“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.)


And think about this: DJ has the same revenue today as it did in 1993. Does News Corp.? Do you? Does anyone? Even the minimum wage has gone up since then (with devastating effects on the economy, as I’m sure my friends on the Journal’s editorial page would agree).


Directors, by the way, have a fiduciary duty—a legal duty of trust—to look after the long-term financial health of a public company, not any particular group of shareholders, yachtsmen, lawn bowlers, or Pimm’s cup drinkers, but the whole company. The Audit believes Dow Jones directors in particular have an added responsibility to business journalism to forgo current income to invest in the business to protect the long-term health of the company.


In 2006, the company posted net income $387 million and paid $83 million—a dollar per share—in dividends. And that was an unusual year. The year before it posted net income of $60 million and the year before that of $100 million. The dividend paid each year has remained the same.


Hoffman argues that another metric—earnings before interest, taxes, depreciation, and amortization—should be used, and that DJ’s dividend policy has allowed the company to provide a return to shareholders while providing plenty of cash “to invest when and how we want.”


Okay, but why exclude interest and taxes, which must be paid every year, and capital costs, which have to be paid eventually? And by any measure, DJ’s dividend is high.


Besides, I’m afraid on this question The Audit has the advantage of hindsight, and mine’s 20/20. Whatever the policy was, it hasn’t worked to protect the company.


The dividend has been at the same rate since 2000. That’s $500 million right there, and the dividend was in that range throughout the critical 1990s, when News Corp. was an upstart and Dow Jones was a powerhouse.


Who does that help?


If you own 344 shares of DJ stock, like The Audit, that dollar per share is worth … let’s see, scribble, scribble, divide by pi, carry the two …. $344 a year! Wow.


If you are the Bancroft family and own about 20 million shares, that dollar is worth $20 million. There are thirty-five Bancroft shareholders; that’s $571,000 a year each. Not much by The Audit’s standards, but it’ll pay the kennel club dues.


It also puts in perspective—to say the least—the paper’s tough stand on welfare, food stamps, the value of work, how awful it is for one’s self-esteem to get a check every month for doing nothing, etc.


I guess it’s different if the check comes every quarter.


By the way, The Washington Post Co., which also publishes a newspaper and is controlled by a family, has significantly outperformed Dow Jones. It pays a dividend at a fraction of the rate of Dow Jones’s. In 1984, The Washington Post Co. bought Stanley H. Kaplan Educational Centers. Terms weren’t disclosed but I bet it was less than seven years’ worth of DJ dividends. Today that division produces $1.7 billion in revenue, about a third of the Post’s total, and $130 million in operating income—more than all of DJ’s in some years. Those liberals clearly don’t know a thing about capitalism. Maybe the Post should hire a few Journal editorial writers to help run the business side. I hear they have some excellent theories.


Still, you don’t see press barons making unsolicited bids for the Post. Warren Buffett is on the Post’s board. Who does DJ have? I’ll get to that in another post, too.


Think The Audit is brilliant? I’m not. Someone smarter than I am called with the idea. But he wasn’t the only one who’s been thinking about the question, which has come up periodically over the years. (see: “Dow Jones Dividends Questioned,” The Washington Post, March 12, 1997)


In fact, check out this guy quoted last Friday in The New York Times, talking about Dow Jones.


“A year ago, they made $81 million after tax and paid $80 million in dividends,” he said, “and you can’t grow a company that way.”


The speaker? Rupert Murdoch.


Crikey, Bruce! Blow that out your didgeridoo. But what’s the lesbian angle, mate?


By the way, the Times’s parent, of which I own 100 shares at $35, has raised its dividend 39 percent since last year. And while Times company spokeswoman Catherine Mathis argues that shareholders in mature industries need to be rewarded for their patience, The Audit says: the clock is ticking

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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.