Penny Bizarre ?

OK we’re in a recession, a credit crunch. These are “hard times”, and there’s economic doom and gloom ahead. So no surprise to see that top UK store and perennial favourite Marks & Spencer are having their share of misery as well.

http://newsvote.bbc.co.uk/1/hi/business/8056809.stm

“M&S cuts dividend as profits fall” reads the headline; on the day that the 125-year-old retailer said it had decided to rebase its dividend payment to 15p a share from the previous level of 22.5p. Shares later lost more than 8% of their value in response to the news.

I’m no economist but I couldn’t help wondering whether this news was quite as bad as it seemed

Annual pre-tax profits fell to £706m from £1.1bn the year before. Quite a drop eh ? But wait a minute - £706 Million pounds – and remember that’s after paying the wages of every employee – they’ve still taken more than £10 for every man woman and child in the country. I wish my company was doing that badly.

Total sales actually rose 0.4% to £9.1bn. – which gives a profit margin of 7.7% - not bad at all. Certainly not compared with what you’d get putting your money in a building society.

But it’s not good enough for the high flying M&S, and they’ve taken a "tough but necessary" decision to close 27 stores, and lose 1,200 jobs in a move to make things better.

I wonder how necessary that really was ? Let’s say the 1200 people were paid an average of £30,000 pa – probably much lower, but it makes my calculations easier, and takes a rough estimate at “on costs” on board. So 1200 jobs would cost them £ 36 000 000 a year – barely a scrape off that dreadfully poor profit of £706 Million. In fact if you took that off the profit you’d be left with a profit of £670 Million – in other words reducing it by around 5%. So assuming that if they did this they’d have to reduce shareholders dividends by 5% as well, then they’d cut them to – well actually about 14 pence instead of 15 pence.

So which is best ? – losing 1200 jobs and giving the shareholders an extra penny a share, or keeping the jobs, and giving them a penny less ?

Well you can see how I’m thinking, but I may be wrong. I certainly am not an economist, my calculations are sketchy to say the least, and I have always heard very good things about how M&S give back to society, and how they treat their employees.

I do feel though that our society is missing something. We’re trying to measure the success of our businesses purely in terms of money. We’re forgetting that money is really only a token to be exchanged for “good things”. Sometimes those good things can be provided in ways that money can’t buy in the usual sense – good things like job security; like economic stability.

I’m not suggesting that M&S share holders aren’t entitled to make a profit, but I know that if M&S was a co-operative, their profits today wouldn’t be seen as disappointing – they’d be seen as fantastic.

I feel that too often businesses judge themselves by how much better they are doing than last year – not how much profit, but how much more profit, and perhaps not even how much more, but on how quickly the rate of increase is improving.

Perhaps what they should really be asking, is – Are our customers satisfied ? Are our employees happy to work for us ? and finally - Have we made enough profit ? because more than enough, can be greedy.

In short I feel that businesses should have a social conscience and should consider it a part of their mission plan, to promote social cohesion, and communal well being.

Idealistic ? I think so – but worthy of consideration I think