Tag Archives: Schroders

11.19.14
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Tax avoidance is rewarded by the financial markets

This weekend the leaders of the G20 nations met in Brisbane and corporate tax avoidance, or ‘minimisation’ was on the agenda. There has been outrage in recent months as it was revealed that large companies have routed money through complex structures in countries such as Luxembourg in order to minimise the tax. The objective is to maximise profits for shareholders and minimise a company’s contribution to the community benefits derived from tax payments.

Some of the companies are global household names such as Ikea, Pepsi, Deutsche Bank and use these methods. Apple and Amazon have been at centre of similar controversies in the recent past. While many commentators are focused on the impact on the public purse of those countries where revenue is generated, very few are asking why the dominant value of profit maximisation is allowed to continue to reign. It is just assumed that is what companies will do and markets will accept it.

Why is profit maximisation more important than paying reasonable tax to help develop the countries from which corporations derive their revenue? Why does short-term earnings results designed for the investment markets get more senior management attention than long-term investment in the future of societies for hospitals and health care, schools, roads, public transport and the like? This community investment through tax payments also benefits the very same companies which use the infrastructure networks such as roads, rail, airlines and ports, and whose employees and their families go to the schools and use the hospitals.

It is because those in senior management at these companies and those that control the investment decisions at large institutional investment groups, prioritise a very narrow set of short-term profit-driven values over the longer term goals of a rise in living standards for all. We know that they share the same values because investment funds participate in the same tax minimisation schemes. Public investment funds from Canada, Australia, as well as investment giants like Citigroup, Credit Suisse, ABN Amro, AIG, Dexia, Fidelity, Schroders, State Street and UBS were also on the list of tax offenders released by the International Consortium of Investigative Journalists.

These investment houses manage billions of dollars of citizen’s retirement and other savings through a variety of mutual funds. And because they have the power to make the investment decision, they impose a narrow set of profit-driven values on their decision. They do very little to gather the views of the citizen investors or reflect them in the investment decisions.

As those who provide the money for these funds to invest, we have a responsibility to make it clear that we are not only the ultimate shareholders of these funds who want a long-term return from our savings but we are also the people who use the infrastructure, the schools and the hospitals that improve our societies’ standards of living, as opposed to wanting our investments to produce a short-term return to boost the bonus payments of our professional money managers.

08.20.13
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Will savers have a say in Kay’s Investor Forum?

In July last year, John Kay released his Review of the UK Equity Markets and Long-Term Decision Making which examined the impact of recent behaviour in the UK equity market on investment performance and corporate governance.

One of the key recommendations was the creation of an Investor Forum, a place where a collective group of institutional investors could discuss issues affecting the companies in which they invest, collectively act on issues and advocate on behalf of savers (the people like you and me who entrust their money to institutional investors).

This recommendation was silent, however, on how these institutional investors may collect and reflect the views and values of these savers so they can advocate on their behalf effectively. It was also silent on how this advocacy and collective action be communicated back to the savers so they can see what the investors are doing and participate in an ongoing conversation about that activity.

Then in June, nearly a year after the release of the Kay Review, a number of these institutional investors, including Schroders, Legal & General, Baillie Gifford and The Wellcome Trust announced that it was setting up a working group to look at the concept of an Investor Forum. The three big industry bodies*, who represent the asset management and institutional investment groups, all back the initiative.

But will this working group consider collating the views and values of those savers or will it be a closed shop for investment professionals? How will they rank the issues on which they act collectively and on which they advocate? What safeguards will be in place to ensure they do what they promise to do and act upon the long-term interest of savers, not just as savers but as citizens, employees, consumers and community members?

A report is due out in November.

*The Investment Management Association (IMA), the National Association of Pension Funds (NAPF) and the Association of British Insurers (ABI).