Abstract
The modern corporation, in particular the multinational, is assessed by many as being the site of an unstoppable mechanism of frequently unwanted, often far-ranging, social change. My concern here is to identify the structural conditions that underpin the workings of the corporation that ground these assessments. Specifically, my concern is to identify the fundamental nature of the corporation and specifically the multinational, examine how the structural conditions that underpin its workings emerged, and briefly question whether these conditions, now firmly established, are at all susceptible to constructive transformation
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Notes
- 1.
I myself discuss these sorts of issues in Lawson (2014a).
- 2.
The UK TV public was recently (12/11/2012) treated to the spectacle of executives from Starbucks, Amazon and Google appearing before the UK Parliament’s Public Accounts Committee to explain why, despite their extensive operations in the UK, they appeared to make relatively little profit. The event was described by the BBC News Business as follows:
“Three executives from large multinational corporations were ritually flagellated by Parliament’s Public Accounts Committee as penance for the alleged tax sins of their employers. Starbucks’ head of finance, Troy Alstead, was forced to portray his company as a perennial commercial flop, in order to account for its peculiar failure to record a taxable profit in the UK for 14 out of the last 15 years. He was followed by Amazon’s Andrew Cecil, who was reduced to stuttering when he was accused of being “pathetic” for his inability to disclose something as basic as how much of his firm’s European sales came from the UK last year. Last up was Google’s Matt Brittin. In contrast to his two peers, Mr Brittin did not seek to evade or apologise. Yes, of course Google minimises its tax bill, by operating in Bermuda and Ireland, he said. Google had a duty to its shareholders to minimise its costs. And besides, the UK still benefited from Google’s many free products, not least its search engine, which were engineered by thousands of employees in California” Available on line at: http://www.bbc.co.uk/news/business-20580545 on November 07 2013.
In fact a 4-month investigation by news agency Reuters revealed that Starbucks reportedly paid just £8.6 m in corporation tax in the UK over 14 years – including reporting accounting losses when it was profitable. Google’s UK unit paid just £6 m to the Treasury in 2011 on turnover of £395 m, according to the Telegraph. The UK’s biggest online retailer Amazon generated sales of more than £3.3bn in the country in 2012 but paid no corporation tax on any of the profits, according to the Guardian. Facebook in the UK paid £238,000 in tax last year 2012), according to its accounts, with most of the company’s income believed to be legally going through its European base in Dublin, where corporation tax is lower than the UK Apple paid less than 2 % corporation tax on its profits outside the US, paying $713 m (£445 m) on foreign pre-tax profits of $36.8bn. US auction site eBay paid only £1.2 m in tax in the UK, according to an investigation by the Sunday Times.
- 3.
- 4.
This is an overall assessment widely recorded and usefully summarised by Lee Drutman and Charlie Cray on the cover of their 2004 book People’s Business: Controlling Corporations and Restoring Democracy where they record “the widespread conviction that corporations are increasingly out of control, with potentially dangerous consequences for the communities where they operate, their own employees, and even for their owners, the shareholders”. See also Joel Bakan’s (2004) The Corporation: The Pathological Pursuit of Profit and Power, or David C. Corton’s (1995) When Corporations Rule the World. As a representative of the (literally) millions of bloggers that have formed a similar assessment, Ralph Nader (2002) warns that “Big corporations are out of control, in large part, not only from the law, consumers, workers, communities, but from their own owners” (found in November 2013 at http://www.nader.org/interest/032802.html).
- 5.
Clearly on this conception a given causal mechanism can be associated with different outcomes each time it is triggered. It is thus not event, outcome or explanation oriented, even though explanations of outcomes or events will be associated with (typically numerous) causal mechanisms; rather the concept of a mechanism refers back to the emergent structured entity of which (when triggered) it is a property. As such a mechanism is associated not with regularities at the level of actual outcomes but with effects or tendencies, which will, or can, participate along with numerous other possibly countervailing tendencies in determining actual outcomes. Although (to use a mechanical [non-social] example) the gravitational mechanism may affect the path of the autumn leaf, the latter may still fly over roof tops as a result of the combined effects on its path of numerous often countervailing operative mechanisms.
- 6.
There is a provision in the Investor-state dispute settlement (ISDS), in international trade treaties and international investment agreements that grants ‘investors’ the right to initiate dispute settlement proceedings against a foreign government in their own right under international law.
Examples abound of this provision being wielded by corporations either to prevent change (through a threat of suing) or to gain huge compensation after the event. As I write, the tobacco company Philip Morris is using a trade agreement Australia struck with Hong Kong, to seek a vast sum in compensation for the loss of what it calls its intellectual property. This follows in the wake of the decision by the Australian government, validated by the Australian Supreme Court, to legislate that cigarettes should be sold only in plain packets, marked with health warnings designed to shock.
When Argentina recently imposed a freeze on soaring household energy and water bills the relevant international utility companies used, whose vast bills had prompted the government to act sued and forced the government to pay out over a billion dollars in compensation. Currently a Canadian company is suing El Salvador for $315 m. This is for the loss of its anticipated future profits, after local communities managed to persuade the government to refuse permission for a vast gold mine which threatened to contaminate their water supplies. Meanwhile, Canadian courts revoked two patents owned by the American drugs firm Eli Lilly. This was because the company had not sufficient evidence that they worked. In consequence, Eli Lilly is now suing the Canadian government for $500 m, and demanding that Canada’s patent laws are changed.
In fact, as I write (early November, 2013) the Tory led UK coalition government is supporting a move to establish a Transatlantic Trade and Investment Partnership deal with the US that is intended to remove the regulatory differences between the US and European nations. If passed, corporations will similarly be able to obstruct numerous attempts by any UK government to intervene in the economy or polity on behalf of UK households (for example by freezing energy prices).
- 7.
Thus Starbucks, like many other companies concerned with the supply of coffee, sources its UK coffee from a wholesale trading subsidiary that is located in Switzerland, a country that charges a relatively paltry 12 % tax rate on the trading profits.
Google, meanwhile, takes advantage of the conditions offered in Ireland, locating its two data centres there, employing 3,000 people to co-ordinate marketing and sales of advertising space across Europe. In fact, Ireland, in recent times, has gone out of its way to lower tax rates in order to attract this kind of business.
- 8.
Working out the proportion of the surplus of a company like Amazon that is actually generated in the UK (and therefore should be subject to UK tax) is not a simple matter.
- 9.
Currently, for example, when a customer buys a book ‘on’ Amazon.co.uk, the customer actually enters into a legal contract with, and pays the fee to, Amazon Luxembourg, where the VAT rate is just 3 %.
- 10.
An example that affects the UK currently is known as the Eurobonds scheme. Various corporations (for example the food chains Café Rouge, Nando’s, Pizza Express, Prėt A Manger and Strada, and high street retailers such as BHS, Maplin, Office and Pets At Home – see Corporate Watch, the Independent) reduce their taxable profits by borrowing from their ‘owners’ via the Channel Islands Stock Exchange. These ‘owners’ (mostly private equity funds) could put their money into acquiring additional shares in companies they are said to own. But instead of doing so, they lend the money to companies. The interest on the loans cuts the UK companies’ taxable income each year and the exemption – triggered because the loans are listed on the Channel Islands Stock Exchange – means the interest goes to the owners tax free.
Thus according to the Independent newspaper (14/11/2013):
“The Gondola Group – which owns Pizza Express, Zizzi and Ask – has avoided as much as £77 m in UK corporation tax since it was bought by the Cinven private equity fund in 2006. Cinven loaned Gondola more than £300 m at a 12.5 per cent interest rate but only invested £8 m in equity. Instead of receiving the interest payments on the loans every year, Cinven has allowed it to accrue on the debt, compounding the amount taken off Gondola’s profits every year. When Cinven sells the restaurants, which it is reportedly considering, it can receive the £276.8 m it is owed tax free.
Gondola’s UK corporation tax bill last year was only £200,000, after an operating profit of £39 m. In 2011, it recorded a tax credit of £5.8 m. Cinven also owns Spire Hospitals and Partnerships in Care – healthcare companies that The Independent revealed earlier this week were using the same arrangement. Pizza Express and Zizzi have previously been criticised for their poor pay. Pizza Express sacked a waiter who revealed the company kept 8 % of tips as an “admin fee” in 2009 while in the same year Zizzi staff were paid £4.25 per hour before tips were added. Gondola did not give more up-to-date information on its pay.
Tragus Group, which owns the Café Rouge, Strada and Bella Italia chains, may have avoided more than £13 m in tax after accruing £47.7 m in interest on 17 % Eurobonds it owes to the Blackstone private equity fund, which owns the group through a Cayman Islands subsidiary.
The electronics retailer Maplin accrued interest of £68.9 m in 2012 on borrowings from its owners, Montagu private equity. However, a spokesman argued that the majority of the interest cannot be taken off its tax bill following negotiations with HMRC. Interest of £361 m has accrued over the previous 5 years, on top of the £137.5 m it originally borrowed from Montagu at 16.5 %. It is unclear how much tax had been avoided because Maplin would not disclose the figures involved – or how long the interest had been disallowable for, but the potential savings could still be in the tens of millions.
Sir Philip Green’s wife, Lady Green, brought BHS into the family’s Arcadia group, which also owns Top Shop, by investing through the Channel Islands Stock Exchange in 2009. The group deducted interest of £13.5 m from its taxable profits in 2012, avoiding £3 m. in tax.
Prėt A Manger owed £237.9 m to its owner, the Bridgepoint private equity fund, at the end of 2012. The loans were listed with at a 12 % interest rate but a spokeswoman told The Independent that they were only allowed to deduct 45 % of the interest from their income with HMRC’s approval. They have since repaid £150 m of the loans.
Tim Hames, director general of the British Private Equity and Venture Capital Association, said: “The retail sector is one which has suffered deeply since the financial crisis. But there are at last signs of a genuine recovery, much of it brought about by putting investment to work and creating value.”
A spokesman for BHS and Arcadia said the figures were accurate but gave no further comment. Tragus and Silverfleet Capital, which own Office, said they complied fully with all relevant legislation. Pets At Home said the company was acting within the law and had expanded its business.
Nando’s said that the loans were the most efficient way to accelerate its growth in Britain. “Nando’s Group Holdings Ltd” incurred corporation tax of £10.4 m on an operating profit of £41.9 m in the year ending February 2012. Nando’s growth has been funded by a combination of equity and debt,” a spokesman said.
Gondola said it “works closely with HMRC to ensure that we pay the right taxes. Our structure is in line with a significant proportion of UK companies, in the high street and beyond. We are also a substantial contributor to the UK, having paid £200 m in taxes in the last 3 years, created 3,200 British jobs and invested £300 m in the last 6 years”.
A spokeswoman for Prėt did not dispute the figures but said it was “misleading” to call it tax avoidance. She said: “Prėt pays a fair amount of tax given the business’s profit levels and its continued investment in growth, building more shops and creating more jobs. Our 2012 operating profits before interest were £22.5 m and we paid £7.5 m in tax.”. See http://www.independent.co.uk/news/uk/politics/eurobonds-scandal-the-high-street-giants-avoiding-millions-in-tax-8897591.html
- 11.
Thus elementary particles such as quarks arise as excitations of quantum field activity, and subsequently combine to form composite particles or hadrons, including protons and neutrons, collectively referred to as nucleons, where these combine with electrons to form atoms, which chemically combine to form molecules, where the latter bond, perhaps through collisions, to form proteins, water, planets and all life forms including ultimately human beings, who, to return to my current focus, interact to bring into being the relationally organised entities of the social world.
- 12.
A third type that I will not be considering is language.
- 13.
I suspect that it is not too contentious to observe that at the heart of capitalism are processes of capital accumulation, the drive to use money (capital) to create more money. But what is the nature of modern money? It is precisely a social relation, a relation of social power. It is in effect a (positional) credit/right and debt/obligation relation that holds formally between (those positioned as the) holders of (positioned) markers of money (e.g., notes and coins) and the body that is (positioned as) the legitimate issuer those markers. However, in the modern community an additional (positional) legal right of any holder of such credit is to be able exchange it for any and all commodities (including labour power) that are available for exchange at conventionally agreed and/or relative-power determined rates (of exchange). So capital accumulation is straightforwardly a process of power seeking (always over others), which has nothing necessarily to do with generalised flourishing.
- 14.
The device or procedure in question, an example of a legal fiction, was invented by John Pitt when he sought to vacate his seat of Wareham in order to stand for Dorchester. In May 1750 Pitt wrote to the then Prime Minister Henry Pelham notifying him that he had been invited to stand for Dorchester, and asking for “a new mark of his Majesty’s favour” in order to change his seat. Pelham wrote to William Pitt (the elder) indicating that he would intervene with King George II in support, and on 17 January 1751 Pitt was appointed to the position of Steward of the Chiltern Hundreds, and was subsequently elected unopposed as member for Dorchester.
- 15.
Communities other than firms can be repositioned, and specifically social communities other than companies can be regarded as juridical and so legal persons. Indeed, the notion of a legal person (which is now central to ‘Western law’ in both common-law and civil-law countries and can found in virtually every legal system) can apply to cooperatives; customer owned mutuals; charities, municipal corporations or municipalities; European economic interest groupings; sovereign states; various intergovernmental organizations (the United Nations, the Council of Europe) and other international organisations.
- 16.
Other forms of company are a private company limited by guarantee, wherein directors or shareholders financially back the organisation up to a specific amount if things go wrong; a private unlimited company where directors or shareholders are liable for all debts if things do go wrong, and a public limited company where shares are traded publicly on a market, like the London Stock Exchange.
- 17.
Of course, there are exceptions or better limits to limited personal reliability for those who own shares in a company. The latter shareholders may be held personally liable if, for example, they personally and directly injure someone; or personally guarantee bank loans or business debt on which the company defaults; or fail to deposit taxes withheld from employees’ wages; or intentionally do something fraudulent, illegal, or reckless that causes harm to the company or to someone else; or treat the company as an extension of their personal affairs, rather than as a separate legal entity. In the latter case a court might decide that in this case the company as such does not really exist and find that its owners are in effect doing business as individuals who are personally liable for their acts.
- 18.
The device of incorporation likely arrived in the UK as a result of the Norman Conquest.
- 19.
For a discussion see Stephen Griffin 2006, pp. 23–5.
- 20.
See “Conference Board Report”, The Conference Board, 2010 Institutional Investment Report: Trends in Asset Allocation and Portfolio Composition, November, p. 22.
- 21.
For an interesting recent contribution of this sort, that advances a similar sort of conception of the firm to that advanced above, arguing that the company should be viewed as a commons, see Simon Deakin 2012.
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Acknowledgments
I am very grateful to the Independent Social Research Foundation for funding the research on which this paper draws. I am also grateful to participants of the Morphogenic Workshop for helpful comments when I first presented a draft of this paper at its meeting in Oxford in January 2014, and to Margaret Archer for further comments on a revised draft.
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Lawson, T. (2015). The Modern Corporation: The Site of a Mechanism (of Global Social Change) that Is Out-of-Control?. In: Archer, M. (eds) Generative Mechanisms Transforming the Social Order. Social Morphogenesis. Springer, Cham. https://doi.org/10.1007/978-3-319-13773-5_10
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