‘Shareholder value’ versus the public good: the case of Germany

Support for companies amid the pandemic must come with social and ecological strings attached.
By Emre Gömec and Mustafa Erdem Sakinç – With uncertainty around the world about how and when the coronavirus outbreak will decelerate, whole business sectors have been affected by lockdowns and are facing ruin. In Germany, more than 750,000 companies have put over 12 million employees on reduced working hours (Kurzarbeit), dwarfing the 3 million hit by the 2008 crisis.

Society’s loss goes beyond the toll on employment. As the crisis lengthens, innovative capabilities accumulated over years and even decades may atrophy and disappear, making it far more difficult to emerge from the pandemic with a healthy economy.

This ‘innovation drain’ can be avoided if, and only if, corporations devote every available resource to retaining, and reinvesting, in productive capacity. Implementation of the rescue packages adopted in Germany in March and June must thus fundamentally address future practices of corporate resource allocation.

Making government support conditional on replacing value-extractive practices, such as excessive dividend payments and executive compensation, is the most effective way to block damaging business decisions which undermine investment in productive capabilities and secure employment.

Germany’s case was, it’s true, not as dramatic as that of the US, where S&P 500 companies, having fallen victim to the American disease of corporate financialization, distributed 92 per cent of their net income between 2009 and 2018 in stock buybacks and dividends. Still, in the decade from 2010 to 2019, 65 German companies in the DAX 30 and MDAX 60 indices paid out a total of €338.8 billion, or 46 per cent of their combined profits, in dividends, in addition to €35.3 billion, or 5 per cent of profits, in stock buybacks. more>

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