Tax avoidance, and corporate responsibility

uncle-sam-pay-your-taxes1Would you consider Apple, Coca-Cola, General Electric, Google, Microsoft, Nike and PepsiCo good corporate citizens? Certainly they position themselves that way, and they deserve credit for their leadership around human rights (Apple, Nike), climate change (GE), water (Coca-Cola), renewable energy (Google, Microsoft) and sustainable agriculture (PepsiCo).

But when it comes to paying corporate income taxes, they have some explaining to do.

That, at least, is the conclusion that I came to after reading an excellent report on tax avoidance titled Offshore Shell Games, and published last month by Citizens for Tax Justice and US PIRG.

Corporate taxation is all over the news these days as US firms move their headquarters overseas for tax reasons, in a process known as inversion. But aggressive maneuvering to avoid taxes is nothing new, as I wrote today in a story for Guardian Sustainable Business.

Here’s how the story begins:

America’s a great country. That’s why people from all over the world — including, lately and tragically, thousands of poor children from Central America — clamor to get in. So why are some of America’s wealthiest companies trying to get out?

It’s simple, really — they don’t want to pay US taxes.

You’ve probably heard about Walgreen’s, your neighborhood pharmacy that is contemplating moving its headquarters to Switzerland to reduce its tax bill. Medtronic, the big medical device company based in Minneapolis, Minnesota, has plans to move to Ireland, for tax-avoidance purposes. Then there’s Mylan, a maker of generic drugs based near Pittsburgh, Pennsylavia, which intends to incorporate in the Netherlands, where the tax rate is lower. Mylan’s CEO, as it happens, is Heather Bresch — the daughter of US Senator Joe Manchin, a West Virginia Democrat — and she says she has no choice but to go.

Other companies aren’t going so far as to relocate their headquarters, a process known as inversion that often requires them to acquire a company based elsewhere. Instead, to avoid US taxes, they are parking their earnings offshore, often in tax havens like Bermuda and the Cayman Islands that levy no corporate income taxes. That tactic, which like the inversions is legal, is being employed by companies that position themselves as good corporate citizens — among them Apple, Coca-Cola, General Electric, Google, Microsoft, Nike and PepsiCo.

Exploiting loopholes in the tax laws may or may not be legal–the IRS is hopelessly outgunned by big corporate tax departments–but it’s unethical.

The report from Citizens for Tax Justice and US PIRG, which makes for surprisingly compelling reading, details a number of questionable tax avoidance strategies that allow companies to shift earnings, purely for tax purposes, from high-tax jurisdictions like the US to tax havens. Here are my favorite fun facts from the report:

The report found that subsidiaries of US companies reported earning $94bn in Bermuda, which has a gross domestic product of just $6bn. That doesn’t compute. US firms reported earning another $51bn in the Cayman Islands, where GDP is about $3bn.

This is outrageous, and please don’t tell me that the way to fix the problem is to reduce the admittedly high US corporate income tax rate. The US cannot compete with places where the tax rate is zero.

All of these companies, of course, benefit enormously from government services–public education, police, the rule of law, highways, etc. Those companies that don’t pay their fair share shift the burden to others–small businesses that can’t afford high-priced accountants, companies that don’t have overseas operations and therefore can’t take advantage of the opportunity engage in tax-avoiding shenanigans and, of course, the rest of us.

You can read the rest of my story here.

Will better disclosure help transform business?

accountingWhose sustainability performance is better, PepsiCo or Coca-Cola? Dell or HP? Microsoft or Google? Tracking sustainability metrics isn’t easy, but that hasn’t stopped numerous organizations from trying.

One of the newest and most ambitious efforts comes from the Sustainability Accounting Standards Board (SASB), a non-profit group based in San Francisco,which is trying to set standards for sustainability reporting, much in the way that the Financial Accounting Standards Board (FASB), has done for financial reporting.

I took a look at SASB (it’s pronounced sazz-bee) in my latest story for Guardian Sustainable Business. Here’s how it begins:

In the annual report known as a Form 10-K that is filed with the Securities and Exchange Commission, Coca-Cola outlines a variety of risks to its business, as public companies are required to do.

The global beverage giant, which booked $48bn in revenues in 2012, talks about how water is “a limited resource in many parts of the world, facing unprecedented challenges from over exploitation, increasing pollution, poor management and climate change.” Coca-Cola says that its plastic bottles could be subject to “deposits or certain eco taxes or fees.” And the company worries that growing concern about “the potential health problems associated with obesity and inactive lifestyles represents a significant challenge to our industry.”

PepsiCo also acknowledges the problem of water scarcity in its Form 10-K. But the company doesn’t cite the potential regulation of plastic bottles as a concern. And the word “obesity”does not appear anywhere in its annual filing.

What’s going on here? It’s possible that Coca-Cola is more aware of social and environmental risks than is its arch rival. More likely, the Coke and Pepsi lawyers don’t agree on what constitutes a “material” risk to their business, and thus has to be reported.

If nothing else, the different Form 10-Ks are evidence that the quality of sustainability disclosure varies widely – even though public companies are legally obligated to tell the SEC and investors about the social, political and environmental risks they face. [click to continue...]

An odd couple? HR and sustainability

savitz(5)Today’s guest post comes from Andrew Savitz, the author of a new book called  Talent, Transformation and the Triple Bottom Line: How Companies Can Leverage Human Resources to Achieve Sustainable Growth (Wiley 2013). As you can guess from the title, Andy argues that employees are the key to creating sustainable companies, but that they–and their colleagues  in human resources–are often overlooked when companies embark on environmental programs. I think he’s onto something. I’ve long thought that the single biggest business driver of corporate sustainability initiatives is the way they help better companies attract better people and motivate the ones they have.

Andy has been his career working with companies on social and environmental issues. A lawyer by training (and before that a Rhodes scholar at Oxford), Andy has been a congressional staffer, the general counsel for the Massachusetts Office of Environmental Affairs and head of the environmental advisory practice at PriceWaterhouseCoopers (PwC). Since 2005, he has led a consultancy called Sustainable Business Strategies.

Here’s our online conversation:

Marc: You say that you’ve written the book “in large measure to bridge the gap between sustainability and HR.” HR? Really? Why do we need human resource people to get involved with sustainability? They don’t know anything about carbon emissions, say, or LED lighting, do they? [click to continue...]

A question about GMOs for Naked Juice, Silk, Cascadian Farm, Kashi and Honest Tea: Which side are you on, boys?

Naked Juice says it doesn’t use ingredients produced using biotechnology as a matter of principle.

Silk, the company that put soymilk on supermarket shelves, says:

We’re proud to participate in the Non-GMO Project, a no a nonprofit, multi-stakeholder collaboration committed to preserving and building sources of non-GMO products, educating consumers and providing verified non-GMO choices.

Cascadian Farm (“We were organic before organic was a trend”) assures consumers that “you can know when you see the “certified organic” USDA seal on the front of our package that GMO crops have not been used.”

You’ll hear much the same from Kashi (“seven of our foods are now officially Non-GMO Project Verified“) and Honest Tea, which says:

Honest Tea doesn’t use any Genetically Modified Organisms (GMOS) and supports the idea that more transparent labeling will help consumers make clear choices.

The thing is, each of these upstart brands, which tout their commitment to natural or organic product, and to transparency, is owned by a big food conglomerate that opposes GMO labeling.

Think of it this way: Naked Juice (PepsiCo.), Silk (Dean Foods), Cascadian Farm (General Mills) Kashi (Kellogg) and Honest Tea (Coca-Cola) are like kids who don’t agree with their parents.

These, though, are family arguments with big consequences for food shoppers. Big food and agriculture companies funding a campaign which has raised more than $23 million to defeat California’s Proposition 37, a ballot initiative that would mandate clear labeling of genetically engineered (GE) ingredients on food packages. PepsiCo, for example, has donated $1.7 million to defeat Prop. 37, while Coca-Cola has spent more than $1.1 million. Kellogg ($612,000), General Mills ($520,000) and Dean Foods ($253,000) are big donors, too. Biotech companies Monsanto and DuPont have given even more — $4 million apiece — according to data compiled by public TV station KCET. [click to continue...]

We need to fix the food system. But how?

“Today’s food system is unfair, ineffective and operates beyond ecological limits,” Mark Lee says, via email.

“Unfair in that some 925 million are malnourished…

“Ineffective in that there are enough calories out there to feed everyone, but we fail to do so (and if we fail to do so for 7 billion, how will we cope with 9-10 by mid-century?)…

“Beyond ecological limits in too many ways too count – freshwater use, soil degradation, climate impacts, you name it.”

Mark is not an environmental activist. He’s the executive director of SustainAbility, a think tank and strategy consultancy that has worked with such food industry clients as Chiquita, Coca-Cola Kellogg’s, Mars and McDonald’s, Nestle, Starbucks and Unilever. He approached me because Sustainability recently released a report called Appetite for Change, about the food industry and how to fix it.

I’ve been writing a lot about food lately because it interests me, because food and agriculture matter a great deal if you care about climate or global poverty or health, and because there’s so much debate about what the path forward should be. Organics? Farmers markets? Genetically engineered crops? Vegetarianism? Local? [click to continue...]

PepsiCo and Naked Juice: Confused about GMOs

I’m a fan of Naked Juice. The Protein Zone and Protein Zone Mango smoothies are great ways to refresh and rebuild tired muscles after a long run..

I’m not a fan of sanctimonious b.s., though, and Naked Juice is peddling that along with its juices and smoothies.

Here’s what I’m talking about. The other day, I noticed this message on a Naked Juice bottle:

We use only the freshest, purest stuff in the world and leave out everything else. * no added sugar * no preservatives *non-GMO**   *gluten free

The double asterisk next to non-GMO led me to this:

While many ingredients do not exist in bioengineering varieties, Naked Juice does not use ingredients that were produced using biotechnology as a matter of principle.

It was the last five words that caught my attention. “As a matter of principle.” The phrase also is used on Naked’s website.

Not as a matter of marketing. Not because the consumers of Naked Juice just might happen to be the kinds of people  who would feel good about avoiding GMOs. But as a matter of principle.

Hmm. There’s an implicit moral judgment there, no?

What, I wondered, might the principle be? [click to continue...]

Will Rosenzweig: Venturing in sustainability

Most venture capital investors don’t have a focus. Kleiner Perkins says it is “in search of the next big idea.” Draper Fisher Jurvetson “backs extraordinary entrepreneurs everywhere who set out to change the world.” Mohr Davidow values “entrepreneurs who identify impressive market opportunities and are not afraid to go after them.”

Physic Ventures is different. Its mission is “investing in keeping people healthy.” Specifically, the San Francisco-based venture firm, which has backing from corporate giants Unilever, PepsiCo and Humana, invests in “technology-enabled, consumer-facing companies that help people and the environment stay healthy,” according to Will Rosenzweig, its managing director.

Physic is betting that it can discover and invest in startups that can make “personal and planetary health” a big business, just as richer and better-established Silicon Valley VCs made fortunes by backing information technology startups like Apple, Google and Amazon.

Will Rosenzweig

I had lunch recently with Will Rosenzweig in Washington to talk about Physic and some of its portfolio companies. Will is an engaging and interesting guy, best known for starting a company called The Republic of Tea in the early 1990s. (He and his co-founders, Mel and Patricia Ziegler, who also co-founded Banana Republic, wrote an acclaimed book about the experience that’s also called The Republic of Tea.) Will, who is 51, was also an early organizer of the TED conferences, the head of marketing for Odwalla and a teacher at the Haas business school at Berkeley.

Will and Dion Madsen, who had run a venture fund inside Unilever, the $57 billion consumer products giant, co-founded Physic Ventures about five years ago. It’s an independent fund whose corporate backers who offer strategic advice and research insights. Its financial investors include CalPERS and CalSTRS, the California state and teachers’ pension funds.

Will has written about the fund-raising efforts and strategy in an article called 7 Reasons Why Great LPs Invested in Our First-Time Venture Fund . [PDF, download] He and his partners raised about $159 million by 2008–an impressive amount for a fund in a new sector, with no track record of successful exits.

It’s much too early to judge the success of the fund or its investment thesis, but there’s no doubt that Physic has invested in some intriguing startups. [click to continue...]

Sugary sodas: The new tobacco?

New York’s Mayor Bloomberg has a controversial idea: Prohibit food stamp recipients from using them to buy sugary sodas.

While, as a rule, I would prefer that the government stay out of people’s choices about what to eat, drink, or smoke, and who to invite into their beds, and while I admire the Coca-Cola Co. and PepsiCo for much of the corporate-responsibility work they do, particularly around the environment, I say: Bravo!

Why? Tax dollars ought not to be used to subsidize people’s purchases of sugared drinks that make them fat and sick, and lead them to then require more government support when they enter the subsidized health-care system.

This isn’t a simple or clear-cut issue. It wouldn’t, I think, be smart or practical to try to exclude other fatty foods from the food stamp program. In fact, if we are going to try to guide people’s choices, I’d rather see incentives given to those who use food stamps to buy fresh fruits and vegetables, ideally locally grown. (See Chef to the rich, advocate for the poor.)

But the government is drawing lines already. Food stamps cannot be use to buy cigarettes, beer, wine or prepared foods from restaurants. The question is, on which side of that line should sodas belong?

In an op-ed today in The Times, Thomas Farley, New York City’s health commissioner, and Richard Daines, New York state’s health commissioner, make the argument well:

Over the past 30 years, consumption of sugary beverages in the United States has more than doubled, in parallel with the rise in obesity, to the point where nearly one-sixth of an average teenager’s calories now come from these drinks. Some 57 percent of adults in New York City and 40 percent of children in New York City public schools are overweight or obese.

…And substantial health care costs arise from this trend: obesity-related illnesses cost New York State residents nearly $8 billion a year in medical costs, or $770 per household. All of us pay the price through higher taxes.

Poor people will still be able buy sodas, of course–just not with taxpayer money.

For companies like Coca-Cola and PepsiCo, which will fight this idea through the American Beverage Association, the message here should be clear: your future does not like in selling sugary sodas that are bad for people’s health, at least not if you want to be seen as companies that do good. Increasingly, these products will be stigmatized, as tobacco has been over the years. To its credit, the beverage industry has begun to recognize this by diversifying its product mix and removing full-calorie sodas from schools.

The mayor’s proposal now goes to the Obama administration’s agriculture department. Should be interesting to see how the feds respond.

A food revolution?

OgAAAOMz3dH0-HafZx1TctR2lFMwnVnyn6UpdLUHNQ_8SAcyDMFhCebvsjC51YuU8w8gRAXu46wPNy5WHetI_9W0XewA15jOjFRxqljFWwNaFDgYenGcIpUAl50UHave you noticed? A food revolution has begun—with the goal of making our food and agriculture systems better for us, better for the environment, maybe even better for workers and democracy.

So, at least, says Marion Nestle, the author, activist, NYU professor and corporate critic, who gave a rousing closing speech at Cooking for Solutions, a mind-stretching, belly-expanding conference and foodfest organized by the Monterey Bay Aquarium.

The revolution will be inspired, in part, from the top—symbolized by the White House organic garden, First Lady Michelle Obama’s anti-obesity campaign and some encouraging legislation, including a requirement in the health-care law that fast food restaurants put calorie labeling on menus.

“I can’t remember every having a First Family that was interested in the issues that I’m interested in,” said Nestle, a veteran of the food wars and author of six books, including a new volume about pet food.

More important, the energy for a food revolution is being generated by diverse, decentralized grass roots (pun intended). Signs include the robust growth of organic food, albeit from a small base; the slow food movement; the rapidly increasing number of farmers markets across America; strong interest in local agriculture; Jamie Oliver’s broadcast TV prime time anti-obesity crusade; other celebrity chefs who tout “green” practices; the battle to reform school lunch programs; the campaign against bottled water; the animal welfare movement; and the obsession with food issues in so much of the media, ranging from Michael Pollan’s bestsellers to indie movies like Food Inc. to the  legions of food bloggers, many of whom came to Monterey.

When you look at it that way, there’s a lot going on. [click to continue...]

Sanjeev Chadha: Why is PepsiCo building dams?

Sanjeev2Today’s guest post comes from Sanjeev  Chadha, the chairman and CEO of PepsiCo India. Sanjeev, who is 50, joined the company in 1989, as part of the team that brought Pepsi products to India and while the brands are doing well, they have been controversial because of their impact on water in a country where water shortages are an issue. Here he writes about how PepsiCo has responded to the expectations of Indian citizens–by both reducing its own water use and helping communities do a better job of gathering and storing water, to the point where PepsiCo now says it has a “positive water balance” in India, a global first for the company.

Images from space illustrate an Earth plentiful with vast blue oceans, seemingly providing our world with an endless supply of this necessary resource. What the pictures don’t show are the millions of people with no access to a clean water supply. Water shortage is a global crisis.

In my home country of India, a lack of fresh water supply has long been an issue among all classes of society. Our consumers range from urban businesspeople to farmers in the countryside. All Indians are acutely aware of the fallout of long-standing issues – from heavy farming and pesticide use to poor sewage treatment and industrial pollution – that impact the nation’s lack of fresh water. As a nation steeped in agriculture, water is of particular concern to farmers, who understand that we need to immediately find better ways to conserve water.

The company I work for, PepsiCo, takes these issues very seriously and is actively making a difference. Not so long ago, environmental activists in India targeted PepsiCo and other beverage companies operating in India  for consuming excessive groundwater in local communities. As you can imagine, our executives were surprised by these accusations, as we work to employ safe water and bottling practices in PepsiCo facilities around the world. In response, we continued to improve efforts to reduce water use in our plants and took additional action to provide local communities with the clean water they need.

In 2003, we took this a step further.  We launched a country-wide effort to achieve a Positive Water Balance in India by 2009. Essentially, this means that for all water used in our manufacturing process, we would give the same amount of water back to local communities, through in-plant processes to reduce our water use, as well as programs and interventions to create greater freshwater access in local areas. You can learn more about Positive Water Balance from the World Business Council for Sustainable Development.

Check Dam Sept 2009We also recognized the need for on-the-ground action in these communities. Replenishing water supplies only partially solves the problem; villagers also need tools to better manage these expanded water resources. It’s an important part of our role to invest in and aid our neighbors. And at PepsiCo’s facilities in India, we saw an opportunity to better manage water resources in these areas by working directly with community members.

After assessing several areas near our beverage manufacturing locations,  we determined that the creation of check-dams would be the best way to manage and rejuvenate the water supply. [click to continue...]