“Wisconsin Governor Tommy Thompson has announced an ambitious pilot program to radically reshape the welfare system in his state. If it works, it could give the word welfare back its original definition as a temporary helping hand, not a permanent way of life. Governor Thompson sounded a lot like Candidate Clinton when he said, “We need a welfare system that rewards work and prohibits long-term dependency.

“Work Not Welfare”
Review & Outlook
3 June 1993
The Wall Street Journal (Emphasis: The Audit)

First, let me say CJR’s The Audit agrees wholeheartedly with its brothers and sisters on the WSJ’s editorial board.

A steady stream of income that derives not from the sweat of one’s brow is humiliating, degrading, and can lead only to dependency, lassitude, and a life of crime and drugs—or at least clotted-cream abuse, unbridled lawn games, excessive lying around the Hamptons, and aimless floating on boats.

And how much worse—how much?!—if that income stream comes at the expense of the publisher of a vitally important national financial daily that could sorely use the money to—I dunno—reinvest in its business to find ways to grow in order to remain independent of an Australian publisher of such items as “Paris in Prison Lesbian Alert.”

Think of the guilt that must gnaw—gnaw!—at the recipients of such unearned lucre.

How must it feel, quarter after quarter, year after year, take-take-taking, eat-eat-eating your company’s seed corn as its dwindles in the silo, watching your stock price bob in the mid-30s like a dead rat in an irrigation pond until finally, inevitably, someone who publishes gems like “Why I set lesbo ex on fire” comes along to offer you $60 a share, a price you will not otherwise achieve until Kingdom Come, having squandered vital investment capital on excessive dividends.

We are talking, of course, about Dow Jones & Co., publisher of the WSJ and controlled by the Bancroft family, descendants of the wife of Clarence Barron, who bought the company in 1902.

By many accounts, these are good, public-spirited people. I kid them about clotted cream and boats; I have no idea what they like to do or eat. They’re now entitled to make jokes about how I enjoy pickled herring and controlling the global media and the diamond trade. And there was a time when families like the Bancrofts stood as the bulwark against corporate raiders who otherwise would trash newspapers’ long-term viability for short-term profit.

But with the company’s independence in serious peril by a bid from Rupert Murdoch’s News Corp., it’s time to figure out what went wrong—and how other family controlled newspaper companies might avoid the same fate.

Here’s one thing: Dow Jones has been overpaying the dividend for years to the long-term detriment of the company and for the principle benefit of the Bancrofts.

There is much debate in the newspaper publishing business about whether family ownership is better than public ownership, whether a two-tiered stock structure is better than giving all shareholders the same voting rights.

The Audit’s answer is, it depends: Which family and how many of them are there?

Take Dow Jones. For the last decade-plus or so my old company has been the Sick Man among newspaper publishers, even before the general decline of the group, partly because of managerial missteps and bad business investments, which I’ll get to in another post.

But the company has also spent a huge amount relative to its size, year after year, on stock dividends. A dividend is a cut of the profits earned by the business during the year. It is not guaranteed, and, in fact, must be set every quarter by a company’s board of directors. The idea is, you might need the money for something else at any time.

A dividend is capital that you are returning to shareholders because the business has no better use for it. No one believes DJ didn’t need to grow to remain independent. And does anyone believe the newspaper business isn’t in transition and that lots of capital might be needed to help with that shift?

Howard Hoffman, a DJ spokesman, makes the fair point that the company has in fact invested in itself over the years, including buying Marketwatch for $425 million and the part of the database service Factiva it didn’t already own for $160 million.

Okay, but while DJ splashed around at a $3 billion market capitalization, News Corp. has been doing this. (Cue theme from Jaws.)

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.