Starbucks serves up a lesson on tax dodges

Seattle-based Starbucks is one of those ubiquitous consumer products, like iPhones, that I am just way too savvy, original and discerning to endorse.  In fact I enjoy taking pot shots at these Giants of Cool.

Anyway, I don't know if this story is making news in the U.S., but in Britain, Starbucks' brand name is taking a pounding after a Reuters investigation revealed that the chain has declared zero profit and paid zero corporate tax over the past three years on close to $2 billion in gross sales.  This is despite Starbucks' assurances to investors and analysts over the years that its UK business is indeed profitable, and its main source of revenue to expand into overseas markets!

So how does Starbucks get away with it, legally?  Three accounting gimmicks, according to Reuters.  First, by copying Google and Microsoft:

Like those tech firms, Starbucks makes its UK unit and other overseas operations pay a royalty fee - at Starbucks, of six percent of total sales - for the use of its ‘intellectual property' such as its brand and business processes. These payments reduce taxable income in the UK.

[...]  The fees from Starbucks' European units are paid to Amsterdam-based Starbucks Coffee EMEA BV, described by the company as its European headquarters, although Michelle Gass, the firm's president in Europe, is actually based in London.

Second, like most MNCs, Starbucks by pays "arms length" "transfer prices" to its Starbucks subsidiaries in other countries for its goods like coffee beans and wooden swizzle sticks.  This is basically Starbucks' right hand in a higher-tax country (Britain) paying Starbucks' left hand in a lower-tax country (Netherlands, Switzerland, etc.), and the right hand deducting the payment from its gross profit as a "business expense."

Third, Starbucks uses inter-company loans to its subsidiaries in other countries. Ridiculously, on paper, Starbucks' entire UK operation is funded by borrowed money, and to boot Starbucks UK pays its subsidiaries overseas a curiously high interest rate on that debt.  Starbucks UK (the right hand) gets to deduct the debt and the interest paid from its tax bill; meanwhile Starbucks overseas (the left hand) is based in a country that doesn't tax interest earned on loans.  The money is thus wiped clean.

Meanwhile, mom & pop coffee shops in the UK have no overseas subsidiaries with which to wipe out their tax liability.  Thus they compete with this giant on an uneven playing field. 

So you see, this game of tax avoidance that we all close our eyes to is not just a U.S. problem.  It's everybody's problem.  Governments have to start working together across borders to stop these MNCs from gaming the system at their host countries' expense.  

In the meantime, let's all agree to expand the definition of Corporate Social Responsibility (CSR) to paying your damn taxes in every country where you operate, at least once in a decade, for crying out loud!

Until they pay their taxes... Boycott Starbucks!

London mayor Boorish Johnson toasting Starbucks CEO Howard Schultz for running such an unprofitable operation in Great Britain and paying no tax.

Corporations ain't people (redux)

Yeah, but Boards of Director are people, right?  Right, but what are their incentives?  Conservatives believe in incentives, so what's the company's officers' incentive to be human beings?  Zilch.  More precisely, those incentives exist, but they are not material or intrinsic to the corporation; they exist only in the ethics that corporate employees bring to their jobs.  Because there isn't any explicit reward in the corporate structure for individual responsibility and concern for the greater good, much less self-sacrifice, which in the corporate world entails a threat to one's job security, one's compensation, and perhaps to the company's bottom line.  

Furthermore, Tapscott is right to mention that corporations are psychopathic by the definition of the American Psychological Association (and psychopathic personalities are more common in corporations).  So what holds them back?  Regulators, first and foremost.  Without government regulators, corporations would be truly scary.  Second, what holds them back is whatever morality (or lack thereof) employees bring to their jobs, as mentioned. Third, we have the courts.

And so, the only meaningful checks on the abuses of corporations come from outside the corporation, and everybody agrees on that.  That's worth remembering.  

To wit, even right-wing ideologue Dr. Milton Friedman realized corporate excesses would have to be checked somehow.  Rather than regulations, he preached that society should rely on the courts to alleviate the externalities and suffering that corporations foist on their customers and non-customers alike.  (Never mind that sick people can't be made well, and the dead can't be resurrected, by courts, no matter what penalties or monetary awards they grant in retrospect.)  Even Milton Friedman acknowledged that corporations would do very bad things if left to their own devices.

Why?  Because corporations are not human.  When it comes to human beings in society, we're very particular about assigning responsibility (or blame) and holding individuals accountable.  Yet the genius, the key innovation of the corporation, is the limits it places on each shareholder, founder's or employee's liability for the bad stuff the corporation does, as well as the financial risks it takes.  

No such limits exist, nay, would be not tolerated, by society when it comes to individuals.  Conservatives are most adamant on that point; liberals, at least stereotypically, are the ones making all sorts of excuses for individuals' behavior: nurture, not nature, and societal forces and all that, they plead.  Such liberal "excuses" drive conservatives nuts.  And yet when it comes to corporations, whose main innovation in the history of mankind is to limit individual responsibility, and thereby make individual risk-taking more palatable, conservatives don't see any contradiction with their professed ethical-moral values.

This diffusion, or rather, dissipation, of moral responsibility has recently reached absurd proportions.  For example, how could one employee of Goldman Sachs, Fabrice Tourre, be held responsible (in a civil, not criminal, suit, mind you) for $3.2 billion fraudulent trades, and yet Goldman's management escape unscathed?  OK, Goldman paid a $550 million fine to the U.S Government while admitting no wrongdoing, but that fine was paid by Goldman's shareholders -- while investors in those fraudulent trades received nothing, and company officers kept their jobs.  Where's the accountability?  

And finally, Tapscott is right to mention the influence of the Internet on corporate transparency.  Is it any wonder that the fig leaf of Corporate Social Responsibility (CSR) coincides with the birth of the Internet?  But yet again, the Internet is external to the corporation; it depends on active citizens to monitor the activities of the corporation.  It is citizen-sponsored regulation, or external regulation by other means, and arguably not the most efficient means.

Tapscott's conclusion is dead on: "The blanket assertion that corporations are people obfuscates the complex issues at play in the changing business world. Corporation are institutions. People are people."

Are Corporations People (Redux)? Why Jack Welch Is Wrong

By Dan Tapscott

September 16, 2012 | Huffington Post

URL: http://huff.to/U1WQKD

What's good for a business is not necessarily good for Business, or for Us

Since the 1980s, business schools have taught future executives that shareholder value maximization (SVM) is the best way to structure the operations of a firm and measure its performance.  Yet a few years ago, precipitated by the financial crisis, something changed.  Even Businessweek, one of the biggest cheerleaders of b-school since its ratings and admissions info is a cottage industry for the publication, acknowledged it in 2010: "How Business Schools Lost Their Way."  

No less than former GE CEO Jack Welch, the hero of many a business school case study, has seen the light and fallen from his high horse, calling SVM "the dumbest idea in the world."  Perhaps that's because GE lost 60 percent of its market value since Welch left in 2001?  Is GE that much worse now, or was it overvalued then?

Explaining what Welch meant, Forbes' Steve Denning argued that in practice, SVM is not so much about executives' maximizing the firm's value, but rather managing (or manipulating) investors' expectations of the firm's value.  Citing the example of GE, he concluded that Welch & Co. were clearly managing the firm's earnings with uncanny precision.  Denning argues for regulatory changes that could thwart the influence of managed earnings and managed expectations, and get business back to the previous dogma of management guru Peter Drucker that, "There is only one valid definition of a business purpose: to create a customer."  

Using other words, celebrated business leader Steve Jobs echoed Drucker's classic sentiment to biographer Walter Isaacson.

Meanwhile, alternative theories like the Triple Bottom Line and Porter's Shared Value have started to gain credence.  More companies are at least paying lip service to it, and the related concept of Corporate Social Responsibility (CSR).  Personally, I believe CSR is bunk.*  Expecting firms to focus on something other than their bottom line is misguided and naive, no matter what they state on their websites and annual reports.  It's not what they're made to do.  What are the internal incentives for firm employees to promote CSR?  Few or none.  Meanwhile, CSR gives irresponsible firms PR cover for their misdeeds.

(*When CSR really works is when consumer watchdogs, labor unions, environmentalists and other organizations shine the light of public scrutiny on the firm's lofty stated aspirations.  Yet this is just public regulation by other means -- and arguably not the most efficient means -- not the result of public altruism by the firm. And crucially, these public critics are often not even the firm's customers, shareholders or employees, but rather "stakeholders" in the most amorphous sense of CSR, meaning they may have no direct economic stake in the firm's performance.)

But I want to talk about the public arena.

Tragically, the theory of SVM has been accepted by many policy-makers and academics as the best model not only for individual firms, but also the model around which to structure our economy.  In effect, these public-sector cheerleaders of SVM gave up their prerogative and obligation to engage in precisely the kind of long-term planning for the common good that firm-level SVM is a incapable of doing.  What is good for the firm is the firm's decision; what is good for society is not.  It's ours, the people's.  

Yet too many have swallowed the Kool-Aid that the "invisible hand," i.e. the mystical, untraceable aggregate of millions of individual business decisions, leads to the best outcomes in all respects for society.  Taken to its logical conclusion, this misguided belief compels policy-makers and regulators not to meddle at all; they should get out of business's way and let the magical accounting of economic debits and credits do its thing.  Because better outcomes for society simply aren't achievable.  Nay, a committed group of human beings with a singular purpose has no purpose, in their view, outside the confines of the firm.  

(The one exception to this rule of human endeavor, conservatives tell us, is private charity, which they believe should replace publicly-funded safety nets.  Yet a simple look at poverty statistics pre- and post-LBJ show us that charity never was, and never can be, nearly adequate to "mop up" the Dickensian poor among us.  Indeed, the key failing of private charity -- with its high overhead, wasteful duplication, lack of scale, and most importantly, non-reporting on performance -- is that it is at its weakest when it's needed most: during economic downturns.)

Certainly, we must strive for a delicate balance between impeding business and giving it free dominion over society.  Unfortunately, today we hear many thinkers and politicians on the Right calling for chainsawing regulations and giving polluting industries and exploitative labor practices free reign over our economy -- all in the name of creating jobs.  Indeed, I have no doubt that gutting regulations would boost those firms' bottom lines in the short and even medium term, and even create jobs.  What worries me is the long term.  When our productivity suffers from lack of skills and capital that have been exported, never to return.  When unaccounted-for pollution creates enormous health costs which nevertheless exist in the real economy yet are absent in polluters' financial statements.  When we have privatized every government service and public asset until we are at the mercy of executives whose primary motivation is this year's bonus, and next year's "golden parachute."  

To whom then do we appeal for amelioration, when there is nobody to appeal to but impersonal market forces?

"The Dumbest Idea in the World": Corporate America's False - and Dangerous - Ideology of Shareholder Value

By Lynn Stout  

August 29, 2012 | AlterNet

URL: http://www.alternet.org/economy/dumbest-idea-world-corporate-americas-false-and-dangerous-ideology-shareholder-value?paging=off

Shove your ingredients and your pizza, Papa John

Hey, Papa John, you can feed a child for just 10 cents a day... or give all your employees health insurance for just 14 cents a pizza!

I would gladly pay 14 cents extra per pizza if I knew that it allowed employees at the restaurant to get medical insurance.  Hell, it's customary to tip the delivery guy $5, so what's a few extra cents?

However, after "Papa" John Schnatter has publicly opposed Obamacare, I can assure you I won't be ordering any more of his pizzas.  

Sorry, but there are just not that many great jobs out there nowadays; and for some people, working at Papa Johns or McDonald's is their career.  Papa John and the rest of us can no longer assume, condescendingly, that workers in industries like fast food deserve s**tty wages and zero benefits.  It's just plain mean-spirited and un-American.

As for Papa John's and Chic-Fil-A, there are a plentiful substitutes in the market and not a lot of difference between products.  So you know what?  Branding counts.  Image matters.  Corporate social responsibility means something.  And so I relish the right to punish those companies who pay their workers s**t and then turn around and give their wealth to backwards-lame conservative causes.  I urge all of you to do the same.  Papa John isn't the first or last guy to bake a pizza.  Chic-Fil-A didn't invent the chicken sandwich.  These establishments are just as "replaceable" as the minimum-wage workers that they treat like crap.

Papa John's Pizza To Raise Prices Because Of Obamacare, CEO John Schnatter Says

By Barry Bradford

August 7, 2012 | Huffington Post

URL:  http://huff.to/OXfTSD 

Study confirms: Nice guys finish last

To sum up: being a selfish jerk is good for individuals, but bad for the collective.

These findings contradict the idea that "rational self-interest" (read: being a selfish jerk) is the best way to improve the general welfare, as Randroids, libertards, and teabaggers argue.

Indeed, we can see this dissonance writ large at the firm level, where there isn't much evidence that being a "good corporate citizen" is good for the firm's bottom line. There is much more evidence that firms which disregard regulations and moral behavior benefit from such behavior financially.

Hey, You! Mean People Earn More, Study Finds

By Rachel Emma Silverman

August 15, 2011 | Wall Street Journal

It may not pay to be nice in the workplace.

A new study finds that agreeable workers earn significantly lower incomes than less agreeable ones. The gap is especially wide for men.

The researchers examined "agreeableness" using self-reported survey data and found that men who measured below average on agreeableness earned about 18% more—or $9,772 more annually in their sample—than nicer guys. Ruder women, meanwhile, earned about 5% or $1,828 more than their agreeable counterparts.

"Nice guys are getting the shaft," says study co-author Beth A. Livingston, an assistant professor of human resource studies at Cornell University's School of Industrial and Labor Relations.

The study "Do Nice Guys—and Gals—Really Finish Last?" by Dr. Livingston, Timothy A. Judge of the University of Notre Dame and Charlice Hurst of the University of Western Ontario, is to be presented on Monday in San Antonio, Texas, at the annual meeting of the Academy of Management, a professional organization for management scholars. The study is also forthcoming in the Journal of Personality and Social Psychology.

The researchers analyzed data collected over nearly 20 years from three different surveys, which sampled roughly 10,000 workers comprising a wide range of professions, salaries and ages. (The three surveys measured the notion of "agreeableness" in different ways.) They also conducted a separate study of 460 business students who were asked to act as human-resource managers for a fictional company and presented with short descriptions for candidates for a consultant position. Men who were described as highly agreeable were less likely to get the job.

For men being agreeable may not conform "to expectations of 'masculine behavior,'" the researchers write in the study. People who are more agreeable may also be less willing to assert themselves in salary negotiations, Dr. Livingston adds.

Other research shows that rudeness may not always benefit employees or their firms. A paper presented earlier this month at the annual meeting of the American Psychological Association found that 86% of 289 workers at three Midwestern firms in the manufacturing and health-care industries reported incivility at work, including public reprimands and making demeaning comments. Incivility was bad for the organizations as a whole, though, increasing employee turnover, found the researchers, Jeannie Trudel, a business professor at Indiana Wesleyan University-Marion, and Thomas Reio, a professor at Florida International University.

"The problem is, many managers often don't realize they reward disagreeableness," says Dr. Livingston. "You can say this is what you value as a company, but your compensation system may not really reflect that, especially if you leave compensation decisions to individual managers."

Lockerz, a 65-person Seattle, Wash., social-commerce company, has what it calls a "no jerks and divas" policy that is stressed in its employee handbook and orientation, says Chief Executive and founder Kathy Savitt. She notes, though, that there is a difference between being respectful and being agreeable. "We are not about being 'nice' or 'agreeable' or 'civil,'" she says. "We have a lot of robust debates about all kinds of things. But we do stress the notion of being respectful."

Paul Purcell, chairman, president and chief executive of Robert W. Baird & Co., a Milwaukee financial-services firm, says that his 2,700-employee company "doesn't hire or tolerate jerks. That's frankly a large percentage of people in our business. They don't get through the interview process." The firm has fired at least 25 offenders of its "no-jerk" policy, he says.

Human-resources consulting firm Development Dimensions International, of Pittsburgh, offers courses in "Interaction Management," covering interpersonal skills such as teamwork, managing conflict and giving and receiving feedback. "They are very trainable skills," says Jim Davis, DDI's vice president of work force and service development, who says that its interaction-training business is up 20% so far this year.

[Is the flip side also trainable? Because if you are out to do well, at least as a man, then you should enroll in training how to be disagreeable. That'd be the rational self-interested thing to do anyway. - J]