The "Cuts" Explained

"So Mr. Osbourne do you expect me to meow?" "No; I expect you to DIE!

Imagine you run a big department in a major business; the business has made it a policy of offering shares in itself to it's employees and as a result they have built up a large share through this means.

Like all good businesses it give you a CAPEX (capital expenditure), money to invest in making your department more profitable, and you the dutiful manager work out the best way you can maximise the return on your money.

In 2007 you are given £50 million, in 2008 you are given £75 million, in 2009 you are given £112.5 million and in 2010, at the height of your company suffering losses, you are given £168.75 million; overall up to this point the company board has agreed to give you year on year CAPEX increases of 50%, taken partly out of other departments budgets and partly out of issuing new shares.

Finally the stockholders get fed up of their stock value dropping as a consequence of the reckless support of your department and, back up by other departments that have been squeezed, oust the current management board; their coup however is not as effective as they would like, faced down in part by existing shareholders in your department, meaning that dissenting groups have to combine and direct the business in a productive heading.

One faction believes that cutting your CAPEX and reacting to the changing marketplace's demand for your goods is the only way forward; the other believes further investment, but in different CAPEX spends, is the way forward.

At your next review for 2011 onwards you are thus told that, instead of a CAPEX increase of 50% to £253.13 million it is having to reduce the increase to 25% so that it doesn't have to issue as many shares this year in the company; you thus only get £210.93 million.

Your department supervisors are livid, and are backed up by scathing articles in your businesses in-house magazine which slowly forces the board to recant fearing a revolt and being ousted.

And at no point does anyone question what the CAPEX is being spent on.