I’m fairly new to Reddit, so apologies if this isn’t the correct forum for this – please feel free to point me to a more suitable sub. It does seem to me however that it is appropriate given that the question I raise often seems to directly impact how staff are treated & remunerated.
Many companies make a big thing about the fact they have to provide value for their shareholders and pay out a big dividend to them. This is often given as the reason why staff can’t be paid more or treated better, and paying dividends effectively takes money out of the company that could be used for other things (better wages, benefits, company development etc).
Now I can understand paying dividends when a company is new – the people who invest their money when a company starts up take a risk, and they deserve to be rewarded for taking that risk if it turns out to be successful.
What I don’t understand however is why this persists once a company is fully established, the original shareholders long gone and the shares have passed through many hands. If I buy $1m of shares in a 50 year old profitable multi-national company what am I actually bringing to the company that deserves a payout? It’s not like the company gets $1m to play with – it just gets me a piece of paper that says I nominally own a percentage of the company, and the previous shareholder pockets the $1m. So I effectively bring nothing to the company at all, and I’m not really taking much risk in most instances as the company is unlikely to fold overnight losing my investment. So why are companies so obsessed with paying me money that could be better used?
If the company lowered dividends or stopped paying then altogether, and instead invested that money in the company and its staff, what negative impact does that actually have on the company? OK, it could depress the share price which nominally reduces the value of the company making the shares less attractive to speculators, but how does that actually impact the company? What material difference does it actually make to the company if its share price is $5 rather than $10 and its value on paper is $500m against $1bn? It’s still a fully functioning company and all that has happened is that its theoretical on-paper value has reduced. Why does this matter so much and why are the boards of directors so obsessed by it?