There has been moral outrage amongst the political classes and direct action by the public recently in the UK about an unusual topic: corporation tax. Coffee shops occupied, executives facing uncomfortable questions in front of select committees of our parliament, and our Prime Minister describing some corporations as lacking “moral scruples”. He has even promised to raise the issue with the G8.
All of this has come about because of a series of public revelations about the relationship between the UK revenue earned by some multi-nationals and the tax they pay. The Telegraph reported that “Last year, [Starbucks] paid no corporation tax in the UK, despite revenues of £398m.” and that “Google paid £6m corporation tax on £2.5bn of UK revenues in 2011.” Noses in the trough!
When I was studying for my MBA at Cranfield University, News International was cited as an example of a multi-national corporation that had used different national tax regimes to minimize (almost to zero if I remember rightly) the amount of tax paid in the UK. So politicians, their professional advisors and the UK tax authorities must have been well aware of the situation for many years.
Wake up and smell the coffee? “It’s called capitalism,” Eric Schmidt said.
Their methods, which I am sure are legal, exploit the differences in tax regimes between countries, and the ability to be flexible about internal transfer pricing, particularly around intellectual property. Minimizing the tax they pay could be seen as a legal responsibility to maximize shareholder value.
Why the sudden furore, and what does our Prime Minister intend to do when he says he is going to make “damn sure” that such companies pay their fair share?
What explanation can there be for the outcry and the markedly different public reactions to the tax avoidance of Google, Amazon and Starbucks compared with other multi-nationals. We need an explanation because the level of anger was, briefly, palpably physical if not violent.
I believe that this level of anger happens when consumers believe they have been misled, fooled, cheated, to put it coarsely: shafted. Why would they feel like that? Because these companies have sold them a set of brand values that this behaviour runs contrary to.
Amazon’s corporate mission is “We seek to be Earth’s most customer-centric company for our primary customer sets: consumers, sellers, enterprises, and content creators.” Beyond the mission is the “get close to you” personal recommendations and “Chris’s Amazon”.
Starbucks gets even more personal. In the UK we do not enjoy the experience of our American cousins of being greeted by every member of staff as they walk into Starbucks: “Good morning”, “Hi there”, “How are you?” From the Starbucks website: “… a customer receives a drink from a Starbucks barista … just one hand reaching over the counter to present a cup to another outstretched hand. But it’s a connection. We make sure everything we do honors that connection”
Google’s mission is to organize the world’s information and make it universally accessible and useful. They go further with their corporate philosophy ‘Ten things we know to be true’. Such things as ‘Focus on the user and all else will follow’ (that their products will ‘ultimately serve you’), and a remnant of the ‘do no evil’ that has been transformed into a promise to make ad positioning relevant. Google still has the public image of ‘honest geeks done good’.
So, how do you feel about those brand values now you know that they are paying less tax, relative to revenues, than your local book shop or Tea Shoppe? Do the values make you gag? They do me, and I think that is because the actions and words are so different. If an individual says one thing, and then does another, we assume that they are untrustworthy and will avoid them in future. The risk for these companies is that consumers come to the same conclusion about them.
So what can they do to avoid this?
Well, they could start by having an integrated approach to running their business. If they are going to choose to adopt such high standards in their brand values, they better make sure the rest of the business lives up to them. That doesn’t just mean customer service. It means the manufacturing (no, you can’t get away with using child labour in third world countries). It means the HR (no, you can’t pay the minimum wage and force staff to clock out when they use the bathroom). It means product design (no, you can’t use highly dangerous and polluting processes). I’m not suggesting that any of the above mentioned companies have used any of those tactics, but other multi-nationals have. And, yes, it means your financial and legal teams too.
When was the last time you saw your highly paid tax lawyers and accountants sitting down with your marketers and agreeing strategy? I thought so, just like flying pigs.
And Mr Cameron, what is he going to do? My guess is absolutely nothing. The only way he could generate more tax from these companies would be through international agreement or wholesale changes to the tax system. I don’t expect other countries will agree to change their rules so the UK can generate more tax, and I suspect UK tax mandarins would kick radical changes firmly into the long grass. Mr Cameron better make sure his words and deeds are aligned too.