Tax avoidance—legal, but ethical?

Who wants to pay more tax? No one. I think it’s fair to say that most people, including the body corporate, want to pay as little tax as possible. And it’s probably also fair to say that most of us want to pay as little tax as possible legally–not just within the letter of the law but also within the spirit of the law.

That’s possibly where ethics comes into play—where we draw the line between the letter and the spirit of the law.

Take that apple of the techie’s eyes, Apple Inc., for instance. From 2009 to 2012, it avoided paying US $44 billion in taxes—including tax on product sales in Australia. Legally, of course.

Let’s say you spend $6 on an apple that cost $1 to produce. The store that sells you that apple has ‘purchased’ the apple from another apple store in Ireland for $5.50, leaving the Australian seller the meager profit of 50 cents (on which to pay tax) and the Irish ‘seller’ the lion’s share of the profit (on which to pay tax). (Of course, that apple never was in Ireland; in fact it was produced in China and shipped directly to Australia.)

Now, why would an apple producer want such a convoluted set up? Because it saves them paying a lot of tax: 12.5% in Ireland vs 35% in the US and 30% in Australia. And the savings add up fast.

Of course, governments collude in allowing this to happen and not surprisingly, lots of global companies take advantage of tax loopholes, including Amazon, General Electric, Google, Hewlett-Packard, IBM, MasterCard, Microsoft and Pfizer pharmaceuticals.

All very confusing, and all very legal. But is it right?

Discussion questions

Where do you draw the line between following the letter of the law and the spirit of the law? Where do you think a corporation should draw that line? Which stakeholder groups do you take into account when deciding where that line is? What, if any, is the relationship between, say, ensuring humane working conditions in overseas suppliers and paying the ‘right’ amount of taxes?

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Stick to the knitting

Phil Ruthven’s article, ‘The secret to success’ in the February 2014 Company Directors magazine concludes that the most successful companies are those that operate either in one industry sector or operate a core business (e.g. construction, finance, manufacturing, retailing) over several industries. Successful companies also innovate, use world’s best practice and have a unique organisational culture and leadership. According to his company’s recent survey, these are the attributes of successful companies regardless of the industry they’re in.

IBISWorld analysed the profitability of 555 companies with a combined revenue of $2.1 trillion between 2009 and 2013 using the weighted average return on shareholder investment after tax (ROSF), similar to return on investment, (or ROI). It is a measure of how well a company uses shareholder funds to make a profit.

The survey showed that ‘classic conglomerates’, those owning multiple, unrelated businesses in several industries, continue to perform very poorly. (Ruthven says that ‘classic conglomerates’ now only work in developing economies.) Adsteam, which disintegrated in the early 1990s, held the record for diversification, owning companies in 82 different industries. Pacific Dunlop and BTR Nylex were each in 56 different industries before they crumbled.

Some conglomerates have whittled themselves down to 15 industries but Ruthven says that’s still too many for them to make it onto Australia’s best-performing list.

Today’s best performing companies stick to the knitting and concentrate on doing what they do exceedingly well. The top performer is Rondo, followed by Bechtel Australia, Philips Electronics, Hatch Associates, John Deere, Philip Morris Federal Express and Schindler Lifts. British Tobacco, Revlon, Mars, Pandora, Wotif.com and Apple also made it into the top 25 performers.

Diversification as a successful business model may return as part of the business cycle in due course, but until then, the message is: Stick to the knitting.

Discussion questions

Leadership seems to be a critical ingredient of a successful company. How many reasons can you think of that would explain this?

Innovation is another critical element of success. How many reasons can you think of that explain this?

How would the strategy of a conglomerate differ from that of a single-focused business?

The new employment model – the open-talent economy

‘I think employers are still looking for loyalty, but there’s no reciprocity.’

Professor Michael Quinlan, University of New South Wales

The psychological contract, whereby the employer matches employee loyalty and hard work with loyalty and job security is under assault from globalisation, the global financial crisis and advances in digital technology. Business professionals and other white-collar workers and IT, sales and marketing staff have replaced blue-collar workers as the main victims of corporate restructuring.

As units of human capital, often rated highly as an organisation’s most important asset, shut their office doors behind them never to return, we are switching to an open-talent economy where organisations buy knowledge and services from a global marketplace and existing employees are disposable.

Beleaguered employees who remain after a redundancy often find it difficult to produce the same quality of work as in the past. Questions such as ‘Am I next?’ and ‘How can this happen?’ drag down morale. Often, remaining employees are expected to pick up the work of departed employees, adding to an already high job load.

As permanent full-time jobs continue to give way to an ever-changing workforce comprised of increasing numbers of temporary ‘tour of duty’ jobs, casual workers, contractors and offshore and outsourced ‘hired hands’ and ‘hired brains’, the pressure mounts for employers to find viable ways to engage the best efforts and commitment to the corporate vision and strategy of remaining employees, contractors, casuals and outsourced personnel.

How organisations and employees can best deal with unstable workplaces are questions we need to find answers to in a complex and uncertain employment landscape.

Discussion questions

People in leadership positions are often torn between simple, short-term expediency and following a long-term, morally just vision. What ideas do you have to re-engage employees who survive redundancies in your team? To engage the commitment of temporary and other categories of employees and service providers? What practical steps would you take and in what order to help employees deal with unstable workplaces? How might you ‘tweak’ the operations and procedures at your workplace to deal with a changing and often de-motivated workforce?

Managing is good for your brain

The next time you think your brain hurts from studying, don’t worry about it. It turns out that the longer you are a manager, the larger your hippocampus becomes and the better it works. (The hippocampus is the area of the brain responsible for learning and memory, so that’s a good thing.)

Researchers led by Michael Valenzuela of the University of New South Wales School of Psychiatry’s Regenerative Neuroscience Group found that managing other people protects your memory and ability to learn well into old age. They found that the hippocampus shrunk much less in the brains of people who had challenging management careers. They speculated that the unique mental demands of managing people require continuous problem solving, short-term memory and a lot of emotional intelligence.

The brain-enhancing effect of managing others was particularly strong in people who supervised more than 10 people.

So if you want a healthy brain and to ward off neurodegenerative diseases such as Alzheimers, keep studying to become a great manager.

See the UNSW article here