Maintaining a Flexible Payout Policy in a Mature Industry: The Case of Crown Cork and Seal in the Connelly Era

17 Pages Posted: 3 Jan 2011

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

C. Mitchell Conover

affiliation not provided to SSRN

Carol Lancaster

Georgetown University

Date Written: December 23, 2010

Abstract

This case study suggests that the payment of cash dividends may not be essential to the long-run success of even mature companies. A mature company in a mature industry, the Crown Cork and Seal Company did not pay any common dividends during John Connelly's 33-year tenure as chairman and CEO. During that period (from 1957 to 1990), the company used stock repurchases along with a compensation policy featuring low executive salaries and generous executive stock options to motivate and execute a focused business strategy.

Under the leadership of Connelly, Crown was rescued from what appeared to be certain bankruptcy to become one of the most profitable firms in its industry. Debt was immediately paid down, preferred stock was retired, and the firm's operations were revamped and streamlined. Instead of following the diversification strategies of larger industry peers, Crown's strategy was focused and driven by profit margin and customer service. This strategy eventually led Crown to invest internationally and acquire one of its major rivals.

In addition to significant equity ownership by Crown's management and board members, the company's board had a remarkable number of “outsiders” and representatives from international operations, creating a culture that was outward-looking as well as cohesive. And without paying a dollar of dividends - a practice that many finance scholars believe imposes a necessary discipline on mature companies - Crown both preserved its financing flexibility and produced a remarkable record of increases in both profits and market value.

Suggested Citation

Ang, James S. and Arnold, Thomas M. and Conover, C. Mitchell and Lancaster, Carol, Maintaining a Flexible Payout Policy in a Mature Industry: The Case of Crown Cork and Seal in the Connelly Era (December 23, 2010). Journal of Applied Corporate Finance, Vol. 22, Issue 4, pp. 30-44, 2010. Available at SSRN: https://ssrn.com/abstract=1733799 or http://dx.doi.org/10.1111/j.1745-6622.2010.00300.x

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Thomas M. Arnold

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States
804-287-6399 (Phone)
804-289-8878 (Fax)

C. Mitchell Conover

affiliation not provided to SSRN

No Address Available

Carol Lancaster

Georgetown University

Washington, DC 20057
United States

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