UK: The Political Lessons Starbucks Missed

Last Updated: 13 December 2012
Article by Stuart Thomson

BDB Public Affairs Consult Dr. Stuart Thomson was a guest blogger for  CIPR this week. Read his post below.

From the moment the story emerged that Starbucks had paid corporation tax in the UK just once in the last 15 years, the company has been on the back foot and under serious political pressure. Some of this pressure appears to have been self-inflicted. As an organisation, it seems to have forgotten some basic political lessons.

  • Empathise – statements and appearances by the company have failed to show much in the way of sympathy towards the public and the wider economic environment. Suggestions that they pay other forms of tax and meet other legal requirements are not seen as a commitment to contributing to society.
  • Parliament matters – the company's appearance before the Public Accounts Committee (PAC) did little to increase their political capital, particularly with Parliamentarians. This made the Committee less likely to pull their punches in the final report. Its Chair, Margaret Hodge MP, did not mince her words and talked about the practice of avoidance being "outrageous and an insult to British businesses and individuals who pay their fair share." The report has been a lead media story.
  • All communications are public – there was an apparent disconnect between the evidence given to the PAC and statements made to the company's shareholders which lauded the profitability of its UK operations. Transcripts of investor and analyst calls reviewed by Reuters even went so far as to show that Starbucks believed that the UK was such a successful operation that ideas could be exported back to the US. It shows that what is said to one audience needs to be consistent with what is said to others.
  • Understand the political timetable – an attempt to regain the initiative with a suggestion, the day before the PAC report was issued, that the company would look again at its internal arrangements on tax seemed like a late and lame attempt to show willing – too little, too late. If the company was going to take action then it should have said so much earlier, not the day before a critical report was going to be issued and Ministers due to take strong action on avoidance. It is believed that an official announcement from the firm will be made following the Chancellor's Autumn Statement. Again the timing looks forced and will not make the firm too many friends in Government.
  • Need for lead – it has not been clear what the company's lines are and who is speaking for them. This has not helped to clear up the confusion and deliver straight answers. Howard Schultz's blog on the company's website was an attempt but the questions he 'answered' were not really those being asked.
  • People power – one of the largest challenges was the mere threat of a public boycott and demonstrations outside of their branches. It shows that activist action still has the power to move corporates and get them to question their policies.

The company should have appreciated the repercussions earlier, rather than wait to be forced into a decision. Their decision to wait until threatened with a withdrawal of custom reinforces the perception that there prime motive remains profit over social responsibility. Of course, Starbucks has acted entirely within the law, but what these events show is that companies also have to operate within the boundaries of public sentiment.

That is particularly so for companies which claim to 'engage with our customers and communities to do business responsibly'. Even legitimate tax avoidance does not seem to chime with a commitment to corporate social responsibility.

We will now see what happens to others, like Google and Amazon. Will they be compelled to reinforce their social responsibility credentials or will the Government's commitment to go after tax avoiders reach the big global firms?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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