the audit

Beleaguered Pensioners

It's a good thing that BP investors are taking it on the chin
June 17, 2010

Atrios says:

I really can’t believe how fast the “you can’t hurt BP! If you do, you’re just hurting poor little old ladies!!!” idea was spread.

Like the idea that boycotting its gas stations won’t really hurt BP, the “oil spill is hurting pensioners” meme is awfully helpful PR for BP.

The British press, at least the tabloid part of it, is going whole hog with this angle. Here’s The Daily Mail:

Obama bullies BP into £13.5bn fund for oil spill victims… but British pensioners will pick up the bill

The Journal runs Dow Jones Newswires copy with this lede:

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Pensioners in the U.K. might be heartbroken about BP PLC’s (BP, BP.LN) decision to skip three quarters worth of dividends. Options traders who believed the move was inevitable, however, made some quick money on the suspension.

There are hundreds more hits in Google News.

But as Thomas Frank wrote in the Journal yesterday:

A company can cause the worst environmental catastrophe in U.S. history but it doesn’t really matter if retirees are awaiting their dividends: Hands off BP!

Let’s clear up any misimpressions about what dividends are and what they should be. They’re not a pension plan. They are excess cash paid by corporations to investors, who are owners of the company and are thus responsible for that company’s actions—good or bad. Indeed much of the point of a corporation is to protect owners from unlimited liability for their collective actions.

In other words, British pensioners (and everyone else who owns the company, which I’ll hazard a guess is mostly people much richer than the beleagured “British pensioner”) won’t have to dig into their pockets to pay for the oil spill if the company isn’t worth enough to pay for its catastrophic actions.

And let’s clear up another misimpression: That BP is a British company. Sure, it’s headquartered there, but it’s a very multinational corporation—as much American-owned as it is British-owned. Brits hold 40 percent of BP shares, while Americans hold 39 percent. JPMorgan Chase owns 28 percent of BP, while BlackRock owns 8 percent, according to AllGov.

So American pensioners will be hit by this, too, because entities like Calpers hold BP shares. That’s part of the game of capitalism.

High-dividend companies are known as widows and orphans stocks because they’re safe, plodding companies that churn out cash for their owners. To the extent that it hurts pensioners who will be hurt because their plan managers invested in BP, that’s unfortunate, its awfully hard to muster sympathy for people who chose to put their money in an oil company like BP, with its record of safety violations and greenwashing.

Frank points out that the pensioner copout is not new:

All of this is merely a spittle-flecked variation on the old “widows and orphans” defense, in which some corporate titan demands that his operations be left unscrutinized, unregulated, and above all uncriticized out of concern for his defenseless shareholders. It was a Wall Street commonplace at one time: Flipping through Matthew Josephson’s 1934 book “The Robber Barons,” I was able to find an incident in which even the rapacious Jay Gould summoned up “widows and orphans” to humanize one of his maneuvers with the Union Pacific Railroad.

Mr. Josephson, the historian, simply laughed this off. In 1934 everyone knew that corporations were not charitable organizations.

Dividends are not sacrosanct. If you want sure returns while protecting your capital, put your money in Treasury bonds.

Indeed, it’s a very good thing that investors in bad actors take it on the chin when their companies run amok. We want them to lose money. That provides the only incentive public corporations, which while they might have corporate personhood under the law, are unfortunately not subject to the same moral and ethical codes as the rest of us actual persons, have to do the right thing.

Executives and investors in Shell and Exxon Mobil and the like now have more incentive to make sure they don’t cut corners egregiously like BP did in drilling the Deepwater Horizon hole in the ocean.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.