The following is a guest blog by my friend Dr. Atul K. Shah of Suffolk Business School:
Nearly 400 professionals and senior accountants and managers gathered together at Whitehall Place in London at a high level seminar on the theme: ‘Is business paying its fair share of tax' sponsored by the Audit Quality Forum at the ICAEW and the FRC.
There were people from firms like Barclays, BNY, Pearson, Burberry, Standard Bank, HSBC alongside accountants from the Big 4 and other firms like Grant Thornton, BDO, and Crowe Clark Whitehill. In relative terms, majority of attendees were accounting/tax professionals, with very few lawyers in the room. I was one of the academics there, and the packed room demonstrated clearly that the huge social media pressure on this theme means that both the accounting profession and Corporations can no longer avoid issues around the morality of tax.
The agent provocateur for this discussion was the famous PR guru and Labour Spin Doctor Mr. Alistair Campbell, who explained that the world has now become horizontal, and there is no place to hide for leaders. Hypocrisy should be avoided. When he spoke with Boards, he found that different members of the same Board would have different ideas about the primary objective of the company and the strategy for achieving it. He recommended consistency and clarity, without ever using the words honesty and integrity. Tax is one of the areas where businesses need to decide their position and then be ready to defend it.
Alison Holder from Action Aid was very clear on the vast damage done by corporate tax avoidance in both developing and developed countries — an estimated $200 billion a year for developing countries according to IMF.
Jim Harra from HMRC explained how they risk rate large corporations in terms of their tax practices, but said they had enough resources to deal with them, including skilled teams. He explained that it is government policy to move towards country-by-country reporting.
Kevin Nicholson, Head of Tax at PWC admitted that the moral issues around tax can no longer be evaded, but its not his right to preach. One phrase which kept being repeated was ‘there is a debate to be had, or lets have a conversation on this with clients'. He also admitted that there is no corporate legal duty to minimise tax but did add that it is the duty of Government to explain its tax policy.
It is clear that the mood on this is changing, but as a member of the ICAEW, I am still very disappointed that the profession is not providing any ethical leadership on this matter, despite the huge public outcry. Some audience members did suggest that there should be criminal punishment for tax and accounting professionals who help in aggressive tax avoidance, and there should be more of a love in about tax, as well as more public education about finance and tax. Others argued that corporation tax is inefficient, with the ICAEW CEO Michael Izza appraising to suggest that it should be abolished and replaced by a sales tax.
But above all, the call by Campbell for companies to get real and transparent, has major ramifications. For companies to get real, its leaders need to get real. I somehow doubt this is possible, as they got where they are through a lot of politicking and schmoozing, and have lost contact with their own conscience. This explains why there is so little ethnic diversity in Boardrooms, in spite of the huge skills and talents, and their vast global cultural intelligence and networks. Non-executives either perform their roles as a cushy retirement pension, or are doing their mates a favour.
It is form over substance so far as their roles are concerned. Notice how few academics are on any Boards here, including places like the FRC. Executives do not want people who challenge and speak their mind, partly because they are posers too. This is why this confusion about an appropriate corporate response to tax will continue, and leaders will still try to hide and collude, looking for others to blame when things go wrong. They lack courage to be honest and transparent. And that is the real truth.
Atul K. Shah's extensive research on corporate ethics, regulatory arbitrage, the Big 4, and financial corruption can be found here on Academia. Presently, he is writing a pioneering book on Ethical Finance for Routledge. He can be contacted at: a.shah@ucs.ac.uk
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The Big 4 accountancy firms receive billions of pounds annually from their tax avoiding advice. It is one of their main sources of revenue.
Those particular turkeys are not going to vote for Xmas anytime soon.
I have struggled to watch most of the select committee hearings into the BHS debacle, and I was surprised to find myself agreeing with some of the things Philip Green was saying (or implying) in his 6 hour marathon inquisition yesterday.
We can question the capitalists intentions, morality, methods and integrity as much as we like – but if we fail to understand, acknowledge and accept that they are allowed to play the game of “winner takes all” within the rules of engagement set by the state.
But perhaps the bit that is being too often ignored (perhaps deliberately?) is that they are guided along these rules by the “professional” legal and financial advisors who are paid very handsomely for their services.
And as Green quite correctly pointed out, while he accepts some failings in his role of selling BHS to RAL (you can still question how much or little was deliberate or unintentional), RAL was advised in their purchase of BHS by two leading firms of accountants and lawyers (Grant Thornton and Olswang) who failed to even put forward the lead partners on the deal for scrutiny to the committee.
Entrepreneurs by nature will follow their animal instincts in search of wealth and power (as will many politicians). The role of the professionals should be to contain this within the rules of the game, and yet it is quite clear that far too many “professionals” are driven by the same animal instincts of wealth and power.
And so the role of the profit motive within professional firms should also come under scrutiny in my opinion.
Advisers advise
Green decided
Not when the advisers representing RAL who bought BHS at the time were both board directors and shareholders in RAL and apparently kept £7m in their client account from the proceeds of the sale which was according to Green subject to a contractual covenant due as working capital to BHS under the sale agreement but was subsequently used to pay the advisers and other RAL directors their fees.
It all sounded very very fishy, as some members of the committee agreed, and I can only hope that they call back the partners of Grant Thornton and Olswang who were actually involved in the deal for a full investigation of their role in the BHS/RAL debacle.
My point is that the advisers cannot walk away from their responsibilities to advise directors to act and stay within the law, just as much as the directors cannot choose to ignore that advice without serious implications for all parties.
If it turns out they were both advising and acting as board directors and/or shareholders then to say they were compromised is an understatement.
There is some commentary on the discussion here, although there was a lot more actually said during the 6 hours.
http://www.legalbusiness.co.uk/index.php/lb-blog-view/6675-olswang-knee-deep-in-bhs-deal-claims-phillip-green
Interesting analysis from Owen Jones on Greens appearance, from which he rightly concludes you can’t just blame the man and ignore the system that allows such behaviour.
http://www.theguardian.com/commentisfree/2016/jun/15/philip-green-bhs-tycoon-tax-parliamentary-inquiry
You are right Keith, if capitalist businesses will operate within the laws of the country, then it’s difficult to criticise them in their pursuit of their primary aim, that of profit maximisation.
I remember seeing an MP moaning about the low standards in care homes. I thought at the time, most care homes are run by businesses trying to maximise profit. Hence despite exorbitant fees most of their staff will be minimum wage, food will come from the cheapest suppliers and the premises will be neglected – all of these only up to the point that customers start leaving.
This is the capitalist business model.
Maximise income and minimise expenses.
So don’t expect businesses to be ethical, moral, caring, etc. The only time they will be this way is if it is estimated to generate more profit. An example would be Barclies, when several years ago after so many frauds, misdemeanours, etc, their then new CEO – since departed – was professing that the bank needed to become more ethical.
I have known hundreds upon hundreds of businesses
Not one over ever knew how to maximise profit
It is a total myth that businesses do any such thing because they have no clue how to do it
There are plenty of advisers out there who know exactly how to maximise profits though and make a very good living from helping their clients do it! I spent several years working for one of the most aggressive of them, real life androids!
I am sorry Keith but that is just not true
No one on earth knows how to do that
If they say they do they are lying
I worked there and they were certainly arrogant enough to believe they did! I lost count of how many thousands of jobs were downsized, outsourced, offshored or automated during my brief encounter. I admit they weren’t as ruthless as they could have been but it was only fear of potential public outcry from some of their clients which restricted some of their plans. It was the heyday of the masters of the universe ideology after all!
I don’t dispute their ruthlessness
But they had no clue if they maximised profit as a result
I can accept that profit maximisation is theoretically unattainable and practically immeasurable, but the “pursuit” of profit maximisation still lies at the heart of capitalism in my opinion. It is the business equivalent of seeking the pot of gold at the end of the rainbow.
There is a whole analytical industry devoted to measuring and quantifying every conceivable metric of the increase/decrease in the returns on capital. And I have yet to meet a CEO who is not driven by those metrics on behalf of his/her shareholders.
Gareth’s comment was that “if capitalist businesses will operate within the laws of the country, then it’s difficult to criticise them in their pursuit of their primary aim, that of profit maximisation.”
And for all the advisers who claim to specialise in this non-achievable “pursuit of profit maximisation”, it is an incredibly profitable business for them. Which in itself shows the nonsense of what they offer to their clients while they are merrily stuffing their own coffers full of extracted revenue and profits from their clients own businesses.
My ex-employer I now see employs some 375,000 people around the world doing just that, advising on revenue growth and cost reduction while extracting great sums of money from the client for the privilege of their “knowledge”.
What a joke when you know how they operate. It was the best and worst two years of my life, which opened my eyes to the real nonsense that lies at the heart of crapitalism and left me never wanting to be a part of it ever again!
I agree that the pursuit of a false goal is commonplace
Richard I find that amazing.
Like you I was a chartered accountant in general practice with some 250 clients at one time. I can assure you that all of them had their eye on profit maximisation, albeit under my tutelage, and most of them achieved their aim. (Perhaps we are a big more hard nosed here in the badlands of Essex!)
I ran my practice the same way, profit maximisation was my primary reason for being in practice.
I will be blunt
You are deluded
And you misguided your clients, if conned yourself about them
You have not the faintest idea if you maximised profit and as a result it would be impossible for you to say so for anyone else
And I ran a larger practice and had a significant and successful commercial career
I most certainly made profits and in ICAEW inter firm comparisons did rather well
But to pretend maximisation is to suspend all recognition of the limitation of the capacity of humans to process data (universally very small) especially when we all have an enormous number of goals rather than the single issue focus you claim
Sort to be blunt, but I have no time for accountants peddling economic nonsense that promotes fallacies that can’t even be justified on an aconomust’s whiteboard
Who on earth hasever taken the alky Alastair Campbell seriously in the last ten years?
Bit like listrning to a defective Dalek.
I’m no fan of Campbell but referring to him as an ‘alky’ is unkind to those of us who have struggled with this problem.
I find the attendance of KPMG – ranked third in 2015 – interesting
Is this the same KPMG that ran courses in 2002 entitled Green Box?
I attended one of these courses in 2002 where the UPS was a guarantee that on payment of a fee to KPMG they would arrange for the individual to have no UK income tax liability. The course was aimed at individuals earning then In 2002 a minimum of £1million pa.
I would like to say that I share Mr Shah’s view that “It is clear that the mood on this is changing, but as a member of the ICAEW, I am still very disappointed that the profession is not providing any ethical leadership on this matter, despite the huge public outcry”
As a fellow chartered accountant, I have been astonished that the ICAEW has had no substantive comment or contribution to make towards this issue or indeed the small matter of the deficiencies of the neo liberal model of capitalism, as highlighted by the Occupy movement and others.
The silence has been deafening.
Wake up ICAEW!
Very strongly agreed
The Pin-Stripe Mafia -http://visar.csustan.edu/aaba/PINSTRIPEMAFIA.pdf – is worth a read.
However, stealth taxes and raiding pension savings doesn’t help.