Cash-rich firms need to find their 'moral compass' and pay wage subsidy back, accounting professor says
Friday, 11 December 2020
Big cashed-up listed companies who took the government wage subsidy need to find their moral compass and pay the money back, says University of Auckland accounting professor Jilnaught Wong.
A Stuff survey of the biggest 50 companies on the NZX found about half of them did not call on the government’s $14 billion wage subsidy scheme, designed to help keep people in jobs during the early stages of the coronavirus pandemic. Others had since paid money back, either partially or in full, while a smaller group retained it.
Wong singled out retailer The Warehouse Group, and retirement village operators Ryman Healthcare and Summerset Group, as companies that should pay the subsidy back.
The Warehouse Group received $67.8 million in wage subsidies in the 2020 financial year, when it achieved a profit of $44.5m, and generated $408m of cash from its operations, double the $198m of cash the previous year. The company didn’t pay a dividend, citing continued uncertainty ahead, but expects to resume payments in 2021.
**READ MORE:
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* The NZ Super Fund message that Covid-19 wage subsidy businesses would be 'unwise' to dismiss
* Vector plans to repay $1.6m government wage subsidy because 'it’s the right thing to do'
* Coronavirus: Was Covid-19 wage subsidy scheme too lenient for big business?
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“They went through some difficult months but the point is that their online sales have increased and overall they have got twice the amount of cash sitting around as they did in the same time last year,” Wong said.
“More people should be being vocal about this,” he said. “I certainly wouldn’t buy something from them.”
Ryman, the country’s largest retirement village operator, paid $44m in first-half dividends to its shareholders after taking $14.2m in wage subsidies. Ryman justified the payments by saying it had spent three times the subsidy amount on PPE gear and other procedures such as extra cleaning and extra staff to protect residents and staff.
Summerset, the second-largest retirement village operator, received $8.6m in wage subsidies and paid out $13.7m in first-half dividends. Stuff understands that Summerset has told investors the payments were justified because its costs were higher and sales of units were temporarily stymied.
Still, that didn’t wash with Wong, who said the retirement villages take management fees from their residents to care for them, it was part of their job, and they still had cash to pay dividends.
“If you do have the cash to pay the dividend, you don’t need the wage subsidy,” he said.
The wage subsidy scheme, which required employers to demonstrate a drop in revenue over a defined period, opened in March, and was later extended, closing in September.
“A lot of these appalling companies are basically saying, ‘Well we have met the law, so we are going to keep it,’ but morally, it’s not the right thing to do,” Wong said. “Companies and executives need to behave ethically and morally, that’s why they are in there in the roles of leadership.”
Directors and executives needed to realise that the world has changed, and they should no longer focus solely on maximising returns to shareholders but need to think very carefully about non-financial environmental, social and governance (ESG) factors, Wong said.
“The thing about the wage subsidy is: where do you think this money is coming from? It’s coming from the other taxpayers, so really there is a wealth transfer that has gone from people like you and me to these corporates, who are then giving it to their shareholders,” he said.
“There is a clear wealth transfer that is going on and at the time when the government needs the funds for the needy and to support child poverty, these companies are just taking this money without any conscience. It just makes you wild. They don’t need it. The hungry kids who go to school without breakfast and no shoes on their feet, they need it, not these fat corporates.”
Wong welcomed the move by retailer Briscoe Group to pay back its $11.5m subsidy, after facing criticism for retaining the money while paying a $20.3m first-half dividend. Briscoe said it repaid the subsidy when it became clear trading had picked up after the country came out of lockdown.
“I’m absolutely thrilled they paid it back and I think more companies should follow them,” Wong said.
Many companies may have experienced a temporary dip in their revenues during lockdown and then bounced back as trading picked up, he said.
Other big NZX-listed firms have also paid back the subsidy in full.
Transport company Mainfreight paid back its $10.6m subsidy. Managing director Don Braid said that, early in lockdown, its New Zealand transport and warehousing operations experienced a significant revenue drop and management was uncertain at the time how bad trading would become, and wanted to protect jobs.
However, trading had improved and efforts to reduce costs, defer capital expenditure and gain new business were relatively successful, he said.
“We are in a better position than many, and while qualifying under the government’s criteria, we felt it was appropriate to return the subsidy,” he said.
Napier Port paid back its $2m wage subsidy, with chief executive Todd Dawson saying he was grateful to the government for the scheme.
“It gave us confidence during a very difficult and uncertain time to retain all our people,” Dawson said. “When we considered Napier Port’s recovery, and the purpose of the subsidy, we decided to repay it in full – it was the right thing to do.”
Auckland lines company Vector repaid the $1.6m subsidy it received for its subsidiary Cristal Air International, which installs ventilation equipment.
“At the time of our application, during alert level 4 lockdown in March, Cristal Air was unable to operate and, like many companies, there was significant uncertainty about the future trading environment for this business,” a spokeswoman said.
“Since Covid alert levels were lifted, trading conditions for the business improved and, considering Vector’s overall performance, we believed it was the right thing to do to pay it back.”
Some smaller companies on the NZX, such as mānuka honey company Comvita, have signalled that they intend to pay back the subsidy when they become profitable again.
“People want fairness,” said Wong. “We are not asking for more than that. Just be fair and reasonable about this because you are burdening the country with billions of dollars of debt that our children and our grandchildren will have to repay.
“There’s a problem when you think you are entitled to things – that’s when I think society is breaking down.”