When the coronavirus hit, many companies suspended their share buyback programs, but they’re still paying dividends despite their job cuts. This raises the question of why these companies continue to reward shareholders while refusing to take care of their own employees.
Employees who have been laid off can file for unemployment, but that shifts the burden of care from companies that can afford to pay their employees to the government. Meanwhile, state unemployment systems are struggling to support all these workers, who are weighing on government revenues, and the already wealthy are further enriched.
Paying dividends during coronavirus job cuts
The Washington Post reports that five companies paid their shareholders a total of $700 billion in dividends while shutting down factories and doing job cuts. Specifically, the newspaper called out Caterpillar, Levi Strauss, Stanley Black & Decker, Steelcase and World Wrestling Entertainment (WWE).
For example, Caterpillar said on March 26 that it was temporarily suspending operations at some of its facilities, including factories in East Peoria, Ill. And Lafayette, Ind. and a foundry in Mapleton, Ill. About two weeks after that announcement, the equipment manufacturer announced $500 billion for shareholders in cash dividends.
Levi Strauss said on April 7 that it would stop paying store employees, and now about 4,000 employees are on furlough. The same day the job cuts were announced, the blue-jeans brand announced that it would return $32 million to shareholders. President and CEO Chip Bergh said at the time that they were "taking swift and decisive action that will ensure we remain a winner in our industry."
More firm layoffs
Stanley Black & Decker said on April 2 that it was planning job cuts and furloughs due to the coronavirus pandemic, and two weeks later, it paid about $106 million in dividends to shareholders. President and CEO James M. Loree said the company is "in a strong position" and is "taking the necessary actions now to protect our employees and the business while positioning the company to thrive into the future."
Steelcase said on March 24 that it was suspending or reducing operations at its factories in Texas, Michigan, Pennsylvania and California. It temporarily laid off employees in Michigan but did not reveal the status of its employees in other states.
On the same day it announced the job cuts due to the coronavirus pandemic, it paid approximately $8 million in dividends to shareholders. That dividend came on the heels of a $38 million share repurchase earlier in the month.
WWE released about 20 wrestlers and furloughed workers the day before it announced dividends amounting to about $9 million for shareholders.
Lessening the focus on shareholders
The idea that companies primarily exist to serve shareholders picked up steam in the 1980s, according to the Post, although some have criticized this view in recent years. In August 2019, 181 company executives from the Business Roundtable signed a statement to declare they were ending their focus on "shareholder primacy," which means that "corporations exist principally to serve shareholders." By signing the statement, the executives declared that all of their stakeholders are "essential" and that they "commit to deliver value to all of them."
However at least three of the CEOs who signed the Business Roundtable statement have both implemented job cuts and paid dividends amid the coronavirus pandemic. The executives are from Steelcase, Stanley Black & Decker, and Caterpillar.
Some companies are not only laying off workers but also cutting their dividends and share repurchase programs. For example, the Gap furloughed tens of thousands of employees and suspended its dividend, as did Darden Restaurants. American Eagle Outfitters also suspended its dividend and share repurchase program.
Williams Sonoma shut its stores but continued to pay full-time employees. Other companies like Ralph Lauren noted that although they did job cuts due to the coronavirus and paid a dividend, the decision to pay the dividend was made before it became clear just how serious the pandemic was.