Investors to Decide: CEWS vs. Dividends at Transcontinental
Transcontinental Inc.’s response to the challenges posed by the COVID-19 pandemic mirrored that of many companies receiving emergency wage subsidies. Like numerous others, the Montreal-based printer and packaging manufacturer found itself navigating the complexities of accessing the Canada Emergency Wage Subsidy (CEWS) while simultaneously maintaining commitments to its shareholders. According to Patricia Lemoine, Transcontinental’s spokesperson, the company’s history of distributing dividends since 1993, given its financial circumstances, underscored its dependence on the program to avert potential layoffs and support essential operations. The company’s reliance on the CEWS was critical to preventing significant temporary job losses and ensuring continued service delivery.
The situation highlights a broader trend revealed in the Canadian corporate landscape during the pandemic: many companies, including Postmedia Network Canada Corp. (the publisher of the Financial Post), received CEWS funding while continuing to pay dividends to shareholders. This decision reflects a complex and often-scrutinized intersection between corporate responsibility, shareholder expectations, and government support. The practice raises fundamental questions about the role of corporate leaders and the ethical considerations involved in accessing financial assistance while simultaneously fulfilling existing financial obligations.
Investors ultimately bear the responsibility for evaluating these decisions. As Kevin Carmichael, a financial journalist, notes, the resolution of these situations rests with investors who will assess whether companies have acted responsibly in accessing government support. The narrative surrounding the CEWS and dividend payments emphasizes the tension between corporate operations and investor expectations.
The use of CEWS funding by companies like Transcontinental, Postmedia, and Telus Corp. (which launched the Telus Pollinator Fund for Good) underscores the growing importance of stakeholder capitalism. Companies are increasingly facing pressure from shareholders to consider the broader impact of their actions, not just maximizing profits. This includes aligning corporate strategy with issues such as environmental, social, and governance (ESG) concerns—all of which are increasingly important to investors. The global sustainable investing market was worth almost US$40 trillion at the start of 2018, a 34-per-cent increase from 2016, indicating a heightened level of interest in ESG factors among investors.
However, the continued practice of paying dividends, even while benefiting from the CEWS, has drawn scrutiny. Critics, including financial journalist Kevin Carmichael, argue that companies should prioritize using the funds to maintain operations and support employees, a stance that aligns with the original intent of the CEWS program. Several commentators, such as Cheryl Kim, a consultant advising corporate leaders, considered the decision to continue paying dividends—particularly by some of Canada’s largest corporations—as an “abdication of leadership.” The argument is that a responsible corporate leader would use the funds to stabilize the business and ensure continued operation, rather than fulfilling existing commitments to shareholders.
The debate isn’t simply about ethics; it also touches on economic realities. Several experts, including Preetika Joshi, an assistant professor of accounting at McGill University, argue that paying dividends is a legitimate and often-supported practice, particularly when it aims to protect a company’s share price and maintain investor confidence. Academic literature supports this view, suggesting that dividends contribute positively to stock prices and can improve a company’s financial standing. The Canadian Chamber of Commerce, while acknowledging the importance of the CEWS, emphasized that the government’s role is to reduce the spread of the virus to minimize the need for interventions like wage subsidies.
Ultimately, the situation regarding Transcontinental Inc. and other companies accessing CEWS while maintaining dividend payments represents a complex and ongoing discussion about corporate responsibility, stakeholder interests, and the role of government support in navigating economic crises. The decisions made by these companies, and the scrutiny they face from investors and the public, will undoubtedly shape future policies and expectations within the Canadian corporate landscape.
