This submission broke HN's rules by editorializing the title. Doing that eventually causes your account to lose submission privileges on HN, so please don't do that.
"Please use the original title, unless it is misleading or linkbait; don't editorialize."
Cherry-picking a detail from an article and making that the title is editorializing—in fact it's the leading form of editorializing. Titles are by far the biggest influence on threads, so this is a big deal. On HN, being the first to submit an article doesn't confer any special rights to frame it for everybody else.
The proposal only limits payments to companies that have received more than DKK 60 million (around EUR 8 million) in aid. So this is not your usual business owner. These are generally larger companies with a well paid management.
It's a short list and it doesn't include any countries where a large company doing business in Denmark would be registered except if they try to avoid taxes. Why should tax payers bail out a tax avoiding company?
The proposal was made by a party in the opposition, which is usually seen as most business friendly ("Venstre"). Interest groups representing the businesses in Denmark support the proposal. I think it's a common sense proposal. Paying out dividends to shareholders while receiving government aid basically means having the tax payers bail out the business owners.
I honestly think the proposal should go even further. The government should take a small ownership stake in companies that receive that kind of money.
It's a good common sense start. Companies that pay dividends or make share buy-backs are more vulnerable in a crisis (not only the current one), meaning they are riskier investments. Risk needs to be inversely correlated with reward for the markets to function. Investors in riskier companies deserve to get wiped out, not propped up.
Companies registered in tax-havens should have no business applying for EU or US aid. I would say, simply barring them doesn't go far enough. If one did apply while being simultaneously registered in the EU/US and any tax haven, that is fraud and should result in jail time.
Maybe I'm not understanding something but why do they consider paying dividends as something bad? They are essentially excluding the majority of businesses using this criteria.
There's a lot of misinformation about this out there.
The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid.
This is so that aid is not redirected into the pockets of shareholders and is instead used to keep people employed.
>The Government and all parties to the Parliament agree that the extended and extended fixed cost scheme introduces a condition in the Compensation Orders that applicants, as a condition of receiving compensation for the extended period, must declare by faith and laws, that the companies will not pay dividends or buy back shares for the financial years 2020 and 2021. The condition will apply to companies that receive more than DKK 60 million. in compensation in 2020 in the compensation scheme for fixed costs. Companies will later be able to free themselves from these restrictions by repaying paid aid under this scheme in excess of DKK 60 million.
The implication is that companies should not be using the aid money to pay dividends or buy back stock, because the aid is intended to help pay employees or otherwise remain operational, not to pass through to stockholders.
The article doesn't make clear whether they're using past behavior (what they did with previous government aid), present behavior (are they currently a public company established as paying dividends), or future behavior (an agreement not to pay dividends or buy back stock, in order to receive aid).
If a company goes “Omg, we won’t make it this year, we need 2 billions in aid just to keep going with business as usual, not even takeing our normal 10% growth into account!?” then the government will still not pay a dime to that company if their “business as usual” includes 15 billion buy backs.
The point is that companies need to take the hit on their owners and shareholders pockets first, and only then if they still need aid to survive, then the government steps in.
It sounds like you may be assuming the dividend is required, like a debt. It isn't. A company can stop paying its dividend at any time, so Denmark isn't excluding any company. Investors will grumble when the dividend stops, but so what? The taxpayers are grumbling too.
Of course some banks have recently argued that their dividends are something like debts. They argue that cutting the dividend would cause investors to panic, so they must be essential to the financial system. This is a weird argument, but if you took it seriously you would have to include dividends in their post-2008 stress tests. You would require regulatory approval before they increased the dividend, as you would if they increased their debt-to-asset ratio.
Dept payments before dividends is just a one way for a lender to secure their loans in limited companies.
It counters "Heads I win, Tails you lose" -strategy where the risk of business is offloaded to lenders while owners take profits. It's common tactic in distressed companies to load the company them with debt and suck the firm try with huge dividends. Lenders are left with nothing when the company goes bankrupt.
Not sure if these are loans or grants or exactly how it works, but I could see prohibiting dividends for some period after the aid. Firms should not be making distributions when they are receiving aid. But prohibiting any firm that has paid dividends is insane.
Dividends are, literally, the profits you're distributing to your owners. Buybacks, likewise, are giving corporate money directly to your owners (who then divest from the company in the process, of course). This isn't "bad", it's fine. It's the basic idea of how the stock market is supposed to work, we buy shares in companies we think will make money.
But by definition if you have cash to distribute to your owners, you could be using that to pay salaries instead and delay or avoid layoffs and furloughs. So it's very reasonable that a government bailout policy designed to prevent job losses (and not to shore up shareholder value) would incentivize giving money to the people who are targetted and not shareholders.
The thinking goes:
A business should have enough cash to weather a storm. If you've paid out cash you have more than enough to weather a storm (and therefore don't need money). If you need money and have paid out dividends than you shouldn't have, you didn't have enough cash reserve.
I’m Danish so I can chip in who this is targeted at. A few of our larger corporations like Danske Bank (the one from the money laundering scandals) aimed at paying out its stock owners 8,50dkr per share while simultaneously planning to fire hundreds of employees to pay for their mishaps and Covid problems. Other companies that are less evil planned similar things.
Now Danske Bank is planning on using those money to secure their business going forward, and we expect some companies to follow this route. Others will go a head with their firings, like Vestas, to make sure share holders get richer.
Now this is not something we actually want in Denmark. I know it’s capitalism, but our most recent election results showed a record support of our social democracy. We’ve never had less support for liberalism (which is our branch of capitalism) than we do now since the end of WW2. So we value people keeping their jobs above shareholders making money.
I personally think we should be even tougher on taxing the rich. If we know companies sit in tax-havens then we should really do something about that, shouldn’t we
You pay out dividends or buy back shares if you have surplus cash, and it's hard to convey to voters that businesses with surplus cash need help I guess.
The article lacks some details. If you read the Danish text detailing this from the Ministry of Commerce you will see that:
Regarding buy-backs and dividends, companies receiving more than 60 million DKK in subsidy for fixed costs have to promise no buy-backs and dividends in fiscal years 2020 and 2021. If they pay back the subsidy they will be freed from this obligation.
60 million DKK is approximately 8.7 million USD or 8 million EUR.
Regarding "tax havens", the legislation states that the companies receiving these subsidies have to pay their taxes according to national rules and international agreements. Companies based in EU-defined "tax havens" will not be eligible for compensation unless denying them compensation would violate EU legislation or other international agreements.
You can read the press release and legislation from the Ministry of Commerce in Danish here:
I understand the sentiment behind no aid if you're paying dividends (if you have enough money for dividends then you clearly don't need aid), but I don't see how it can be defined in any way that seems even remotely fair.
Is it whether you paid dividends recently in the past? Because remember businesses are supposed to pay dividends -- and you could have been profitable enough to pay a dividend in January but now deep in losses -- and whether they paid dividends in any particular recent timeframe can be fairly arbitrary.
And if it means being prohibited from paying dividends for a period of time going forwards, this seems similarly arbitrary -- basically any business can just pause dividends, then as soon as the time period expires, and immediately or gradually pay the previous dividends they didn't.
Coming up with any useful definition for whether a company deserves aid or not, short of whether they're actually filing for bankruptcy, is already incredibly difficult, but basing it on dividends is beyond simplistic. Different types of businesses have such wildly different patterns of savings and cash flows they're extremely hard to compare or draw any kind of line between "responsible" and "irresponsible" companies.
Based on the article, it looks like the primary form of aid is zero interest loans. It seems perfectly fair and reasonable to me that you can't pay dividends until you pay back the loan.
> The government also said that companies which pay out dividends, buy back own shares or are registered in tax havens won’t be eligible for any of the aid programs...
Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary.
Buying back shares I’m fine with. While that could actually be seen as a form of “reinvesting”, I get the point.
What sense does the “registered in tax havens” part make though? If they’re a foreign-registered company would they ever have been eligible for aid? Plenty of companies in Europe are employing thousands of people, but are “owned” by a company elsewhere, so how do we define that ownership and “tax haven”?
> Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary.
Shareholders should not just profit from the upside, but eat the downside too, which his exactly what this is. You can't take the dividends, claiming "I took all the risks", and then expect the state to bail you out. No upside without downside. Skin in the game.
Dividend and share buybacks are the same end result, just different mechanisms for enriching shareholders.
If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout).
These are very reasonable conditions for a nation state bailout.
>Well first off, dividends are a normal method for business owners to make an income... they take all the risk...
Except if they did actually take all the risk, they would presumably be going bust right now...but they aren't going bust because they are being bailed out.
This is an example of "privatizing the gains and socializing the losses", the opposite of ownership risk.
Besides dividends are not the only reward of ownership, the equity/stock has a value separate from the dividend...a company taking taxpayer dollars and turning around and give x% of taxpayer bailout to owners is a direct transfer of wealth to the ownership class and just burns the cash flow the business presumably needs to attempt to survive.
I think the "in tax havens" part applies to "pay out dividends" as well. Perhaps someone who speaks Danish can refer to the official sources and confirm?
But the owners are not "taking all the risk" in this case hence the conditions attached to the Danish state acting as the last financial resort for businesses that are currently in trouble and whose owners cannot do anything about it.
> Well first off, dividends are a normal method for business owners to make an income... they take all the risk
I'd disagree strongly on that account. The business owners take the monetary risk, but that is a small portion compared to the overall risk of the workers. If somebody moves across the country, that is a risk. If somebody invests time in learning a skillset, that is a risk. If somebody is going to need to choose between rent and groceries if they are laid off, that is a far bigger risk than the monetary investment of a venture capitalist.
I hate crappy poorly thought out measures like this.
Is this a loan? If so, no dividends should be paid (or buybacks offered) until it's repaid. Otherwise companies just need to hold fire for 18m and it's free money!?
And if it is a loan, there should be interest and compulsory payments after (say) 6 months. Otherwise you're bailing out companies that SHOULD go bankrupt and penalizing ones that don't.
This is like when my country (the UK) bailed out banks. We got equity in exchange (smart). Then we decided to ban bonuses because politics. So we got sued and lost and had to pay them and legal costs. Then we said no more bonuses, so the good bankers, the ones that made a profit and who were not involved in the BS mortgage crap all moved to private banks. And we were left with hollow shells of companies we'd paid a fortune for.
I find these restrictions relatively frustrating because they push governments into an adversarial relationship with shareholders in a way that is unnecessary.
We may not like it much, but government equity purchases are a much more aligned way to pursue a bailout. World governments (and by proxy taxpayers) should be gaining ownership or preferred rights in these deals. Then shareholders could be free to do whatever ridiculous dividend / buyback policy they want. Putting time limited bans on corporate payouts doesn't fix the incentives that lead to high payout rates in the first place. Shareholders losing 80% of their equity in a bailout would.
The dividend rule is dumb. Companies who pay out dividends are actually more responsible businesses, who return capital to shareholders. Just because they generate profits doesn’t mean they are also not in need of aid to maintain operations. Certainly it makes sense to prevent them from issuing future dividends based on aid, but why a businesses ability to return profits to shareholders implies anything about their cash flows sensitivity to covid is beyond me. Not to mention, this rule will give aid to profitable companies who chose to not return those profits to shareholders, an additional bizarre distinction.
That’s not to say bailout money shouldn’t be restricted, it just seems like a dumb rule. Why not delimit it based upon a company’s behavior, such as excessive risk taking or over leverage? The companies that were not anywhere near robust to financial shocks deserve to die, but dividend issuance seems a poor way to select for these.
Isn't paying out a dividend similar to just paying employees and those who should rightfully earn an income from any enterprise? I understand the need for meaningful checks and controls here, but why would this be singled out?
I keep saying over and over but the economic policy is something trump fucked up big time. He gave away the corporate tax breaks in times of prosperity when there was no need and the companies just made bank. He was dealt a great hand, a strong economy that would chug along no matter who the president was. Those are the times to focus on the poor and lift people up. Instead he wasted his opportunity on the tax cuts. Someone with foresight and common sense would have saved that arrow in the quiver for a more opportune time. Now would have been a great time to use that tool. Instead the fed has to resort to unlimited money printing and zero interest. We probably will need to do that at some point but losing that one option is a mistake.
[+] [-] dang|6 years ago|reply
"Please use the original title, unless it is misleading or linkbait; don't editorialize."
https://news.ycombinator.com/newsguidelines.html
Cherry-picking a detail from an article and making that the title is editorializing—in fact it's the leading form of editorializing. Titles are by far the biggest influence on threads, so this is a big deal. On HN, being the first to submit an article doesn't confer any special rights to frame it for everybody else.
If you want to say what you think is important about an article, please do so in a comment. Then your view is on a level playing field with everyone else's. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
[+] [-] flexie|6 years ago|reply
The proposal only limits payments to companies that have received more than DKK 60 million (around EUR 8 million) in aid. So this is not your usual business owner. These are generally larger companies with a well paid management.
As for companies registered in tax havens, the EU has made an official list of tax havens, which will be followed: https://en.wikipedia.org/wiki/European_Union_tax_haven_black...
It's a short list and it doesn't include any countries where a large company doing business in Denmark would be registered except if they try to avoid taxes. Why should tax payers bail out a tax avoiding company?
The proposal was made by a party in the opposition, which is usually seen as most business friendly ("Venstre"). Interest groups representing the businesses in Denmark support the proposal. I think it's a common sense proposal. Paying out dividends to shareholders while receiving government aid basically means having the tax payers bail out the business owners.
I honestly think the proposal should go even further. The government should take a small ownership stake in companies that receive that kind of money.
[+] [-] Saaster|6 years ago|reply
Companies registered in tax-havens should have no business applying for EU or US aid. I would say, simply barring them doesn't go far enough. If one did apply while being simultaneously registered in the EU/US and any tax haven, that is fraud and should result in jail time.
[+] [-] Nextgrid|6 years ago|reply
[+] [-] kilo_bravo_3|6 years ago|reply
The article does a bad job at explaining it, but companies that take aid cannot pay dividends or buy back stock until they return the aid.
This is so that aid is not redirected into the pockets of shareholders and is instead used to keep people employed.
>The Government and all parties to the Parliament agree that the extended and extended fixed cost scheme introduces a condition in the Compensation Orders that applicants, as a condition of receiving compensation for the extended period, must declare by faith and laws, that the companies will not pay dividends or buy back shares for the financial years 2020 and 2021. The condition will apply to companies that receive more than DKK 60 million. in compensation in 2020 in the compensation scheme for fixed costs. Companies will later be able to free themselves from these restrictions by repaying paid aid under this scheme in excess of DKK 60 million.
Translated from: https://www.fm.dk/nyheder/pressemeddelelser/2020/04/regering...
DKK 60 million is about 8.8 million dollars.
If you have money to pay dividends, you have money to pay back your government aid.
[+] [-] JoshTriplett|6 years ago|reply
The article doesn't make clear whether they're using past behavior (what they did with previous government aid), present behavior (are they currently a public company established as paying dividends), or future behavior (an agreement not to pay dividends or buy back stock, in order to receive aid).
[+] [-] boublepop|6 years ago|reply
The point is that companies need to take the hit on their owners and shareholders pockets first, and only then if they still need aid to survive, then the government steps in.
It’s aiming to protect the bottom, not the top.
[+] [-] Agathos|6 years ago|reply
Of course some banks have recently argued that their dividends are something like debts. They argue that cutting the dividend would cause investors to panic, so they must be essential to the financial system. This is a weird argument, but if you took it seriously you would have to include dividends in their post-2008 stress tests. You would require regulatory approval before they increased the dividend, as you would if they increased their debt-to-asset ratio.
https://www.bloomberg.com/opinion/articles/2020-04-06/a-virt...
[+] [-] peterwoerner|6 years ago|reply
[+] [-] nabla9|6 years ago|reply
It counters "Heads I win, Tails you lose" -strategy where the risk of business is offloaded to lenders while owners take profits. It's common tactic in distressed companies to load the company them with debt and suck the firm try with huge dividends. Lenders are left with nothing when the company goes bankrupt.
[+] [-] ucosty|6 years ago|reply
[+] [-] formercoder|6 years ago|reply
[+] [-] ajross|6 years ago|reply
But by definition if you have cash to distribute to your owners, you could be using that to pay salaries instead and delay or avoid layoffs and furloughs. So it's very reasonable that a government bailout policy designed to prevent job losses (and not to shore up shareholder value) would incentivize giving money to the people who are targetted and not shareholders.
[+] [-] nokicky|6 years ago|reply
[+] [-] virvar|6 years ago|reply
Now Danske Bank is planning on using those money to secure their business going forward, and we expect some companies to follow this route. Others will go a head with their firings, like Vestas, to make sure share holders get richer.
Now this is not something we actually want in Denmark. I know it’s capitalism, but our most recent election results showed a record support of our social democracy. We’ve never had less support for liberalism (which is our branch of capitalism) than we do now since the end of WW2. So we value people keeping their jobs above shareholders making money.
I personally think we should be even tougher on taxing the rich. If we know companies sit in tax-havens then we should really do something about that, shouldn’t we
[+] [-] _se|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] DCKing|6 years ago|reply
[+] [-] BurningFrog|6 years ago|reply
They don't want to pay out aid to companies that then just hand the aid money out to investors.
[+] [-] Angostura|6 years ago|reply
[+] [-] FartyMcFarter|6 years ago|reply
I certainly don't think it would be appropriate to bail out a company that's throwing money out the window unnecessarily.
[+] [-] Ididntdothis|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] tsbinz|6 years ago|reply
[+] [-] tartrate|6 years ago|reply
[+] [-] thisiswarry|6 years ago|reply
[+] [-] Ididntdothis|6 years ago|reply
[+] [-] mjul|6 years ago|reply
Regarding buy-backs and dividends, companies receiving more than 60 million DKK in subsidy for fixed costs have to promise no buy-backs and dividends in fiscal years 2020 and 2021. If they pay back the subsidy they will be freed from this obligation.
60 million DKK is approximately 8.7 million USD or 8 million EUR.
Regarding "tax havens", the legislation states that the companies receiving these subsidies have to pay their taxes according to national rules and international agreements. Companies based in EU-defined "tax havens" will not be eligible for compensation unless denying them compensation would violate EU legislation or other international agreements.
You can read the press release and legislation from the Ministry of Commerce in Danish here:
https://em.dk/nyhedsarkiv/2020/april/covid-19-regeringen-og-...
[+] [-] bythckr|6 years ago|reply
This just common sense, wonder why its not the standard.
[+] [-] crazygringo|6 years ago|reply
Is it whether you paid dividends recently in the past? Because remember businesses are supposed to pay dividends -- and you could have been profitable enough to pay a dividend in January but now deep in losses -- and whether they paid dividends in any particular recent timeframe can be fairly arbitrary.
And if it means being prohibited from paying dividends for a period of time going forwards, this seems similarly arbitrary -- basically any business can just pause dividends, then as soon as the time period expires, and immediately or gradually pay the previous dividends they didn't.
Coming up with any useful definition for whether a company deserves aid or not, short of whether they're actually filing for bankruptcy, is already incredibly difficult, but basing it on dividends is beyond simplistic. Different types of businesses have such wildly different patterns of savings and cash flows they're extremely hard to compare or draw any kind of line between "responsible" and "irresponsible" companies.
[+] [-] 0xffff2|6 years ago|reply
[+] [-] chrismeller|6 years ago|reply
Well first off, dividends are a normal method for business owners to make an income... they take all the risk, but reap some limited rewards by taking dividends rather than a salary.
Buying back shares I’m fine with. While that could actually be seen as a form of “reinvesting”, I get the point.
What sense does the “registered in tax havens” part make though? If they’re a foreign-registered company would they ever have been eligible for aid? Plenty of companies in Europe are employing thousands of people, but are “owned” by a company elsewhere, so how do we define that ownership and “tax haven”?
[+] [-] MrBuddyCasino|6 years ago|reply
Shareholders should not just profit from the upside, but eat the downside too, which his exactly what this is. You can't take the dividends, claiming "I took all the risks", and then expect the state to bail you out. No upside without downside. Skin in the game.
[+] [-] toomuchtodo|6 years ago|reply
If you didn’t keep enough cash on hand (because you were shoveling profits out the door), you lose your ownership interest (insolvency with no bailout).
These are very reasonable conditions for a nation state bailout.
[+] [-] throwaway_USD|6 years ago|reply
Except if they did actually take all the risk, they would presumably be going bust right now...but they aren't going bust because they are being bailed out.
This is an example of "privatizing the gains and socializing the losses", the opposite of ownership risk.
Besides dividends are not the only reward of ownership, the equity/stock has a value separate from the dividend...a company taking taxpayer dollars and turning around and give x% of taxpayer bailout to owners is a direct transfer of wealth to the ownership class and just burns the cash flow the business presumably needs to attempt to survive.
[+] [-] smnrchrds|6 years ago|reply
[+] [-] blimey74|6 years ago|reply
[+] [-] MereInterest|6 years ago|reply
I'd disagree strongly on that account. The business owners take the monetary risk, but that is a small portion compared to the overall risk of the workers. If somebody moves across the country, that is a risk. If somebody invests time in learning a skillset, that is a risk. If somebody is going to need to choose between rent and groceries if they are laid off, that is a far bigger risk than the monetary investment of a venture capitalist.
[+] [-] C1sc0cat|6 years ago|reply
[+] [-] 1cvmask|6 years ago|reply
[+] [-] LatteLazy|6 years ago|reply
I hate crappy poorly thought out measures like this.
Is this a loan? If so, no dividends should be paid (or buybacks offered) until it's repaid. Otherwise companies just need to hold fire for 18m and it's free money!?
And if it is a loan, there should be interest and compulsory payments after (say) 6 months. Otherwise you're bailing out companies that SHOULD go bankrupt and penalizing ones that don't.
This is like when my country (the UK) bailed out banks. We got equity in exchange (smart). Then we decided to ban bonuses because politics. So we got sued and lost and had to pay them and legal costs. Then we said no more bonuses, so the good bankers, the ones that made a profit and who were not involved in the BS mortgage crap all moved to private banks. And we were left with hollow shells of companies we'd paid a fortune for.
[+] [-] tidon12|6 years ago|reply
We may not like it much, but government equity purchases are a much more aligned way to pursue a bailout. World governments (and by proxy taxpayers) should be gaining ownership or preferred rights in these deals. Then shareholders could be free to do whatever ridiculous dividend / buyback policy they want. Putting time limited bans on corporate payouts doesn't fix the incentives that lead to high payout rates in the first place. Shareholders losing 80% of their equity in a bailout would.
[+] [-] lazyjones|6 years ago|reply
There are always some loopholes, governments should know.
[+] [-] benatkin|6 years ago|reply
[+] [-] bryanrasmussen|6 years ago|reply
in Danish of course.
[+] [-] gfodor|6 years ago|reply
That’s not to say bailout money shouldn’t be restricted, it just seems like a dumb rule. Why not delimit it based upon a company’s behavior, such as excessive risk taking or over leverage? The companies that were not anywhere near robust to financial shocks deserve to die, but dividend issuance seems a poor way to select for these.
[+] [-] throwawaysea|6 years ago|reply
[+] [-] s_dev|6 years ago|reply
[+] [-] yalogin|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]