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The Only Way Is Ethics by Lee Petts

Google's tax deal with Britain raises questions about ethics and CSR - more at www.remsol.co.uk

The recent row over the tax deal between Google and the British Government raises some important questions about ethics as part of a company’s overall approach to CSR.

Last year, The Reputation Institute put Google at the top of its annual ranking for the second year running.

Brad Hecht, chief research officer at Reputation Institute, is reported to have said at the time that “the companies in the Global CSR RepTrak 100 are succeeding not only at being good corporate citizens, but in communicating those characteristics to consumers who increasingly rely on a brand’s reputation in making purchasing decisions and recommending products and services to others.”

Google topped the list because it had been carbon neutral since 2009, implemented numerous environmental initiatives such as Google Green, and was one of the first big tech employers to release workplace diversity statistics.

The Global CSR RepTrak 100 ranking system consists of three factors: citizenship, governance and workplace, where “governance” is judged on openness, transparency and ethical behaviour.

Ask a typical British tax payer if they think Google behaved ethically by structuring its affairs in a way that enabled it to avoid paying a sizeable chunk of UK Corporation Tax, and it’s likely you’ll get a different answer.

Even though it appears that Google didn’t break the law, and so didn’t technically do anything wrong, it deliberately avoided tax by shifting profits to Ireland. In 2013, Google reportedly paid just £11.6m in Corporation Tax, despite achieving UK sales of £3.6 billion.

It highlights an inherent problem with Corporate Social Responsibility (CSR), which is that businesses will often focus their efforts on external activities that target the delivery of social and environmental good (earning them plaudits in the process) whilst taking other actions internally that undo that good work.

Following the spirit of the law

Google’s tax arrangements are probably unfathomable even to the corporate advisors that constructed them, so I’m not even going to attempt to unpick them properly.

But it is possible to get a sense of what it might have looked like had Google followed both the letter and the spirit of British tax laws.

According to Google’s published financials, in the last four quarters it has averaged global revenues of $17.39 bn with pre-tax profits averaging $4.48 bn.

That’s a 25% profit margin.

If you apply that to Google’s UK 2013 sales figures, it suggests that its profits on UK economic activity could had been as high as £900m – generating a whopping £180m tax bill.

It paid £11.6m, leaving a potential tax gap of £168.4m.

That’s enough to fund over 3,200 new salaried GPs, or over 8,200 newly qualified nurses at Band 5, or over 8,100 newly qualified teachers.

Google would have to engage in some serious corporate philanthropy to deliver a social good anywhere near as significant as the benefit it could have achieved had it simply paid the proper amount of tax.

Good governance and CSR – the only way is ethics

The subject of business ethics is very expansive, but it’s a crucial element of good governance as part of a company’s overall approach to CSR.

If you’re just starting out on your CSR journey, you could do a lot worse than focus on good governance and your own ethics. Make sure you:

– Pay your taxes, on time and in full
– Comply with the letter and spirit of the laws that apply to your business

Just because something is legal, it doesn’t mean it’s right or morally acceptable.

Paying the right amount of tax means that your business is contributing to society by helping to fund important public services, such as education and healthcare. Paying your taxes on time reduces the cost of administration, which means more money is available to spend on keeping community libraries open, for example.

Earn trust and make a real difference

The 2016 Edelman Trust Barometer shows that people are more likely to speak favourably about or recommend businesses that they trust.

That sort of advocacy can translate into more sales, higher prices and bigger profits, and so it is essential that businesses show they are trustworthy if they want to grow.

But by behaving ethically, in this case paying the right amount of tax when due, it’s possible to make a real and positive impact on society. Of course, on its own, “we pay our taxes” is never really going to work as a media headline in the same way that “we donated some money to a local cat rescue centre” will, and so you need to get creative when you think about how you can communicate that your approach to CSR is the one that makes the biggest difference, but the fact that you comply with applicable legal and tax rules should still definitely be part of your CSR story whenever you get the chance to tell it.

Does this strike a chord with you? Have you ever really thought about CSR and ethics this way before? I’d love to hear your thoughts in the comments below and, if you think others would benefit from reading it, please share it too. 

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