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Taxing Times

2012’s news agenda closed with tales of the ‘payers’ and the ‘pay-nots’ and, as the public purse continues to tighten, exposing corporate tax Scrooges could prove a not-so-trivial media pursuit in 2013.

So far, consumer brands from Topshop to Starbucks have borne the brunt of the taxlash, sustaining damage to reputation and property. While Google’s Eric Schmidtt robustly defended the technology giant’s tax reduction practices as “good capitalism”, others are more sheepish. Starbucks’ widely criticised “donation” to HMRC illustrates that reactive moves without fundamental strategic change can get brands into even hotter water.

It's time for companies to decide whether to use creative legal and tax structures to maximise competitive advantage, as espoused by Google, or temper their approach in a way that may reduce profits. The glare of public attention on multi-national brands has challenged leaders to consider whether they care (or indeed can afford not to care) about their reputation in this respect. In their drive to increase tangible shareholder return, they must consider the value and fragility of the intangible goodwill and reputation they are putting at risk.

If you’re feeling safe in the belief that this only applies to the consumer world then it’s time to think again. Any company seen to be taking questionable steps to reduce their exposure to tax is likely to feel the heat from clients, customers and valuable stakeholders, so it’s as relevant in this sector as for the biggest household brands.

Bad news travels fast these days and a full-blown crisis can erupt out of nowhere in a matter of hours. Business leaders who choose to take advantage of, albeit legal, tax dispensations and loopholes must be prepared to conduct a thorough risk assessment of the potential repercussions and develop a plan for handling the reputational fallout – steps which may change their views towards the wisdom of this approach.  

Marketing leaders have been conspicuously absent from this debate, and from the boardroom in which these decisions have been made. Companies’ failure to balance reputation and revenues is a clear illustration of marketing’s lack of status. The challenge for the marketing profession in these taxing times is to make the move from clearing up spilt milk to influencing governance and generating sustainable profitability for the future.