4 ms·

"Fundamentally immoral" In the US a corporation's legal responsibilities are to it's shareholders ... it might be fundamentally immoral but it would be unethic

by smoyer 14y ago

"Fundamentally immoral" In the US a corporation's legal responsibilities are to it's shareholders ... it might be fundamentally immoral but it would be unethical to operate the company against the interests of the shareholders too. It's the laws that need to be changed rather than blaming the companies for being good at accounting.

Nursie 14y ago
It's an interesting conflict, and clearly they do have a duty to investors to maximise their profit. If it was a privately owned company it might be more clear cut. Absolutely agree the laws need to be changed. I, personally, would be looking to stop the 'convenient' reporting of losses in markets that are actually highly profitable but not tax efficient. There's an interesting comment on the Starbucks press release that coves it quite nicely - "How can Starbucks tell Companies House and HMRC that its UK business is loss-making but tell analysts in SEC-regulated calls that the UK business is profit-making, without either making misleading financial statements or filing false accounts?"
- rfugger 14y ago
  http://starbucks.co.uk/blog/starbucks-commitment-to-the-uk/1240 http://starbucks.co.uk/blog/starbucks-commitment-to-the-uk/1...
- smoyer 14y ago
  You'd think these companies would be smart enough to show a small profit and pay the taxes on it ... You don't really gain anything by showing a loss.
- arethuza 14y ago
  They aren't the same legal entity - it is entirely possible that the US parent company is profitable and the UK subsidiary loss making (or indeed vice-versa).
  - Nursie 14y ago
    That's not what's happening though, there are reports by the parent company that the UK business is profitable, when it suits them to boost share prices, yet reports from in country that there has been a loss so they can minimise taxes. I agree - it's possible that Starbucks UK is not pofitable, and that the parent company is, or vice versa. But reporting the same thing in different ways to different audiences seems fishy to me!
    - arethuza 14y ago
      Good point - I guess if they are saying in their UK tax return that they aren't profitable and the US reports that they are making substantial profits in the UK then that is extremely fishy. Aren't they just transfer pricing their profits out of the UK to Switzerland and the US?
morsch 14y ago
I don't follow that line of reasoning. Assuming it's fundamentally immoral, it remains fundamentally immoral for a company. If a person did it, we'd call it immoral. When it's a group of persons doing it, we'd call it immoral. But when it's one group of persons doing it -- the employees -- in the name of another group -- the owners -- it's suddenly unethical not to do it? I don't get that. I guess it'd be unethical for the employees to act one way when they know the owners want them to act another way. But if the owners willingly let the company act immorally, then they are themselves acting immorally. Which is, of course, the case.
- wtvanhest 14y ago
  The problem is that shareholders include everyday people who have money in mutual funds who invest that money in large cap corporations who depend on management of those corporations to maximize their shareholder value at the expense of all outside, non-investors. Including employees, governments etc. as long as it is legal and maximizes long term shareholder value. It is a fundamental shift in finance theory that occurred about 25-30 years ago. Many people will argue that management should put the shareholders above all else. I think there is a somewhat muted, but real discussion happening in a lot of places that the currently accepted system may not be the best one, but for now, management has a fiduciary responsibility to shareholders.
  - morsch 14y ago
    It's a problem because it spreads out the blame on a lot of people. Management can point to the shareholders. The shareholders argue they each own just a small bit of the shares and aren't involved at all in the day to day business. It's a systemic fault.
    - wtvanhest 14y ago
      Yes, I agree with you. But it is a current fact. I have no idea what the solution is, but when a system works conveniently for so many people it is unlikely to change. The crazy thing is that people "blame evil corporations" while having almost 100% of their retirement invested in the corporations they dispise without even realizing it. Unless you have no savings, you are likely a shareholder in a number of companies which are using transfer pricing to save on taxes.
dabeeeenster 14y ago
How is paying taxes not in the interests of shareholders? I think this attitude is at the heart of the problem.
- Zak 14y ago
  If I live in the US and own shares of Starbucks, it is much more strongly aligned with my interests for Starbucks to pay me a dividend than to pay that same amount in UK taxes. Even in a jurisdiction where I might see some benefit from the taxes, I'd probably see more benefit from that same amount of money in my pocket. It's perfectly rational to want to minimize one's tax obligation, especially to foreign governments.
edderly 14y ago
No, more accurately a corporation is an autonomous legal 'person'. http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar/1 http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar... "Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. Shareholders seem to get this. They’ve tried to unseat directors through lawsuits just 24 times in large corporations over the past 20 years; they’ve succeeded only eight times. In short, directors are to a great extent autonomous."

by smoyer 14y ago

Nursie 14y ago

It's an interesting conflict, and clearly they do have a duty to investors to maximise their profit. If it was a privately owned company it might be more clear cut. Absolutely agree the laws need to be changed. I, personally, would be looking to stop the 'convenient' reporting of losses in markets that are actually highly profitable but not tax efficient. There's an interesting comment on the Starbucks press release that coves it quite nicely - "How can Starbucks tell Companies House and HMRC that its UK business is loss-making but tell analysts in SEC-regulated calls that the UK business is profit-making, without either making misleading financial statements or filing false accounts?"

rfugger 14y ago
http://starbucks.co.uk/blog/starbucks-commitment-to-the-uk/1240 http://starbucks.co.uk/blog/starbucks-commitment-to-the-uk/1...
smoyer 14y ago
You'd think these companies would be smart enough to show a small profit and pay the taxes on it ... You don't really gain anything by showing a loss.
arethuza 14y ago
They aren't the same legal entity - it is entirely possible that the US parent company is profitable and the UK subsidiary loss making (or indeed vice-versa).
- Nursie 14y ago
  That's not what's happening though, there are reports by the parent company that the UK business is profitable, when it suits them to boost share prices, yet reports from in country that there has been a loss so they can minimise taxes. I agree - it's possible that Starbucks UK is not pofitable, and that the parent company is, or vice versa. But reporting the same thing in different ways to different audiences seems fishy to me!
  - arethuza 14y ago
    Good point - I guess if they are saying in their UK tax return that they aren't profitable and the US reports that they are making substantial profits in the UK then that is extremely fishy. Aren't they just transfer pricing their profits out of the UK to Switzerland and the US?

morsch 14y ago

I don't follow that line of reasoning. Assuming it's fundamentally immoral, it remains fundamentally immoral for a company. If a person did it, we'd call it immoral. When it's a group of persons doing it, we'd call it immoral. But when it's one group of persons doing it -- the employees -- in the name of another group -- the owners -- it's suddenly unethical not to do it? I don't get that. I guess it'd be unethical for the employees to act one way when they know the owners want them to act another way. But if the owners willingly let the company act immorally, then they are themselves acting immorally. Which is, of course, the case.

wtvanhest 14y ago
The problem is that shareholders include everyday people who have money in mutual funds who invest that money in large cap corporations who depend on management of those corporations to maximize their shareholder value at the expense of all outside, non-investors. Including employees, governments etc. as long as it is legal and maximizes long term shareholder value. It is a fundamental shift in finance theory that occurred about 25-30 years ago. Many people will argue that management should put the shareholders above all else. I think there is a somewhat muted, but real discussion happening in a lot of places that the currently accepted system may not be the best one, but for now, management has a fiduciary responsibility to shareholders.
- morsch 14y ago
  It's a problem because it spreads out the blame on a lot of people. Management can point to the shareholders. The shareholders argue they each own just a small bit of the shares and aren't involved at all in the day to day business. It's a systemic fault.
  - wtvanhest 14y ago
    Yes, I agree with you. But it is a current fact. I have no idea what the solution is, but when a system works conveniently for so many people it is unlikely to change. The crazy thing is that people "blame evil corporations" while having almost 100% of their retirement invested in the corporations they dispise without even realizing it. Unless you have no savings, you are likely a shareholder in a number of companies which are using transfer pricing to save on taxes.

dabeeeenster 14y ago

How is paying taxes not in the interests of shareholders? I think this attitude is at the heart of the problem.

Zak 14y ago
If I live in the US and own shares of Starbucks, it is much more strongly aligned with my interests for Starbucks to pay me a dividend than to pay that same amount in UK taxes. Even in a jurisdiction where I might see some benefit from the taxes, I'd probably see more benefit from that same amount of money in my pocket. It's perfectly rational to want to minimize one's tax obligation, especially to foreign governments.

edderly 14y ago

No, more accurately a corporation is an autonomous legal 'person'. http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar/1 http://hbr.org/2010/04/the-myth-of-shareholder-capitalism/ar... "Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. Shareholders seem to get this. They’ve tried to unseat directors through lawsuits just 24 times in large corporations over the past 20 years; they’ve succeeded only eight times. In short, directors are to a great extent autonomous."