Disclosure’s Legal, Financial Exposure

0

If you’re a retailer or manufacturer with $100 million or more in sales, here are your choices for complying with California’s new Transparency in Supply Chains Act – which requires you to disclose whether your vendors use any forced labor or traffic in humans (see the story on page 1):

• Go crazy. Thoroughly investigate every supplier along with every subsupplier of every subsupplier, searching the backwoods of Third World countries for miscreants. But that probably would be futile and certainly would be dangerous. Not to mention expensive.

• Do little. Honestly disclose that you really didn’t do much to check. That may technically comply with the law, but it would be a PR nightmare and you’d lose business. Too expensive.

• Take the middle course. Make pointed inquiries of your suppliers, do some investigating and use your best judgment. Trouble is anything you disclose could be used against you in court, particularly if you make any little error or if any disclosure later turns out to be wrong. That’s because under the new act, anyone – activists, corporate rivals, trial lawyers – can sue as if they were the attorney general. The middle course may be your most expensive option.

I suppose there is another option: Cross your fingers and hope. Since the act is new and no one really knows how it’ll play out, maybe it won’t be as bad for businesses as it appears.

They say hope is not a strategy. Maybe not. But in this case, hope may be your best option.

• • •

Some of the stingiest companies in the country are in Los Angeles. At least, when it comes to dividends.

Barron’s last week listed big 10 companies that could and should (according to the magazine) pay dividends or bigger ones. Thirty percent of those companies are here: Amgen, Walt Disney Co. and DirecTV.

In fact, DirecTV may be the stingiest. It pays no dividends, but if it paid out 40 percent of its expected profits for the year to stockholders – and 40 percent payouts used to be the norm – the company’s dividend would be 4.1 percent. That would be higher than any other company on Barron’s “Too Stingy” list. In other words, DirecTV’s capacity to pay dividends is greater than the other companies.

Stockholders today are rewarding companies that reward them with nice dividends, say 3 percent or 4 percent. The article (headlined “The Magic 4 Percent”) gave plenty of examples showing that companies paying high dividends enjoy high price-earnings ratios. Yet companies continue with stock buybacks in an effort to boost their stock price, but have been mostly disappointed.

Dividends have gotten unpopular partly because tax laws don’t favor them. But mostly, companies paying big dividends are viewed as stodgy and slow growing while companies that don’t pay them at all are viewed as cool and fast growing, such as Google and Apple.

But you have to wonder if that’s old thinking. Stockholders today are hungry for nice dividends. Bond rates are a pittance and short-term rates are likely to stay a breath above zero for years, the Federal Reserve said last week.

Stockholders today will gladly bid up stocks with nice dividends. Are you listening Amgen, Disney and DirecTV?

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

No posts to display