The holding structure, and returning 100% of profit as a rule (2023)

Capital to protect with, capital to return

Running through this decision is the question of where to draw the line between the reserves that protect employment and the surplus that belongs to shareholders. A company that has decided not to cut people must hold enough equity and cash to withstand a crisis. Yet once those reserves exceed the necessary level, it is leaving capital entrusted by shareholders idle. Taking the judgement that its equity was sufficient in both quality and quantity as the dividing line, Meitec raised its total payout from around 80% to within 100% and fixed the conditions and instruments of distribution in written form — a sequence that suggests an intent to reduce discretion and raise predictability. The holding structure was, among other things, a mechanism for separating that allocation decision from the execution of the business.

That said, operating a rule mechanically and staying inside the frame set by the Companies Act are two different tasks. That a distribution principle anchored on consolidated profit and a legal constraint expressed as the parent company’s distributable amount came to sit on the books of separate legal entities after the holding-company transition is not something to overlook here. Whether what is in question is the level of the principle itself, or merely the procedure by which it is applied, is unresolved: at the time of writing the company’s own investigation continues. How a company that has promised to return everything it earns will keep that promise, and under what structure, should become visible along with its next mid-term plan.