One of the most frequently asked questions in Advantexe’s business simulation-centricworkshops is, “Can you explain the impact of giving or not giving dividends?”

To help participants in our Business Acumen programs I wrote this blog that I am pleased to share with our blog and business community. I start the blog with a definition of what a dividend is and then share insights about the impact of the dividend on a company and its shareholders.

What is a Dividend?

A dividend is a way to share a portion of a company's profits with its shareholders. Shareholders have trusted a company with their capital (cash) and if a company does well, there is an obligation to share the success with the shareholders who gave the company the cash to do business.

The distribution of dividends is typically a big deal and is approved by the Board of Directors. Dividends are often paid quarterly, and sometimes instead of cash, dividends are given in additional stock.

One of the most important metrics of success when it comes to a dividend is something called the “dividend yield.” The dividend yield is calculated by dividing the actual dividend by the current stock price. For example, if the annual dividend is $10 ($2.50 per quarter) and the stock price is $200 per share, the dividend yield is $10 divided by $200 which equals 5%. That, of course, is over and beyond the increase (or decrease in the value of the stock). A blog for another day is the concept of Total Shareholder Return (TSR) which looks at the increase/decrease of the value of the stock plus the added value of the dividends.

For investors, dividends can provide a steady stream of income and can also be a sign of a company's financial health. For example, retirees who have invested in a portfolio of stocks that give regular dividends may actually live off of their quarterly dividend disbursements without having to tap into other savings or selling off the actual stocks.

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A high-potential leader participating in the Business Acumen program was very upset. She just couldn’t reconcile her understanding of why the Cost of Goods Sold (COGS) didn’t go down despite the fact her business simulationteam “increased their Production Team budget by 1.5%” (which in the context of the simulation was really not that much). I carefully explained that the COGS is also a function of 3 other dynamic variables including raw materials, R&D, and labor costs. She responded by saying, “I just don’t understand…how can all of these things be happening at the same time? How would I know what is more important if nobody is telling me the answer?”

I explained that just like in the real world of business, there is always going to be a certain level of ambiguity and many times in business things are never going to be black and white, that there are many areas of gray such as understanding how the COGS of a product is derived. At that point, you could physically see the hopelessness on her face as she receded to the background not knowing what to do next.

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The news out of China this week about the break up of Alibaba into six separate companies was startling and exciting for investors and followers of high-tech companies with high valuations. The e-commerce giant said Tuesday that it would split into six business groups, which will each be managed by their respective CEOs and follow a holding company structure. Each CEO will report to a board of directors and assume full responsibility for company performance.

At Advantexe, we have had the privilege of working with dozens of large companies that have made the decision to break up into smaller companies. Much of our work uses business simulations to help the new leaders and contributors adjust to the new environment by providing the business acumen and business leadership skills needed to thrive. Based on years of experience and working directly with hundreds of executives, senior leaders, and the managers and contributors who do the work, here are five insights into why breaking up is good for business:

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Over the past several months, Advantexe has been requested by seven clients to conduct an end-to-end data security audit that focuses on examining our information technology systems, simulation backend infrastructure, and organizational data policies and practices to assess compliance with established data security standards, regulatory requirements, and industry best practices. Although Advantexe has invested in an ISO27001 certification to demonstrate our commitment to managing and protecting sensitive information, the process has become more complex, demanding, and frequent.

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One of the most interesting elements of designing Business Acumen training programs for business leaders is to engage with them about their challenges and opportunities and how to build the organizational capabilities to move forward.

Over the past few years, having an Environmental, Sustainability, and Governance (ESG) strategy has been at the forefront of thought for many leaders. During this time, Advantexe has been approached on numerous occasions to either integrate ESG into our existing business simulations or create new ESG simulations for specific clients in specific industries. Our Solution Architects who design simulations and learning journeys always get excited and start to integrate new ideas into the simulations including packaging, production, transportation, materials management, and much more.

And then “it” happens…

We present great ideas about integrating ESG into the simulations and then it becomes obvious very quickly that yes, sure we need more ESG, so let’s throw money at it because it’s “just a simulation,” “it’s not our money,” and “I guess they want us to spend money on ESG anyway.” At this moment, a noble idea turns into “greenwashing” meaning that it has morphed from being real and practical into an extension of Marketing.

Obviously, that doesn’t make for good learning and doesn’t build any capabilities.

Which raises the question, what does?

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