Something better change

Human beings are generally resistant to change which is why you should never let a good crisis go to waste.

The 2007 – 2008 financial crisis was as scary as 2020 but not much changed in its aftermath. Banks have had to be better capitalised, we got a couple of good films out of the crisis and lots of people learnt (and promptly forgot) what collateralised debt obligations were but other than that, it has largely been business as usual.

I am hoping 2021 might see some positive changes but I am not holding my breath – except when I am in a confined space with other people who are not wearing facemasks.

Here are just a few things that I think could, or possibly should (but probably won’t) happen in the business world post-COVID.

Dividend resets

At the height of the first wave of coronavirus cases in the West many companies suspended dividend payments until the economic outlook became clearer.

Some have resumed paying dividend payments but not necessarily at the same levels as previously.

I like a dividend as much as the next person but in a world where interest rates are close to zero, a dividend yield of more than 4% (unless you are a utility or real estate investment trust) is just showing off.

Some companies have a dividend policy of paying a multiple of retained earnings, which seems sensible but others have a more macho “progressive dividend policy”, with a commitment to increasing the dividend each year.

Now is probably not the time to be quite so macho about pay-outs. A policy of lower dividends perhaps augmented by special dividends seems the way to go, especially for those companies that are, as a result of share price collapses, sporting ludicrously high yields. I’m looking at you, BP PLC (LON:BP.) and Royal Dutch Shell PLC (LON:RDSB).

For companies that have taken government hand-outs, lobbing out a juicy dividend is definitely not a good look. Caution is advised.

Executive pay

When the lockdowns started and the global economy seized up, a lot of people, including directors, made sacrifices to keep the show on the road.

So far as I am aware, none of these directors ended up outside Bank station with a cardboard sign on which was written in crayon, “Will work for food”.

Would it be so bad if the 20% pay cuts (or whatever they were) for directors became permanent?

I could wheel out lots of stats here on executive remuneration – stuff on multiples of executive pay to the average pay of the staff – but you’ve probably read it a zillion times. We know that compared to Joe Public, Joseph Director is now paid much more handsomely, relatively speaking, than he was back in the seventies or even the “greed is good” eighties. Count me among those who believe that a widening wealth gap is ultimately bad for society but then my PIN code is 1789.

Nothing will be done about it because of vested interests and London’s famed ability to find a loophole to enable rich people to retain their wealth. London is, after all, the money laundering capital of the world, so they say (whoever “they” are).

Executives need to be incentivised, the libertarians cry. (See paragraph two on the financial crisis).

My riposte is, executives are already well paid; is it too much to ask them to just turn up and do the job they are paid to do to the best of their abilities?

I’d like to see an end to executive share option schemes or a change to the way they operate. Currently, the executive gets issued a wheelbarrow of options to buy the company’s shares at a certain price within a certain timeframe. If the shares go up, (s)he’s quids in and the shareholders are presumably happy. If the shares go down, the options are not exercised and nothing is lost.

There is nothing to stop a counterbalancing scheme whereby the executive is forced to buy shares in the company at a fixed price (higher than the current share price) within a certain timeframe. If the shares go up enough, the executive would be “in the money” and happy to buy but if they don’t, or worse still they fall in value, the executive would lose some of his or her remuneration but end up with more shares in the company.

Would this encourage risky behaviour on the part of the executive? Maybe, but no more so than the current system under which the executive gets a “Get out of jail free” card.

Virtual AGMs

So, we move on from dangerous loonie left pipedreams to something as prosaic as making it compulsory for all listed companies to enable all shareholders to listen to and participate in annual general meetings via audio/video conferencing.

This year has proved it is possible to do and I hope many companies will carry on with the innovation even when travel restrictions are lifted; then shareholders won’t mind the company holding its AGM on a remote island in the mid-Atlantic or in the chairman’s palatial garage.

Many directors won’t like it, having to virtually rub shoulders with hoi polloi but that’s (partly) what they get the big ackers and executive share options for.

Working from home (or anywhere)

2020 was definitely the year of remote working. It has not been a boon for everyone – it’s another example where the pandemic has hit the poorer sections of society much harder than the richer sections – but for a number of people it has reset the work/life balance. Some people are even starting to call it the life/work balance, giving life top billing.

Working from home tends to be an option in those lines of business that are not unionised; as such, it is entirely possible that we could see companies looking to corral their staff in central locations again, safe in the knowledge that employees will meekly comply.

I’d like to think that train has left the station. Maybe it has; who pays attention to train timetables nowadays?