Tag Archives: State Street

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.

09.18.13
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Fat profits from empty calories

Is a rapid rise in obesity levels in poor countries an acceptable side effect of multi-national companies and their investors pushing hard into these markets to create new profits?

In June this year, the World Health Organisation (WHO) said the increasing number of people in low and middle income countries being overweight and obese was creating major long-term public health problems. WHO identified that more than 75% of the world’s overweight children lived in those countries that also suffered issues associated with under-nutrition.

One of the key problems was the rising availability of cheap, highly calorific, or energy dense, foods and drinks that had little nutritional value. Driving this increase of consumption was intensive marketing, by multinational food and drink companies, particularly to children, according to another WHO study. Marketing about unprocessed foods in these countries did not exist.

There is so much money to be made in these low and middle income countries from selling soft drinks and the junk food that companies are targeting these markets as their future. Indeed, Coca Cola was very excited about the profit-making potential of the poor. In a presentation to a Barclays Capital conference in September this year, Coca Cola’s  senior executive Ahmet Bozer talked about ‘seizing the moment’ in sub-Saharan Africa with their ‘sparkling drinks’ (read the calorific Coke and the like) leading their charge into the market.

Bozer identified that there was a target consumer base of 6.1 billion people in Coca Cola’s International business and 37% of these were under 21. A core strategy was to drive sales growth through the flagship ‘sparkling’ market. Coca Cola was in the market for young drinkers to become loyal buyers of their product throughout their life, not as an occasional treat drink but as an everyday choice.

Some of the biggest American institutional investors in the world have major stake in Coca Cola. As at 30 June 2013, Berkshire Hathaway held 9% of the company, followed by Vanguard at 4.8%, State Street at 3.8%, Fidelity at 3.4% and BlackRock at 2.6%. Vanguard, State Street and BlackRock also have large stakes in PepsiCo.

Imagine if these institutional giants, who manage the money of the citizens of the US and others, actually told Coca Cola to revise their strategy.

What would happen if these investors told Coca Cola they would not sell their stock if Coca Cola took responsibility for the impact of their products on the health of their consumers (many of them without the benefit of the same level of health education as those of us in high income countries)? What would happen if Coca Cola focused on pushing their bottled water and healthier choice drinks into these markets instead? What impact would that have on this impending major health issue?

It doesn’t mean Coca Cola can’t make money, but rather make money out of products that don’t leave a trail of long-term health issues for its customers, the very people that will keep the company in business.

It doesn’t mean that investors can’t make returns on their investment in Coca Cola, but if nothing changes, what it does mean is that we, as the people that ultimately provide the money for institutional investors, value wealth over our health and the health of others less fortunate than us.

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