The government’s £1.57 billion lifeline for the cultural sector was bigger than most practitioners were expecting — and drew a chorus of approval from arts panjandrums lined up to offer quotes on the end of the DCMS press release. A nifty media exercise, then, and a smart deployment of the Hank Paulson ‘big number’: when the US treasury secretary unveiled his $700 billion bailout package in 2008, a staffer admitted the number had been pulled out of the air simply because it sounded huge. So it is with this deal, within which the real sum available for grants to be spread across a large number of threatened theatres and other venues is £880 million — and if it has to pass through the cobwebbed corridors of Arts Council England, you may be sure the process will be slow and leave many disappointed.
How much better to have said: ‘Barring a serious second spike, you’ll all be able to re-open for audiences with minimal social distancing well ahead of panto season — because we’ve got this epidemic under control and we’re proceeding on a basis of calculated risk, transparently explained.’ But of course no minister could utter the second half of that sentence, so the arts community, so vital to Britain’s image in the world, will just have to be grateful for payouts that defer, for now, the prospect of extinction.
The dividend divide
Against Hollow Firms is an oddly titled paper by Sheffield academics who believe major companies went into the pandemic weaker than they should have been because they had over-rewarded investors in the preceding period. It’s a thesis that throws light on current debate about whether the true ‘purpose’ of a company should be to serve shareholders or society at large — of which we hear daily echoes in criticism (by Green MP Caroline Lucas on Any Questions? for example) of firms that are still paying dividends, whether or not they took advantage of the Chancellor’s support schemes.
Researchers found that leading companies on both sides of the Atlantic paid out four-fifths of their net income over the past decade in dividends and share buybacks, and about a third paid out more than they generated in net income in their last accounting year. By maximising payouts and piling on ‘risky debt’, the authors argue, these firms made themselves less resilient in ways that will ‘make recessions deeper [and] costs to governments larger’ while widening social divides.
What’s needed is a ‘repurposing [of] the corporation through a stronger recognition… that management’s core obligation is to protect the capital base of the company so that it may withstand shocks and serve the needs of multiple stakeholders’. Meanwhile, largely in response to media and political pressure, UK companies that were expected to pay out £100 billion of dividends this year may pay only half of that figure.
Academics and Any Questions? panellists will tell them it would be morally wrong to restore previous dividend levels when normal trading resumes. But why should any investor take risks to help rebuild the economy without reasonable reward — and hasn’t capitalism’s risk-reward formula, despite bouts of excess, served society well over the long term? As I said last week, businesses, on the whole, have risen to this crisis: now they need to re-assert their own principles against a tide of bien-pensant anti--business opinion that will itself leave companies weaker — because who’ll want to invest in them for piffling returns?
Look to Kazakhstan
An email from the Kazakhstan embassy reminds me that First President Nursultan Nazarbayev was 80 this week. No one ever accused this former Soviet apparatchik of championing human rights during 30 years of power over his Central Asian fiefdom; I’ve been there, and it’s a scary place. But he drove economic development — exploiting mineral resources and building a lively private sector — that has carried Kazakhs from desert hardship to per capita income comparable to that of Turkey or Brazil. It also brought a dozen Kazakh companies to the London stock exchange, bolstering that tired institution and creating a fountain of City fees.
Back in 1991, Nazarbayev was in London looking for privatisation advice; when he visited the bank where I worked, we had to check the atlas to find where he came from. A senior colleague flinched as the president put a menacing hand on his shoulder and growled: ‘You are my adviser.’ Perhaps Boris Johnson should invite the retired autocrat to advise on driving the UK economy out of its own post-pandemic desert.
A plague on private equity
No space to do justice to the feast of readers’ restaurant tips filling my inbox, from Lido da Elio on the Thunersee lakeside in Switzerland to Le Pesked on Alderney (book 14 days ahead to give you time for self--isolation). Invariably your favourites are independent survivalists — while the sector’s headlines are about unloved chain restaurants, from Bella Italia to Byron, on the brink of collapse after the shutdown, all of which had been backed by the sharpest suits of the private-equity scene.
These fortune-seekers have poured £6 billion into the UK’s casual-dining market since 2014 in search of winning formats, driving valuations and rents sky-high while loading every deal (almost 70 of them) with debt aimed at maximising bang for investors’ equity buck. Now many of the chains are looking at ‘pre-pack’ insolvency or ‘company voluntary arrangements’, too complex to explain here but painful news for creditors, banks and the taxman.
‘We’ve seen this coming for ages,’ one restaurateur tells me. ‘The private equity boys just followed each other like sheep. This has much less to do with Covid than you might think.’ In short, we’re witnessing the aftermath of a plague of financial wizardry that comes back wave after wave.