sense.
MrBuddyCasino 7y ago
> Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Shareholders should not just profit from the upside, but eat the downside too, which his exactly what this is. You can't take the dividends, claiming "I took all the risks", and then expect the state to bail you out. No upside without downside. Skin in the game.
- chrismeller 7y ago
  Yes, on the surface. You’re assuming that the business owner is some uber wealthy person that doesn’t mind missing the dividends because he’s happy on his yacht. While that is true for a lot of large companies (kind of like the ones that shouldn’t be asking for state aid), for the small ones it’s very different. As a small business owner myself, it matters hugely - if the company makes $100,000 in profit and I have to pay two employees $40k each, I’m barely making ends meet.
  - james-mcelwain 7y ago
    How does the size of the business change the material facts here? You shouldn't be able to take profit when you're sitting on top of a 0% interest government loan intended to keep you solvent.
  - grahamburger 7y ago
    > if the company makes $100,000 in profit and I have to pay two employees $40k each, I’m barely making ends meet. Honest question - how would paying yourself dividends change this math? Dividends have to come out of the same $100k right?
    - bigfudge 7y ago
      It's a tax dodge in the UK.
  - bigfudge 7y ago
    Why are you paying yourself in dividends rather than a salary? If you want the tax breaks associated with being a director, eat the risk too...
MereInterest 7y ago
> Well first off, dividends are a normal method for business owners to make an income... they take all the risk I'd disagree strongly on that account. The business owners take the monetary risk, but that is a small portion compared to the overall risk of the workers. If somebody moves across the country, that is a risk. If somebody invests time in learning a skillset, that is a risk. If somebody is going to need to choose between rent and groceries if they are laid off, that is a far bigger risk than the monetary investment of a venture capitalist.
- bigfudge 7y ago
  Plus, the state takes the risk that you commit fraud or run the business recklessly and put everyone out of work. I agree with your point - and all of these risks are completely unrecognised in our current system. They need to be.
C1sc0cat 7y ago
Like other EU countries :-) the Isle of Man is still part of the EU
throwaway_USD 7y ago
>Well first off, dividends are a normal method for business owners to make an income... they take all the risk... Except if they did actually take all the risk, they would presumably be going bust right now...but they aren't going bust because they are being bailed out. This is an example of "privatizing the gains and socializing the losses", the opposite of ownership risk. Besides dividends are not the only reward of ownership, the equity/stock has a value separate from the dividend...a company taking taxpayer dollars and turning around and give x% of taxpayer bailout to owners is a direct transfer of wealth to the ownership class and just burns the cash flow the business presumably needs to attempt to survive.
blimey74 7y ago
But the owners are not "taking all the risk" in this case hence the conditions attached to the Danish state acting as the last financial resort for businesses that are currently in trouble and whose owners cannot do anything about it.

toomuchtodo 7y ago

Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders. If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout). These are very reasonable conditions for a nation state bailout.

gruez 7y ago
>If you didn’t keep enough cash on hand [...] This is implying you could keep enough cash on hand. Outside of tech giants, how many companies keep enough cash reserves to survive months without revenue?
- toomuchtodo 7y ago
  There is a wide expanse between running your business razor thin as a profit extraction machine and keeping 12 months of cash reserves. This policy simply looks upon the former as a poor choice.
  - bzbarsky 7y ago
    Almost no one keeps 12 months of cash reserves. Apple, with is famous cash hoard, is around that mark.... I can't think of other large companies offhand that are.
    - toomuchtodo 7y ago
      That was only used as an example as the other extreme. Edit: Very few business have that cash on hand, but will usually have access to credit revolvers that could carry them through this. I am aware of many firms that have drawn down their entire revolver.
      - bzbarsky 7y ago
        And I'm aware of a bunch of companies that are explicitly not drawing on their available revolvers because the banks involved are not necessarily in a position to provide that liquidity right now... This is the issue with a systemic problem that affects the entire economy, which is quite different from a single company being affected. And note that even "cash on hand" would be in practice money markets or bank accounts, which would make drawing it down look a lot like a bank run. Now whether we should be bailing companies out, that's a separate question. Fundamentally, if 2020Q1/Q2 GDP is effectively down 30% or whatever the number is, and we want to "replace" that loss, it's hard to see where that sort of money can come from except "all of us" in various forms (higher taxes due to government bailouts, higher prices, higher inflation, etc, etc). The main question is where the incidence of the economic pain will fall. Letting companies go out of business places that incidence partially on the shareholders and partially on the ex-employees and partially on the ex-customers. Unemployment insurance and the like can partially help the employees in the short term. The shareholders seem to get little sympathy, understandably, though note that they include things like pension funds and whatnot. Customers (who can no longer get the goods the company used to provide) may be just out of luck or other companies might at some point spring up to address the demand. In the short term they are just out of luck. It seems to me that a lot of economic readjustment will take place no matter what, with open questions about speed and smoothness.
    - bigfudge 7y ago
- ethelward 7y ago
  There is a middle ground between having enough cash reserves to survive for months, and not having cash at all because everything has been bled out in dividends and buybacks; namely, having enough cash reserves to survive for some time, but not for several months.
  - bigfudge 7y ago
    Why not for several months. If you are a large corporate doing share buybacks why the f shouldn't you be able to weather several months of disruption?
    - ed312 7y ago
      Because your competitor who ploughs all their money into growth and rewarding shareholders would crush you within a year. Everyone loves to watch their 401k go up every quarter but hates the reality of how that happens. Sort of like people who love cooking meat but are disgusted by an image of a slaughterhouse.
chrismeller 7y ago
No, I don’t think the two are the same. Like I said, dividends are usually the “salary” an employer takes at the end of the year. It could be $1, it could be $100,000, but it all depends upon how the business did. This is exactly how everyone is constantly complaining that a business should be operating - pay all the employees, then the owner/CEO/etc. takes part of what is left over.
- toomuchtodo 7y ago
  Depends on scale. American Airlines in the US used 80 percent of their profits for several years for share buybacks ($12.5 billion from 2010-2019). Not R&D, not salary increases for workers. Does that deserve a bailout that preserves existing ownership? That’s the target. That sort of behavior should be nuked from orbit. I’d agree it’d be different if your business is small (less than $10M/year in turnover); you’d look at the books with a less critical eye.
  - chrismeller 7y ago
    That’s the point. You are assuming that every applicant is AA size... the reality is that 99% of businesses are not, and you’re killing those business, their employees, their owners, and their families.
    - deleted 7y ago
      [deleted]
    - bigfudge 7y ago
      I don't think anyone has clarified the actual rules in play here. Why should the taxpayer bail out firms which go on to pay dividends within 5 years? Why shouldn't the state simply take stock as a guarantee for loans in these companies?
  - 0xffff2 7y ago
    Why? Where exactly is the tipping point where dividends/buybacks become unacceptable? Unless you want to completely outlaw dividends and share buybacks (in which case you might as well do away with public companies), you're inherently putting the government in the position of defining completely arbitrary rules about how profitable a company is allowed to be.
moron4hire 7y ago
>> mechanisms for enriching shareholders It's important to point out that "shareholders" could include "managed retirement plans", especially when talking about stocks that pay dividends.
- toomuchtodo 7y ago
  This is a fair point, and I would be supportive of carving out an exemption to ensure the ownership value in retirement plans for workers is not wiped out and they’re made whole.
- hkeide 7y ago
  Old people own stuff. Why is that important in this context?
  - moron4hire 7y ago
    Gee, I don't know, I guess I'm concerned that retired people don't get their major source of living income ripped out from under them just because of an ill-conceived notion that "dividends are only for rich people".

smnrchrds 7y ago

I think the "in tax havens" part applies to "pay out dividends" as well. Perhaps someone who speaks Danish can refer to the official sources and confirm?

Saaster 7y ago
Firms applying for Danish state aid must promise not to pay dividends or make share buy-backs in 2020 and 2021. Companies would be allowed to pay dividends again if they pay back the aid. This makes perfect sense, otherwise it's a textbook case of socializing the losses and privatizing the profit. Paying dividends (and stock buybacks) is a trade-off that companies make, that makes the company less resilient. Risk/reward needs to work in both ways, both in terms of gains as well as losses.
- rvnx 7y ago
  Can't say it better.
- smnrchrds 7y ago
  Thank you for the explanation.
- bigfudge 7y ago
  I personally don't see why it's such a limited time frame.
  - ed312 7y ago
    Agreed - repayment of the loan/bailout should be the contingency. Your business has wild post-COVID success? Great! Pay back your bailout and start issuing dividends! No moral hazard in returning capital in a successful business.

frgtpsswrdlame 7y ago

Dividends and share buy backs are effectively the same thing. Treating them differently is what makes no sense.

MrBuddyCasino 7y ago

> Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary. Shareholders should not just profit from the upside, but eat the downside too, which his exactly what this is. You can't take the dividends, claiming "I took all the risks", and then expect the state to bail you out. No upside without downside. Skin in the game.

chrismeller 7y ago
Yes, on the surface. You’re assuming that the business owner is some uber wealthy person that doesn’t mind missing the dividends because he’s happy on his yacht. While that is true for a lot of large companies (kind of like the ones that shouldn’t be asking for state aid), for the small ones it’s very different. As a small business owner myself, it matters hugely - if the company makes $100,000 in profit and I have to pay two employees $40k each, I’m barely making ends meet.
- james-mcelwain 7y ago
  How does the size of the business change the material facts here? You shouldn't be able to take profit when you're sitting on top of a 0% interest government loan intended to keep you solvent.
- grahamburger 7y ago
  > if the company makes $100,000 in profit and I have to pay two employees $40k each, I’m barely making ends meet. Honest question - how would paying yourself dividends change this math? Dividends have to come out of the same $100k right?
  - bigfudge 7y ago
    It's a tax dodge in the UK.
- bigfudge 7y ago
  Why are you paying yourself in dividends rather than a salary? If you want the tax breaks associated with being a director, eat the risk too...

MereInterest 7y ago

> Well first off, dividends are a normal method for business owners to make an income... they take all the risk I'd disagree strongly on that account. The business owners take the monetary risk, but that is a small portion compared to the overall risk of the workers. If somebody moves across the country, that is a risk. If somebody invests time in learning a skillset, that is a risk. If somebody is going to need to choose between rent and groceries if they are laid off, that is a far bigger risk than the monetary investment of a venture capitalist.

bigfudge 7y ago
Plus, the state takes the risk that you commit fraud or run the business recklessly and put everyone out of work. I agree with your point - and all of these risks are completely unrecognised in our current system. They need to be.

C1sc0cat 7y ago

Like other EU countries :-) the Isle of Man is still part of the EU

throwaway_USD 7y ago

>Well first off, dividends are a normal method for business owners to make an income... they take all the risk... Except if they did actually take all the risk, they would presumably be going bust right now...but they aren't going bust because they are being bailed out. This is an example of "privatizing the gains and socializing the losses", the opposite of ownership risk. Besides dividends are not the only reward of ownership, the equity/stock has a value separate from the dividend...a company taking taxpayer dollars and turning around and give x% of taxpayer bailout to owners is a direct transfer of wealth to the ownership class and just burns the cash flow the business presumably needs to attempt to survive.

blimey74 7y ago

But the owners are not "taking all the risk" in this case hence the conditions attached to the Danish state acting as the last financial resort for businesses that are currently in trouble and whose owners cannot do anything about it.