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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