Starbucks' tax furore is PR failure

I don't know what they make of it in Seattle, but the UK headquarters of Starbucks must have wondered what hit it earlier this month when it was taken apart on television and in the tabloids for paying virtually no UK corporation tax.

Anthony Hilton: 'Starbucks is guilty of failing to detect how opinion has hardened markedly against practices such as tax avoidance.'
Anthony Hilton: 'Starbucks is guilty of failing to detect how opinion has hardened markedly against practices such as tax avoidance.'

Nor is it just that company. A tax partner in a big accounting firm summed up the dilemma neatly last week: 'I think I have done a good job for my client saving them £10m on their tax bill. Then I find it costs them £100m in reputational damage when it is spread across the news.'

However, it is easy to see why the public is outraged with Starbucks and why as a consequence all sorts of pressure groups and organisations are gunning for it. Corporation tax is paid on profits and it defies popular belief that an organisation operating hundreds of shops in the UK could be unprofitable yet still be so keen to expand. Therefore it must be earning profits and then doing something to make sure they are transferred to a more favourable tax regime overseas - via, for example, payment for the licence to use the Starbucks name. Foreign-owned businesses almost all do this to some degree, but Starbucks has long sought to position itself as socially responsible and a good corporate citizen and that does not fit easily with tax avoidance, however legal.

The company is also guilty of failing to detect how opinion has hardened markedly against such practices. It ought really to have noticed how attacks on individuals have become commonplace.

It should also have seen how the resentment was intruding into the corporate space. Every time a City company threatens to leave because of tax it fuels public outrage - along the lines of 'we bailed then out but they still think they can walk away and leave us in the lurch'.

But this is now a challenge for all companies. The shareholder value philosophy drives companies to maximise returns to shareholders regardless of the effect on other stakeholders. So companies are torn, with shareholders driving them in a direction that most other stakeholders in society find offensive.

Squaring that circle will present even the most accomplished PR professional with a major challenge.

Anthony Hilton is City commentator on London's Evening Standard.

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