The toxic mix of legality, morality and reputation

I first heard the phrase “It may be legal but is it moral?”in relation to the kerfuffle that blew up in the summer regarding the tax minimization activities of celebrities.

What was happening – complex financial schemes to shelter income from the tax man in offshore tax havens and so pay the minimum UK tax possible – was indeed perfectly legal.

But the current climate of economic gloom, belt-tightening all around and bleak-sounding prospects into the coming year made it all but inevitable that a morality question would arise when it was clear that tax-avoiding celebrities seemed to be gleefully immune from the economics of life that affect the rest of us.

Something similar on a grander scale has been happening with regard to multinational corporations operating in the UK but paying little to no corporation tax as a result of taking advantage of tax laws in the UK and other countries that allow you to minimize your tax liability, ie, pay as little tax as is legally required.

In the morality spotlight over the past few weeks have been the big US-owned multinational corporations Amazon, Google and Starbucks accused of avoiding paying their fair share of corporation tax (more or less the corporate equivalent of income tax) while reporting high earnings and profits in their businesses overall.

It may be legal but is it moral?

Last week, Starbucks responded to pressure and said it would pay £20 million (US$32 million, €24.8 million) in corporation tax over the next two years no matter how its business performed in the UK.

Kris Engskov, managing director of Starbucks in the UK and Ireland, wrote an explanation about their decision in the company’s UK blog. No commenting was enabled: that would have been interesting if it had been although I can see the risks in that. Sharing buttons work and I note that Engskov’s post has attracted 6,500 likes on Facebook so far.

Starbucks also took out advertisements in the UK national press including this one in the Telegraph on December 8.

The Financial Times’ report on Starbucks’ announcement included this interesting comment from Engskov:

[…] He said the decisions were “the right things to do,” adding that doing the right thing did not only mean doing what was right by shareholders.

He added that the company had been taken by surprise by the “emotion of the issue” about tax, having always organised its tax affairs according to the letter of the law.

And there you come to the real heart of the matter that has caused such public and political criticism if not actual outrage in some quarters – it may be legal but “it obviously isn’t moral.”

It seems clear to me that Starbucks has done the SWOT analysis on its reputation and come out of that exercise recognizing that morality wins over purely being legal. So this then largely becomes a public relations matter and one of an issue to manage, notwithstanding concern expressed by the FT that the decision “sets the Seattle-based chain on a potential collision course with investors as the tax payment will come from its parent group.”

Writing in the Independent yesterday, PR Week editor Danny Rogers nails it when he talks about the imperative need at times by companies to go beyond what the law says and tackle crucial public perceptions head-on:

[…]  With high levels of public mistrust in corporations and our increasingly aggressive media, it is no longer good enough for firms to hide behind legal processes or try to “spin” difficult stories to their favour.

If various stakeholders – customers, staff, politicians – have got it into their heads that a corporation is not making a sufficient contribution to society, it has become a major reputational issue for that firm. If the company is to retain an essential licence to operate, it must become more ethical.

Many commentators have said Starbucks should have complied with the rules in the first place. But international tax “rules” are complex and finance directors are given incentives to minimise all costs. The important thing is that Starbucks has responded to reputational pressure. You can call that public relations or you can call it stakeholder democracy flexing its muscle.

But the spotlight on tax avoidance by big corporations has by no means dimmed following Starbucks’ action.

That current spotlight is still on Amazon and Google. And speaking of Google, reports emerged yesterday accusing Google of sheltering over $10 billion in tax in Bermuda. I saw a report today accusing Microsoft of not paying UK corporation tax.

It may all be legal. Morality’s a tougher one to stick to. And in the end, what price reputation?

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Neville Hobson

Social Strategist, Communicator, Writer, and Podcaster with a curiosity for tech and how people use it. Believer in an Internet for everyone. Early adopter (and leaver) and experimenter with social media. Occasional test pilot of shiny new objects. Avid tea drinker.

  1. Annemcx

    Terrific post. I write a lot about ‘blatant integrity’ because I think the digital footprints and multiple sources of information that every organisation makes whether they like it or not, asks for it as part of how corporates manage their brands now.

    It’s not enough to have integrity. Many social idols across all social sectors – industry, entertainment, politics, are becoming opened up and been seen wanting by the web and the increasing transparency of information it is leading to. As levels of digital literacy and the democratisation increase the days of spin seem ever more antiquated.

    Blatant integrity – being comfortable and, indeed, willing to interact with attention from others in the pursuit of forging better relationships, because that’s what great collaboration is made of – will be, I think, a new important standard.

    Thinking about how much the Starbucks’ brand is worth, and how much is spent on it to have accrued the position it now has over time in people’s minds is a sobering thought. All that can be washed away in an instant, such is the fragility of trust and the importance of trust as part of the social currency of the web. In that sense, Starbucks, and all other global brands, have everything to lose.

    It doesn’t hurt then to think of open-minded social media engagement as good insurance. I was very disappointed to see comments being blocked on the Starbucks blog, risks not withstanding. The real risk is that brands are not keeping pace with the skills needed to lead in a social world.

  2. NevilleHobson.eu

    […] The toxic mix of legality, morality and reputation I first heard the phrase “It may be legal but is it moral?”in relation to the kerfuffle that blew up in the summer regarding the tax minimization activities of celebrities. What was hap… […]

  3. Neville Hobson

    Thanks Anne. ‘Blatant integrity’: now there’s a pairing of words to really think about.

    I wonder if Starbucks’ decision – ‘do the right thing’ that goes beyond purely legal compliance – will cause other big companies to think about their own morality positions. I’d like to think so.

    I agree with you that social media plays a huge role in public perceptions, ie, the ready means of communicating those perceptions and adding to the moral pressures. There’s a dark side to it, though, of those whose only goal is ugly disruption for their own ends. Part of the landscape to manage.

    And on that social media topic, two research reports published last week by Sociagility and Text100 throw another spotlight on missed opportunities by FTSE100 companies and leaders of those companies to make best use of such channels to engage with critics and fans.

    They need every help they can get at a time when trust in big buisness is so diminished.

    • Annemcx

      Good point, Neville, that phrase ‘do the right thing’ – a phrase that David Cameron has long since made a favourite – is one that comes up wanting because it’s so unspecific that it’s so open to interpretation which, ironically, makes things easier for those that want to do their worst. This is the Achilles Heel of the morality argument.

      And as organisations become more at subject to public opinion corporate values have to go beyond platitudes and be informative and specific.

      It’s easy to take pot shots against the (dare I say it) rather lily-livered and vague idea of wanting to be ‘right’. What does that actually mean? It’s far easier to lead and earn the respect of supporters and advocates by being clear about what your values specifically lead you to say and do, and why.

      While easy access to trust is being diminished, there is a silver lining and it’s how earning respect through sound social engagement and earning advocacy can be also easier to do as well.

  4. Alan Crozier

    Enjoyed the post Neville.
    Putting the legal/moral argument to side for a moment; as long as Governments construct complex tax rules there will be an incentive to find loopholes. ‘Twas always thus.
    We need someone in HMRC to think systemically rather than in terms of cause and effect and devise a system of tax that is simple, fair, and reasonable. I say that because we operate in a global economy and we need to remain competitive as a country for our own industries as well as foreign investment. If tax becomes too onerous how much would we lose as a country if one of the multinationals left altogether or moved significant parts of its operation because our tax regime was punitive?

    • Neville Hobson

      Thanks Alan, good thoughts. It’s a far from simple issue, isn’t it, where some critics would have us believe this is only about the evil global biz evading tax, not legally avoiding it.

      Yet I think Danny Rogers’ point is a very good one: it is no longer good enough for firms to hide behind legal processes, as many have done. I would think that changing corporate behaviour is a better bet than hoping for a change in tax laws any time soon.

      That said, to your point re multinationals upping sticks and moving away, we saw such a thing a few years ago with some firms moving to Ireland into (at the time) that country’s far more favorable tax regime. Maybe it needs a big hitter or two to do that for politicians to realize that they do need to change those tax laws.

      A mix of change in corporate behaviour, a change in the tax laws together with shifts in society’s willingness of what we expect as acceptable behaviour. Sounds a good combination.

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