Archive for the ‘corporate citizenship’ Category
‘Doing the Right Thing:’ A Brief Guide to the Jargon
Filed under: corporate citizenship, CSR, definitions, ethics, sustainability |
Comments (5) Everyone agrees that business should “do what’s right,” even if they disagree over what the right thing is. One significant barrier to even talking about doing the right thing is vocabulary. The vocabulary applied to “doing the right thing” is messy and varied. Here’s a brief critical guide to the most common terminology:
- Business Ethics. This is the most general term, and the one that can be defined more or less uncontroversially. As a field of study, business ethics can be defined as the critical, structured examination of how people & institutions should behave in the world of commerce. There are two problems with the term. One is that the word is too often associated with scandal. I once had a business group ask me to come speak to its members, but could I please not use the word “ethics.” The second problem is that people sometimes (wrongly) associate the word “ethics” with a narrow range of questions about personal integrity, or about professional standards.
- Corporate Social Responsibility (CSR). This is an incredibly popular term, but generally poorly defined. Most definitions you’ll find don’t actually look like definitions. If you look around online, you’ll find that CSR is generally thought to have something to do with giving back to the community, and making a social contribution. But it’s too narrow a term to cover the full range of issues involved in doing the right thing in business. Not all businesses are corporations. Not all business obligations are social ones. And we’re interested not just in the responsibilities of business, but also permissions, duties, rights, entitlements, and so on.
- Sustainability. The word “sustainability” has roots in environmentalism, where it nicely picks out the issue of how we as a society can continue to make use of resources in a way that makes sure there continues to be enough, especially for enjoyment by future generations. But the term is badly abused in the world of business. Sometimes it just refers to the ability to sustain profits, which is pretty far from its original meaning. Other people try to pack too much into the word. I recently had a sustainability consultant tell me that the word “sustainability” no longer means, you know, sustainability…it just means “all the good stuff.” But lots of “good stuff” in business has nothing to do with sustaining anything. It takes tortured logic and wishful thinking to say that all matters of doing the right thing in business can simply be boiled down to sustainability.
- Corporate Citizenship. Citizenship is essentially a political notion, having to do with the relationship between the individual and the state. The term “corporate citizenship” is evocative. It reminds us that businesses aren’t free-floating; they exist in a social and political context, and that context brings obligations. But just as all of your obligations are not citizenship obligations, not all of a corporation’s obligations are obligations of corporate citizenship.
- Triple Bottom Line. Luckily, this one seems to be dying out. The Triple Bottom Line (3BL) is rooted in the very sane idea that business managers should manage not just the financial performance of their companies, but also their social and environmental performance. Unfortunately, the term implies something much bolder, namely that each of those areas of performance can be boiled down to a “bottom line.” And that’s simply not true. (Just try asking a company what their social “bottom line” was last year.) The result is that the term sounds tough-minded, but usually ends up being just the opposite. For more about the problems with 3BL, see here.
So choose your words wisely. We shouldn’t be scared off by the varied terminology. But we ought to recognize that each of these terms has its problems. Different constituencies will find different vocabularies attractive, and perhaps congenial to their interests. And also keep in mind that each of these terminologies is promoted by a different set of consultants and gurus, all eager to tell you that thinking in terms of their favourite vocabulary is the key.
Pepsi Under Pressure
Filed under: activism, brands, CEOs, competition, consumers, corporate citizenship, food, health, marketing |
Comments (3) It’s not easy selling carbonated sugar-water. Or rather, the selling part is all too easy. The hard part is steering a course between the conflicting desires of shareholders and activists. Shareholders want profits. That means selling more of high-profit-margin products like Pepsi and Doritos. Activists want companies to stop pushing unhealthy products like Pepsi and Doritos, and to focus on healthier — but less profitable — products.
See this story, by Mike Esterl and Valerie Bauerlein, for the WSJ: PepsiCo Wakes Up and Smells the Cola
…The snack-food and beverage giant is launching the first new advertising campaign for its flagship Pepsi-Cola in three years—offering one of the most visible signs PepsiCo is throwing new weight behind its biggest brand after it sank to No. 3 in U.S. soda sales last year, trailing not only Coke but Diet Coke….
When industry market share numbers came out in March, showing Pepsi-Cola slipped to No. 3, analysts quickly accused PepsiCo—and Chairman and Chief Executive Indra Nooyi—of taking their eyes off the company’s biggest brand….
There’s a lesson here for activists who think that reforming corporate behaviour is a simple matter of willpower, that companies can shift to healthier foods (or to less-violent video games) if only they had the guts to try it. Shifting your business practices in a way not endorsed by consumers is, well, a recipe for disaster.
Then again, maybe that’s a pretty decent outcome, from an activist’s point of view.
What’s the long-term prognosis? An ebb and flow of corporate strategy, in response to a range of pressures. Activists will win a few battles, as well as surely losing a few. Forcing companies to do what you want means forcing consumers to consume what you want. Because as everyone in business knows, while it’s simply not true that “the customer is always right,” it surely is true that the customer is always the customer.
Diversity on Corporate Boards: Board Challenge or Social Challenge?
Diversity of corporate directors is arguably the hardest challenge in the realm of corporate governance. It’s hard because what constitutes diversity in the relevant sense is controversial. It’s hard because it’s not always easy to find directors who both possess the right talents and experience and who come from a range of demographic groups. And it’s hard because, well, old habits (not to mention old biases and vested interests) die hard.
Financial Post Magazine recently ran this editorial by Pamela Jeffrey, president of the Canadian Board Diversity Council: A call to action
…the Canadian Board Diversity Council in partnership with KPMG published the first-ever baseline study of corporate board diversity. The results were disappointing: 15% of board seats are held by women; 5.3% by visible minorities; 2.9% by persons with disabilities; and 8% by Aboriginals including First Nations, Inuit and Métis. In spite of these results, the council does not support the introduction of quotas in Canada. We support a made-in-Canada approach: collaboration with FP500 directors, our growing group of member companies, governments, academic institutions, aspiring directors, individual shareholders and institutional investors to speed up the pace of change….
A couple of points to make here. First, It is interesting to note that, statistically, Aboriginals are actually OVERrepresented on Canadian boards (8% of directors, but only 3 or 4% of population). So it’s odd to include them in the “disappointing” results that Jeffrey cites. But I’ll return to those stats later.
Second, it is important not to confuse what is true of boards collectively with what is true of individual boards. It would be good if there were a lot more women on boards, for example. But from that it doesn’t immediately follow that there should be a lot more women on any particular board.
There are a couple possible reasons why an individual board should aim at including more women. One is the idea that diversity makes for better decision-making. There’s a fair bit of consensus on that point, though there’s disagreement on what kind of diversity matters most.
A second is the idea that having more women on your board will help to motivate and inspire women within your firm in various ways, and show them that you value them too.
A third is the idea that, as a society, we should give women a bigger role in corporate decision-making and so we need to do more to open doors that were previously stubbornly held shut. But in that regard, the question remains as to what obligation particular boards have to help achieve that social objective. A societal goal is not automatically a board obligation, especially given the special role-related responsibilities that boards have to the organizations they oversee. So the extent of such an obligation is a hard moral problem.
Now putting more women on the board might be thought of as part of a company’s “social” or “citizenship” obligations (as opposed to an obligation owed to the handful of women who would benefit directly from membership on that particular board). But even then, you have to consider the extent to which a given board’s actions can have an impact. Even if your board is 50% or even 90% women, that doesn’t fix the social problem.
But then, it also cuts the other way: the fact that Aboriginals are seemingly well-represented on Canadian corporate boards “in general” is no reason for any particular board to be complacent about that issue. There may well be more your board can do, and should do, in that regard.
Laptop Thefts: Starbucks Scandal?
Filed under: accountability, consumers, corporate citizenship, crime | Tags: crime
Comments (9) 
Just whose fault is it if your laptop gets stolen at Starbucks? Do coffee shops (and other similar businesses) have a responsibility to help curb such crimes? If so, how far does that responsibility go?
To kick the topic off, here’s a story by Michael Wilson, for the NY Times: As the Careless Order a Latte, Thieves Grab Something to Go
Starbucks shops are ubiquitous in New York, a respite for tourists and professionals young and old, and while the city’s criminal trends come and go and ebb and flow, there remains a steady march of handbags from those shops in someone else’s hands….
Apparently, Starbucks’ customers are pretty common targets. Starbucks, Wilson notes, pop up “again and again on police blotters.” That makes the iconic coffee chain sound like a pretty dangerous hangout. But Wilson rightly acknowledges that the rate of thefts at Starbucks (of which there are 298 in New York alone) needs to be put into context, and compared to the rate of thefts at other establishments:
Not to pick on the chain, based in Seattle. No one has tallied the number of Starbucks thefts, and purses and bags walk out of any number of restaurants and bars day and night. Grand larcenies — the theft of anything over $1,000, which is almost every purse with a credit card inside — remain the Police Department’s most vexing crime, as preventable as it is commonplace.
The focus on how common such crimes are in all kinds of public and semi-public spaces is right on target. To me, this is all reminiscent of the part in the movie, “Wal-mart: The High Cost of Low Price,” in which the film-makers — incredibly — blame Walmart for thefts, rapes, and murders that happen in the retailer’s parking lots. It’s a crazy accusation, of course: Walmart has nearly 9000 locations. If you looked at the stats for any 9000 parking lots, I’m willing to bet you’d find a fair bit of crime.
But back to coffee shops, and the rate of laptop and purse theft on their premises. What are companies like Starbucks to do in light of this? Clearly it’s not their fault that people are leaving their laptops unattended — I guess except to the extent that they’ve carefully engineered a warm and welcoming environment, one pretty much designed to encourage people to let their guard down. What might the company do, in principle, to reduce the amount of theft on their premises? Vigilant security guards would be one possibility, though that would surely do something to detract from the Starbucks ambiance. Security cameras are another, less intrusive, option. (But then there might be privacy concerns related to constant surveillance: do you really want the Starbucks-Cam watching over your shoulder while you read The Onion?) They could also install laptop locks on the tables in their shops (since most laptops have a universal lock slot). A different tack would be to eliminate free Wi-Fi, which would give people less reason to bring their laptops to Starbucks in the first place. Of course, lots of us like the free Wi-Fi, but if it’s encouraging us to engage in risky behaviours, I can at least see an argument for hitting the ‘off’ switch.
Warning signs are another option: signs could remind unwary customers of the dangers, and recommend that they carry their laptops with them at all times when on the premises. Apparently, one police commander thought that was a good idea:
[The officer] asked one branch to put up a sign warning customers; the manager demurred, saying such a sign required corporate approval.
But what is Starbucks (or any other coffee shop) obligated to do to reduce crime? Or at least, what would it be ethically-very-good of them to do? I don’t see a clear answer, though it’s easy enough to argue that they ought, at least, to grab some of the ‘low-hanging fruit.’ If there are simple and cheap things they can do to make customers safer, those things could arguably be considered obligatory, and besides, such moves might even attract customers, giving them a genuine sense of security, rather than a false one. But laptop theft at Starbucks will never, never be zero, and it’s unreasonable to think that the company has an obligation to drive the on-site crime rate anywhere near that.
Should We Teach Students About the “Social Impact” of Business?
Filed under: corporate citizenship, CSR, definitions, education, ethics, management, MBA, stakeholders |
Comments (3) As regular readers know, I’ve blogged a lot about the vocabulary we use to talk about ‘doing the right thing’ in business. Here’s another example of a term that some people seem to want to use to capture that entire topic: “Social Impact.”
See for example this piece, by NYU’s Paul Light, in the Washington Post: It’s time to require students to do good.
I’ll start by pointing out that the headline is inaccurate, though that’s likely not Light’s fault. (It’s more likely the fault of the newspaper’s headline writer. Hard to say.) At any rate, Light’s article isn’t about making students “do good;” it’s about teaching them courses about doing good. And that’s a very different thing.
Light points out that many business schools now offer courses on what he refers to broadly as the “social impact” of business. “Social impact,” he says, can variously be defined in terms of “social responsibility, innovation, engaged citizenship or plain old public service.” (Note that Light is in trouble here, already, implicitly assuming all of those terms are good things. For counter-examples, see my recent blog entry on unethical innovation.)
Anyway, Light says business schools are increasingly realizing that they need to teach students something about the social impact of business (and presumably, more specifically, about how to maximize positive social impact and minimize negative social impact.)
For what it’s worth, I should point out that many business ethics classes — presumably among the courses that Light sees as part of the trend — absolutely would not focus primarily on social impact. And that’s a good thing, because social impact is just one of the many ethical issues that arise in business. Courses on business ethics can cover a large range of issues, many of them not directly related to social impact:
- product safety (which is mostly a concern to customers, who very often make up only a tiny segment of “society”)
- employee health and safety
- truth in advertising
- the environment (which, depending on your philosophical views, may have ethical importance independent of society’s reliance on it).
Each of those topics has relatively little to do with social impact, and indeed there can be important tensions between, for example, what is good for employees and what is good for society.
But maybe Light doesn’t want courses in business ethics more generally; maybe he really does think it most important to focus on social impact, thereby ignoring the issues (like those noted above) that got the field of business ethics off the ground in the first place. Such a focus by business schools would be incredibly unfortunate, because it would leave business students radically unprepared to face the ethical challenges that they really will have to face on a daily basis in their professional lives. And even if courses on “social impact” do tackle a broader range of issues (including the ones listed above) the title of the course is going to mislead students into thinking that social impact really is the key issue after all.
Finally, I’m confused by the fact that Light views “social impact” as a skill:
Making social impact part of every student’s curriculum would send the signal that social impact is an essential skill….
What are we to make of this? Is social impact really a “skill”? Personally, I’m not sure how to make sense of that turn of phrase. I suppose we can read Light somewhat more charitably as meaning that an appreciation of the social impact of business, and an understanding of the key issues and how to respond to them, are essential parts of a sound business education. And surely he’s right. But we ought at least be clear on the fact that what we’re struggling with — and what we need students to struggle with — is the complexity of the role and impact of business in society. Calling it a skill misleadingly implies that we know what to do about it all, and now we just need to do it. If only life were so simple.
Pink Toenails, Gender Identity and Social Responsibility
Filed under: activism, advertising, children, corporate citizenship, CSR, culture, ethics, marketing, protest, values |
Comments (21) 
This one’s a real tempest in a teapot. Or rather, in a bottle of nail polish.
OK, so here’s the short version. Clothing chain J. Crew’s latest catalog includes a picture of president and creative director Jenna Lyons painting her young son’s toenails pink. Yes, pink — the colour most closely associated, in North American culture, at least, with traditional femininity. Criticism ensued, alleging that J. Crew was acting (intentionally!) to promote a gender-bending agenda. The calibre and cogency of the arguments in favour of that conclusion is about what you’d expect.
The main critic, Fox commentator and psychiatrist Dr Keith Ablow, provides an object lesson in how to cram as many argumentative fallacies as possible into a single piece of writing, in his oddly-titled editorial, “J. Crew Plants the Seeds for Gender Identity”. (I’ve blogged about the significance of logical fallacies before, here.) Among the good doctor’s fallacious arguments:
He alleges, without substantiation, that pink-toenail-painting is highly likely to result in gender confusion. In the absence of supporting evidence, we are expected to believe him because he’s got “Dr” in front of his name — essentially a form of illicit appeal to authority. He also engages in straw man argumentation (in which a critic attacks something his opponent never said nor implied), by suggesting that, via this ad, “our culture is being encouraged to abandon all trappings of gender identity” [my emphasis]. He also begs the question by assuming that pink is just for girls (and I’m wearing pink as I write this, by the way). He also has an unfortunate tendency to resort to rhetorical questions: “If you have no problem with the J. Crew ad, how about one in which a little boy models a sundress? What could possibly be the problem with that?” (What if my answer is “nothing”? Ablow provides nothing to help me, then.) Ablow also commits the fallacy known as appeal to ignorance when he points out that the effect of “homogenizing males and females … is not known” (i.e., we don’t know that it’s safe, so it is probably unsafe.) He also makes use of an illicit slippery slope argument, suggesting comically that ads such as this are somehow going to result in the end of all procreation, and, hence, of the human race. And Ablow’s argument as a whole amounts to one giant, fallacious, appeal to tradition. I could quite literally teach the entire Fallacies section of my Critical Thinking class just by having students pick apart Ablow’s critique of the J. Crew ad.
(Note that another critic, Erin Brown, over at the conservative Culture and Media Institute, commits fewer fallacies, but only because her article is shorter. But then she apparently doen’t even know what J. Crew is, referring to the men’s and women’s clothier as a “popular preppy woman’s clothing brand.” I happen to own two J. Crew ties. Men’s ties.)
Now, my response to the critics of J. Crew’s ad may seem flippant. So be it. Sometimes ridicule is the best response to something ridiculous. But there is a serious point to be made, here, about the social responsibility of business.
Ablow and Brown share one important view in common with many critics of modern capitalism, namely this: they all believe that businesses have an obligation to pursue certain social agendas. They merely disagree over what that agenda should be. For Ablow and Brown, the social obligation of business is to defend & promote good ol’-fashioned American values, including apparently carefully scripted gender roles. For critics of capitalism, the social obligation of business is to promote social justice, environmental values, gender equality, and so on. In either case, those who urge businesses to adopt social missions — as opposed to merely making and selling stuff that people want to buy, within the bounds of law and ethics — ought to be careful what they wish for. Because if and when businesses do take up social agendas, they may not be the agendas that those advocates prefer.
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Thanks to Laura for showing me this story.
Business Ethics and the Crisis in Japan
Filed under: aid, charity, corporate citizenship, CSR, disaster, fraud, international, pricing, trade |
Comments (3) 
A couple of people have asked me recently about what business ethics issues arise in the wake of the Japanese earthquake, tsunami, and nuclear crisis. As far as I’ve seen, the media hasn’t paid much attention to business ethics issues, or even on businesses at all, in their coverage of the disaster(s). But certainly there are a number of relevant issues within which appropriate business behaviour is going to be a significant question. Here are a few suggestion of areas in which the study of business ethics might be relevant:
1) The nuclear crisis. Although their role has not been front-and-centre (unlike, for example, the BP oil spill), at least a couple of companies have played a significant role in the crisis at the Fukushima I Nuclear Power Plant. The reactors there were designed by General Electric, who surely face questions about the adequacy of that design and the relevant safeguards. And the plant is owned by the Tokyo Electric Power Company (TEPCO). TEPCO has been criticized for its handling of the disaster, including its notable lack of transparency. TEPCO also faces a difficult set of questions with regard to the ongoing risks to employees, including those who have vowed “to die if necessary” in order to protect the public from further risk. (For more information, see the wikipedia page about the Fukushima I nuclear accidents.)
2) Disaster relief. There is clearly an opportunity for many companies, both Japanese and foreign, to participate in the disaster relief effort. Whether they have an obligation to do so (i.e., a true corporate social responsibility) is an interesting question, as is the question of the terms on which they should participate. I’ve blogged before about the essential role that credit card companies play in disaster relief by facilitating donations; do credit card companies (and other companies) have an obligation to help out on a not-for-profit basis, or is it OK to make a profit in such situations?
3) Pricing. The topic of price-gouging often arises during and after a natural disaster, though I haven’t heard any reports of this in the wake of the earthquake in Japan. It’s a difficult ethical question. On one hand, companies that engage in true price gouging — preying on the vulnerable in a truly cynical and opportunistic way — are rightly singled out for moral criticism. On the other hand, prices naturally go up in the wake of disaster: picture the additional costs and risks that any company is going to face in trying to get their product into an area affected by an earthquake, a tsunami, and/or a nuclear meltdown.
4) Investment and trade. A major part of Japan’s recovery will depend on investment, both investment by foreign companies in Japan and investment by Japanese companies in the stricken areas of that country. This is clearly less of a concern than it would be in a less-economically developed country (like Haiti, for instance), but it’s still relevant. So the question arises: do companies have an obligation to help Japan rebuild by investing? If a company is, for example, deciding whether to build a new factory in either Japan or another country, should that decision be influenced by the desire to help Japan rebuild?
5) Consumer behaviour. Just as companies have to decide whether to invest in disaster-stricken nations or regions, so do consumers. Do you, as an individual, have any obligation to “buy Japanese,” in order to help rebuild the Japanese economy? Does it matter that Japan is a modern industrialized nation, as opposed to a developing one?
Ethics of Doing Business in Libya
Filed under: corporate citizenship, ethics, government, international, risk, trade, workplace safety |
Comments (1) 
Amidst the upheaval in Libya, questions arise about foreign companies doing business there. Many firms, of course, are pulling out and evacuating any employees currently on the ground, for obvious reasons related to safety. But there are apparently still a few reasonably safe places in Libya, places far from the major cities that are the focus on the current fighting. And certainly business done from afar is still an option. So, that leaves companies with choices. Should Libya be considered entirely off-limits? At this point in the conflict, various governments have issued orders that put restrictions in place. But that doesn’t mean that Libya is, from a legal point of view at least, a no-go zone. (Canada’s government, for example, has clarified that Canadian firms are still allowed to do business in Libya, generally, but not with the Libyan government or with the Libyan Central Bank.)
I’m sure many will be tempted to say that foreign companies should pull out entirely. But then, it’s not clear that such a blanket prohibition does much good for the people of Libya as a whole. Note, for example, that Libya currently imports about 75% of its food. Stopping doing business with Libya would mean starving its population.
Of course, even before the current crisis, Libya was a dubious place to do business — at least some kinds of business. Note, for example, that a Canadian company has faced questions about its role in building a fancy new prison for the Gadhafi government. (From the Globe & Mail, see: SNC-Lavalin defends Libyan prison project.)
(An interesting side-note: SNC-Lavalin was recently ranked as one of the best-governed corporations in Canada. Note also that the companies shares are down, apparently because of worries not just about Libya, but about the entire region. About a quarter of the country’s income comes from the Middle East and Africa.)
Building a prison for use by a dictatorship is exactly the kind of project that is likely to draw fire. But that’s not entirely fair, either. As the G&M notes, Libya has been under international pressure to modernize its prisons. And if it is a legitimately good thing for a dictator to upgrade his prisons, then it’s hard to claim that it’s unethical for a company to make a profit by helping him do so.
Socially Responsible Investing & Value Alignment
Filed under: corporate citizenship, CSR, ethics, finance, investing, stakeholders, sustainability, trust |
Comments (11) Socially responsible investing (SRI) is a big topic, and a complex issue, one about which I cannot claim to know a lot. The basic concept is clear enough: when people make investments, they send their money out into the world to work for them. People engaged in SRI are trying to make sure that their money is, in addition to earning them a profit, doing some good in the world, rather than evil.
There are a number of kinds of SRI. For example, there are investment funds that use “negative screens” (to filter out harmful industries like tobacco), and there are “positive investment” (in which funds focus on investing in companies that are seen as producing positive social impact). We can also distinguish socially-responsible mutual funds from government-controlled funds, such as pension funds.
(For other examples, check out the Wikipedia page on the topic, here.)
Setting aside the kinds of distinctions mentioned above, I think we can usefully divide socially responsible investments into two categories, from an ethical point of view, rooted in 2 different kinds of objectives.
On one hand, there’s the kind of investment that seeks to avoid participating in what are relatively clear-cut, ethically bad practices. For example, child slavery. Trafficking in blood diamonds might be another good example. Responsible investment in this sense means not allowing your money to be used for what are clearly bad purposes. In this sense, we all ought to engage in socially-responsible investment.
(Notice that investments avoiding all child labour do not fall into the above category, because child labour, while always unfortunate, is not always evil. There are cases in which child labour is a sad necessity for poor families.)
On the other hand, there’s what we might call “ethical alignment” investments, in which a particular investor (small or large) attempts to make sure their money is invested only in companies or categories of companies that are consistent with their own values. Imagine, for example, a hard-core pacifist refusing to invest in companies that produce weapons even for peace-keeping purposes. Or picture a labour union investing only in companies with an excellent track-record in terms of labour relations. In such cases, the point is not that the corporate behaviour in question is categorically good or bad; the point is that they align (or fail to align) with the investor’s own core values.
I’m sure someone reading this will know much more about SRI than I do. Is the above distinction one already found in that world?
Ethics & Corporate Taxes
Filed under: corporate citizenship, corporations, ethics, finance, government, profits |
Comments (7) 
How much tax do corporations pay? Ask most people and I’m guessing they’ll say “not enough.” But seriously, how many people know what the actual corporate tax rate is? And then complicating things, there are the loopholes, those little tricks o’ the accounting trade that — as “everyone knows” — allows most big companies to pay next to nothing. Right?
For insight into these questions, see this useful piece by David Leonhardt, for the NY Times: The Paradox of Corporate Taxes.
OK, so a few answers. In the US, the federal corporate tax rate is 35%. (For comparison: in Japan it’s just over 40%, in Germany it’s 29.8%, and in Canada it’s 16.5%. In Ireland it’s just 12.5%.) So, on an international scale, the US corporate tax rate is actually fairly high. (For more, see Taxes Around the World.)
What about those loopholes? Sure enough, there are American companies that manage to dodge almost all taxes. The most egregious examples are from the cruise-line industry. As the NYT story points out, Carnival Cruise Lines is a prime example:
Over the last five years, the company has paid total corporate taxes — federal, state, local and foreign — equal to only 1.1 percent of its cumulative $11.3 billion in profits. Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes.
That’s an extreme case, but lots of other companies manage to avoid paying anything close to the full 35% too. According to the NYT:
Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, …. Southwest Airlines paid 6.3 percent. … Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.
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What’s more surprising, though, is how much tax corporations pay, in total, on average:
The average total tax rate for the 500 companies [in Standard & Poor’s stock index] over the last five years — again, including federal, state, local and foreign corporate taxes — was 32.8 percent.
So while some corporations pay very little tax, there’s also considerable variation.
From an ethical point of view, is this situation fair? Do corporations, in general, pay enough? Too much?On the face of it, that’s a basic issue of distributive justice: is 35% (or some fraction of that, after deductions) the right share of the overall tax burden for corporations (as opposed to individuals) to bear? That’s obviously a big question.
Fundamentally, corporations are a conduit, facilitating the flow of cash from consumers to employees and investors. To some, this implies a fundamental criticism of current patterns of taxation in the corporate world. Such critics point out that there’s a sense in which the money that flows through corporations is taxed twice: corporate profits are taxed, and then any dividend (i.e., a portion of after-tax profit) that is payed out to shareholders is taxed, too. In principle (as far as I can see) the same could be said about the money paid out to employees in the form of salaries (though the tax on profits is paid on the amount left over after expenses, including salaries, are paid). To the extent that I understand it, this criticism seems odd to me: after all, money flows around (and around and around) the economy, and is taxed at various points along the way (and is then injected back into the economy, of course, in the form of government spending). The point is that we (via government) levy taxes at specific points in this flow, and at specific rates, based on whether we want to encourage or discourage particular behaviours. If you tax a behaviour, then, other things being equal, people will do less of it. And if you offer a tax deduction for y, you are encouraging people to do more of it. We tax at various points in the corporate “process”, if you will, in order to encourage or discourage particular activities like investment. So in a sense, there is no “corporate share” of the tax burden — there’s just the question of whether various taxes and deductions operating in the corporate world broadly understood are effective in achieving our goals. (Although there is a question of justice regarding any difference in the way dividends are taxed as opposed to employment income.)
But again, back to the issue of loopholes as a way of reducing a corporation’s tax burden. Now, it’s worth considering the point of loopholes, from a public policy point of view. In some cases, at least, “loophole” is just the pejorative term for a tax exemption or deduction that a government has put in place to encourage or deter certain kinds of behaviour: deductions for investments in equipment or buildings are an example of this. But you don’t have to be either a tax lawyer or even a keen observer of politics to guess that some such mechanisms are astute ways for government to mould the economy, whereas others are almost certainly boondoggles resulting from savvy corporate lobbying. Then, of course, there’s also the question of gaming the system. A particular incentive (or loophole) might have been put in place for sound public-policy reasons, yet be abused by corporations as a way of dodging taxes (say, by investing in new equipment in order to reap a tax benefit and then selling the equipment off as soon as it can within the letter of the law). The most obvious ethical litmus test here is the “intent-of-the-law” test. It is prima facie unethical to misuse a tax deduction that is intended to be socially beneficial in a manner that is cynically aimed at simply minimizing corporate tax burden.
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p.s., I’m not an accountant or tax lawyer. If anyone with relevant expertise can correct any of the factual assumptions above, please do help out. Thanks.
The Business Ethics Blog 