Starbucks' froth

The behaviour of Starbucks this week may have done more to intensify the debate over corporate tax and its relation to corporate ethics more than any other event over the past ten years.
To recap MPs on the House of Commons public accounts committee questioned executives from Starbucks, Google and Amazon over their tax affairs with the aim of exploring why they appeared to be paying so little. It’s clear now Starbucks was stung by the event. Reportedly, coffee drinkers began staying away from the company’s outlets in protest.
Now, the Seattle chain has volunteered to stump up an extra £20m in tax to the UK exchequer over the next couple of years by way of righting the situation. A managing director told the news that the chain had “listened to its customers”.
Starbucks are not in the clear, however, and all the big multi-nationals out there who have similar arrangements may well be feeling that Starbucks' reaction could have stimulated the debate over "exporting" tax slightly more than a double espresso.
Firstly, the terms of the debate. Over the past few days the press has been at pains to make clear that Starbucks, Google and Amazon have done nothing illegal. The rest of the commentary seemed to revolve around demands for the companies to sort their affairs out. But the British tax system allows them to make these arrangements. The debate has yet to settle on what will be done about the law. In the week of an autumn statement which revealed austerity will last longer than expected the government has been suspiciously quiet on the subject of corporate tax, except to say it would be cut again (what matter a cut if you’re not paying tax anyway?). Strange this because it is the government that makes the law and national tax policy. What will be interesting is whether the key campaigners can make the argument heard that it is government that needs to act. For their part the government could fall back on the argument that they cannot act without international cooperation on reform. Is that a compelling claim? If it is, then perhaps the Treasury should indicate where it is leading that discussion.
At the moment lots of people, supposedly in the know, are talking about companies paying their "fair" share. If you don't have a legal framework in place that makes it perfectly clear what a "fair" share is, the situation is unlikely to be resolved satisfactorily. Small business has no choice but to pay their corporation tax at the going rate and they compete with multi nationals like Starbucks. They deserve a better deal from government.

Ignoring the system

Next, so far Starbucks has been the lightening rod for this most recent installment in the tax debate. This is interesting because the coffee company has only been doing what countless other companies have done in the past. The debate this week even largely ignored Google and Amazon. It has yet to broaden properly to engage with the system. This is mostly a function of the news outlets - they seem surprisingly slow to shift focus from a single company to the broader issue.
Other companies are no doubt keeping their heads down hoping that Starbucks will take one for the team. But if the debate broadens (and one wonders whether there is enough energy in the issue to maintain the current momentum) we could see that tax has become a key issue of corporate ethics. Indeed, if it hasn't already, it could develop to become to be an area where a business has to be scrupulously clean in order to maintain a functioning reputation. Starbucks clearly felt some reputational strain. After all, it’s on our High Streets and high profile, it was vulnerable to boycott. MPs noted that the company’s move to cough up more was caused by public pressure. Other companies may yet come to feel this heat. That said Amazon and Google may yet feel that they are now so ingrained in our daily lives that their reputations are unassailable. 

I think it’s possible to set the tax issue in a wider context. Since the global financial crisis and the poor behaviour of financial institutions we have been living in the age of holding big business to account. Sub-prime, the Murdochs and phone hacking, Barclays and Libor and now tax - these are all part of a narrative in which politicians, pressure groups and the public are emboldened to challenge big business more than they have in perhaps two or three decades. Our trust in big business, our default assumption that only they can cope with necessary technological advancements, has been substantially shaken.
Politicians especially now feel released from having to keep big business happy. So far though, this narrative has produced a lot of noise, many complaints and a lot of soul searching. But it remains to be seen whether substantive measures will be taken in response. Will banks have to separate investment banking from retail banking? Will the press really instigate a radical new form of regulation? 

In business

Lastly, if you are in a business which partly sells on reputation the Starbucks problem will become a case study in managing a crisis. As better commentators have pointed out, in "volunteering" to pay extra Starbucks makes it look like corporation tax is an option. What the company hasn’t done is said that they will reorganise their affairs so that revenues raised in the UK will be liable to corporate tax every year going forward. Volunteering does not resolve what the 'fair" liability is. PR and marketing strategists might theorise that Starbucks has come up with only a partial solution. They listened to customers but did not really engage with the issue. The £20m will be a welcome contribution to government coffers, but it does not resolve the tax position.

Starbucks, though looking contrite has still to confront the real issue. But they are not alone. Their position is shared by Google, Amazon, the many other companies exporting their profits and a government not yet fully engaged or leading the debate on corporate tax. At the moment Starbuck's £20m may still end up looking like froth.

Postscript: (Sat 8 December, 2012).

I have not boycotted Starbucks. I feel perhaps I should, and I am in favour of consumer action, but I haven't. For a few reasons. I'm still using Google (a bit more Yahoo these days) and I have a lot of gifts enrolee from Amazon. How could of ditch one without ditching the others. But then there's the broader issue. If I boycott Starbucks, I should also boycott the government, which I can't do, sadly. Starbucks has exploited a tax system which they didn't make. We have our lawmakers to blame for that.


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