Tax evasion part of corporate culture

Image representing Steve Jobs as depicted in C...

Image via CrunchBase

Most people would think that countries like Spain, Greece and Portugal would rank among the very top of countries for tax evasion schemes. But even though the US has a relative low tax rate the country tops the list of places where tax evasion seems to be part of corporate culture.

So how big a problem is tax evasion? Take a look at the table below from Tax Justice Network, a London-based watchdog that fights against tax havens and for more transparency.

America’s “black” or “shadow economy,” represents 8.6% of GDP, while the percentage is by far the smallest of any of the countries on the list it does represent a significant monetary post and represent roughly the GDP of Denmark the 32 biggest economy in the world according to the IMF.

How does the companies in the US manage to avoid tax? Well, one suggestion is that companies like Google, Apple and Amazon manage to cut their tax bill by one third through a series of moves that involves countries in Europe and in the Carrabin, a system is also used by big European companies to transfer funds to tax havens. My friend Sarah Wenger has created the infograph titled “The master of Tax Evasion” that explains how the system works.

Masters of Tax Evasion
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Directions of the CSR movement

For the past five decades we have seen a tremendous development within the CSR movement from a few hippies in the sixties shouting curses at Dow Chemicals to businesses build on the idea of sustainability such as the Body shop and Starbucks. This blog is about what I think will happen in the next few years. The list is far from complete but gives an overview of some of the trends that will shape CSR in the coming years.

Codes of conducts as a “license to operate”. Code of conducts was, a few years ago, seen as a source of competitive advantage, and to some businesses a method to organise its philanthropic efforts. Today they are seen as something that most international businesses have as part of their normal business approach and more a given than an extra feature. Even companies like A.P.Møller-Maersk that until recently did almost nothing within sustainability is now implementing Codes of Conduct and have become member of the Global Compact.

Moving from a fragmented approach to CSR companies now work strategically with philanthropy and stakeholder engagement/management. As described by Porter and Kramer there are real advantages to be gained by working strategically and long-term with the company’ philanthropic activities (Porter & Kramer, 2002). And companies are using philanthropy to gain access to students and other important resources that they will need for their future growth. Apple computers have successfully engaged with university students as part of their strategy, which has moved the company from being marginalised in the market to be directly comparable with Microsoft.

The further evolution of sustainable and social risk management into real tools for business. Where companies engaged with stakeholders because they represented a business risk they would in the future also be part of business development. Globalization have meant that business have expanded its scope and reach significantly. Fuelled by waves of liberation in developing and emerging markets have initiated a significant increase in contact with countries and regions that can be categorized as difficult to do business in. The increased sphere of contact and influence have spread to every coroner of the world and is to a large extend fuelled by the prospect of high returns, first mover advantages and market shares (Haufler, 1997, Mehmet, 1999, Banfield et al., 2003, Gouldbourne, 2003,

Jamali & Mirshak, 2010). According to the World Bank some 1,5 billion people are affected by organised violence or conflicts (World Bank, 2012), this number constitute roughly one fifth of the total population of the world making it one of the world’s biggest social issues. Conflicts are present in all parts of the world and have a direct or indirect impact on the lives of everybody on the planet either through social ties or as part of our professional lives. For people who are directly affected it is an ever-present threat that invades all activities and decision making processes, for the societies involved it puts social lives and development in a state of suspended animation. To a large extend the issues that business needs to confront are outside what can be considered the norm within traditional risk management strategies (RMS) because the issues are socially embedded and complex (Holzman et al, 2003). As seen in the case with Starbucks NGO and companies can work together on areas of common interest and create new products and services (Austin & Reavis, 2004).

Social responsible investments or SRI will become more and more influential on driving investment decisions and thereby the choices of management. It is not argued that investment companies will become more social conscious but customers like institutional investors will become more and more concerned about how they are growing their portfolios (Hawken, 2004). This will not happen because they suddenly become aware that they have a significant social or environmental impact but that the customers of instructional investors are starting to wonder how their pensions are growing.

The raise of the corporate citizen. The idea of corporate citizenship was first seen a few decades ago (Crane & Matten, 2010). The idea of corporations as citizens with obligations and rights really saw its emergence with several big international finance scandals such as scandal around Enron and Arthur Anderson around the turn of the century. The idea of a corporate citizen comes from the notion that companies like people have an obligation to the community they are part of. This means that they are obliged to behave in accordance with ethical norms formulated by society. In many ways the corporate citizen come from the idea of engagement with salient stakeholders and acting in accordance with their expectations and wishes. While there are many companies that claim corporate citizenship a very have moved beyond mere rhetoric.

The inter-linkage between CSR and development studies. Will further develop and as we will see in this book gender will be one of the lessons learned from the field of development studies that will define corporate behaviour in the years to come. For decades development practitioners have known that economic growth, democratisation and security does not happened in a vacuum and that development a sustainable business climate is linked to society and governance structures. As companies increasingly becomes global even at very early stages of business lifecycle so does the issues that they have to confront. But as older companies have had time to cope with different cultures and business environments young entrepreneurs does not have the same privilege. In essence this means that they will have to experience a much steeper learning curve of they are going to survive on the global marketplace. The tools that have been refined through years of development studies will be an integrated part of creating a sustainable business platform for the future.

Since the 80’ties have seen large-scale privation of traditional state enterprises in areas like transportation, communication, healthcare, energy and infrastructure. Mostly influenced by neoliberal thinking in United Kingdom and United States were large-scale privatisation programs were implemented under Margret Thatcher and Ronald Reagan (Bhagwati, 2007:98, Harvey, 2005:57ff). As this happened private business also found its way into areas traditionally controlled by the state and as time have progressed more and more areas have seen either total takeover by private business as we have seen in telecommunication, part privatisation with majority state ownership as with railroads or private companies in direct competition with or as a alternative to state institutions as we have seen in Healthcare and Private security companies (Harvey, 2005, Dicken, 2003, Klein, 2000, Friedman, 2007).

The concept of CSR have found it’s way into the business world largely due to the weakening of the state and as a result of pressure by stakeholder groups to act as information have been more widely available from even the most remote part of the world. Word like ‘Sweatshop’ and ‘child labour’ would not have found its way into everyday language if it had not been for the increased transparency and persistence of stakeholders who have come forward within the last two decades.

Apple story – Understanding your consumption

The apple story seem to continue to fascinate people and professionals. Even though that Foxconn is not only producing products for Apple that have become the all-time favorite when it comes to poor ethics management and lack of efficient control systems.

It is quite interesting that people can disregard corporate behavior if the brand of a company is strong enough. Most of my own students use Apple products and they are never surprised when I talk about the ethics record of the company. However, this knowledge does not seem to change their willingness to buy their products. Maybe because there is a wide consensus that most of the production facilities making hardware products in China are more or less branded as being in violation of Labour and Human Rights it does not hit Apple as hard. So while we know that Apple is in violation of these Rights at least we know what they are doing and at least it gives us some idea about their actions.

I received this quite informative infographic from Tony Shin, which I think highlight the case quite good. I know that some of my friends that specialize in Chines working conditions would regards some of theses issues as being quite “normal” and not really seen as a big issue inside China. However, the infrographic from Tony does give a opportunity for customers to gain knowledge about how their consumer goods are produced.

Created by: Tony Shin

Companies accused of using modern day slavery are being named

The Interfaith Center on Corporate Responsibility (ICCR) issued a statement asking 27 companies to help abolish modern slavery and Human trafficking. A issues that is becoming more and more relevant not only in the area of prostitution but also in relation to the everyday products that we use.

In accordance with the Parlermo protocol human trafficking is defined as

ACT: Human trafficking involves the recruitment, transportation, transfer, harboring and/or receipt of a person.

MEANS: It can include the threat or use of force, deception, abduction, the abuse of power or a position of vulnerability, or other form of coercion.

PURPOSE: The purpose of human trafficking is exploitation, which can include the prostitution of others, forced labor, slavery or servitude.

The ICCR have issued a statement that prescribes a number of steps that companies can take in order to avoid slavery and human trafficking being a part of their supply chain. While the list is far from complete it does highlight a part of globalization, which we often do not hear and to some extend, have not listen too. ICCR asks companies and organisations alike to adopt a due diligence approach which incorporate the following eight steps :

1. A policy stating the company’s commitment to respect human rights;

2. An assessment of actual and potential human rights impacts, including human trafficking and modern day slavery;

3. Integration of the policy and corresponding assessment into internal oversight systems and monitoring programs;

4. Training of employees, contractors and vendors;

5. A clause in contracts with suppliers, host-government agreements and joint ventures stating a common repudiation of human trafficking to ensure that their conduct is consistent with human rights standards.

6. Alliances with appropriate authorities including police, anti-trafficking organizations, child welfare agencies and public-private partnerships with governmental and international institutions;

7. Contribution to the prevention of trafficking, including awareness raising and educational campaigns;

8. Annual public reports on performance.

The list of companies that are being asked to implement and live by these guidelines are Apple and Foxconn which recently were involved in implementing slave like working conditions at Foxconn City in China.

You can find the complete list here.

Apple is the”nuclear” cloud of cloud computing

Greenpece word mark

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According to Greenpeace is Apple the number one polluter when it comes to running cloud computing data centers. But is this really true? Any student or researcher will tell you that if you put the question right you will get the answer you have hoped for and in this case it is as true as ever. So what did Greenpeace try to investigate?

“The ‘cloud’ is IT’s biggest innovation and disruption. Cloud computing is converting our work, finances, health and relationships into invisible data, centralised in out-of-the-way storage facilities or data centres. This report seeks to answer an important question about this trend, currently underway across the globe: As cloud technology disrupts our lives in many positive ways, are the companies that are changing everything failing to address their own growing environmental footprint?

Well, of cause it will be more polluting is because in the question you have excluded any other alternative. It is like asking if the windmill industry is polluting well of cause it is because you do not consider the alternative.

Greenpeace sets out to describe some of the key learning points that they have discovered.

Key learnings:

•Data centres to house the explosion of virtual information currently consume 1.5-2% of all global electricity; this is growing at a rate of 12% a year.

We should be happy that more and more of the data that we store are centralized so that we utilize the combined capacity of these facilities instead of multiple decentralized and inefficient systems which will cause even more pollution.

•The IT industry points to cloud computing as the new, green model for our IT infrastructure needs, but few companies provide data that would allow us to objectively evaluate these claims.

Well yes according to Greenpeace but try making the math and consider the alternatives e.g. a underutilized server in every home, business and governmental organization that consumes just or close to as much energy if it running at 20% or 99% capacity.

•The technologies of the 21st century are still largely powered by the dirty coal power of the past, with over half of the companies rated herein relying on coal for between 50% and 80% of their energy needs.

The world have failed to realize that coal and oil is a resource that is running out but mostly because the US have made a combined effort to combat any green legislation both nationally and internationally. So if companies in the US want to have alternative they will have a hard time finding any valid alternatives on the market for green energy.

•IT innovations have the potential to cut greenhouse gas emissions across all sectors of the economy, but IT’s own growing demand for dirty energy remains largely unaddressed by

the world’s biggest IT brands.

I think that cloud computing is a greener alternative to more traditional means of data storage.

•There is a lack of transparency across the industry about IT’s own greenhouse gas footprint and a need to open up the books on its energy footprint.

This is quite true. There is very little knowledge about what the carbon emission impact of the big IT companies actually is. It makes me wonder how and why Greenpeace can make such bold statements about the environmental impact of these companies.

•In emerging markets, where there is limited reliable grid electricity, there is a tremendous opportunity for telecom operators to show leadership by investing in renewable energy, but many are relying on heavily polluting diesel generators to fuel their growth.

Well Greenpeace does not actually know this as they state in their report “Clean Energy Index and Coal Intensity are calculated based on estimates of power demand for evaluated facilities” so in reality it is just a guess that this is how things are done at the facilities and not based on any real evidence or investigation. I could properly have come to the same conclusion if I had looked at a map of power plants and compared this to be the different datacenters are located.

•Data centre clusters (Google, Facebook, Apple) are cropping up in places like North Carolina and the US Midwest, where cheap and dirty coal-powered electricity is abundant.

It just underlines my guess that the survey was done based the placement of different facilities and comparing them to the most likely energy source. The claim of Greenpeace is properly true but with the evidence presented they do not actually know this.

•IT companies are failing to prioritise access to clean and renewable energy in their infrastructure sitting decisions.

This is true but growing energy prices are changing this.

•Of the 10 brands graded, Akamai, a global content distribution network, earned top-of-the-class recognition for transparency; Yahoo! had the strongest infrastructure siting policy; Google & IBM demonstrated the most comprehensive overall approach to reduce its carbon footprint to date.

It sounds good that IT companies are becoming more transparent but this does not make the Greenpeace report any more scientifically valid.

•Across the board, IT companies have thus far failed to commit to clean energy in the same way they are embracing energy efficiency, which is holding the sector back from being truly green.

What is truly green according to Greenpeace?

So is Apple the worst of the worst in cloud computing… well we don’t really know do we?

You can read the full Greenpeace report here.