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Wednesday,
April 15, 2020 / 11:45 AM / by CFI.co / Header Image Credit: The Daily Beast
When the going gets
though, the weak are moved aside. A depressingly large number of the 181 US
corporations that last year signed a solemn pledge to fight inequality and work
for the benefit society have failed to honour their word. Take retail giant
Macy's: whilst furloughing most of its workers, the company earlier this month
paid out $116 million in dividends. Yet, the iconic department store mobilised
its lobbyists in Washington to plead with Congress for the relaxation of the
conditions attached to the $454 billion federal emergency lending programme.
Macy's and other large companies cannot access the monies because of their poor
credit ratings. The retailer sank into junk territory even before the pandemic
hit.
In
March, the world's largest hotel operator Marriott International, notified the
Securities and Exchange Commission that it intended to shovel another $160
million to its shareholders on the last day of the month. The company also said
that its chief executive Arne Sorenson would forgo his $1.3 million annual
salary as an expression of solidarity with the thousands of workers sent home
on unpaid leave.
However,
the company failed to mention that Mr Sorenson negotiated a 7.7 percent salary
increase for next year plus a cash bonus of up to 200 percent. In February, he
also pocketed more than $3.5 million under the company's non-equity incentive
plan. In a video message to his former 'associates', Mr Sorenson wished them
the best of luck and good health. Since 2011, Marriott International spent an
estimated $16 billion in stock buybacks to drive up its share price. Still, the
US hotel industry has asked for $150 billion in federal support monies to ride
out the corona storm.
Marriott
International is by no means an exception as large companies struggling to
survive the pandemic shred the polished Business Roundtable document that was
supposed to herald the coming of a new age in corporate social responsibility.
Signed only last year, the pledge has now been exposed as an artful piece of
empty rhetoric. Only a handful of key signatories kept their commitments.
Though perhaps not immune to criticism, Apple, Amazon, Pepsi, and a number of
major US banks, moved quickly and decisively to protect their workers and roll
out additional benefits to lessen the impact of the pandemic.
In
the UK, a likewise deplorable cynicism also set the mood in some of the
country's most iconic businesses that have been quick off the mark to cash in
on government largesse. Experienced billionaire tax dodger Philip Green, who
took up residence in Monaco to keep the taxman at bay, has brazenly asked the
government for help in keeping his Arcadia retail empire afloat. Mr Green has
taken out large loans via his company to reward himself with equally large
dividend pay-outs. His predatory business practices are by no means the
exception in a country that still celebrates wealthy entrepreneurs who need
state-supplied crutches to remain standing.
Much
admired for his entrepreneurial savvy and flamboyant ways, the real talent of
Sir Richard Branson seems to lie in milking the British taxpayer. Under the guise
of saving jobs and preserving companies too-big-to-fail, Mr Branson regularly
takes his begging bowl to Whitehall where he collects untold millions to keep
his enterprises afloat. He is also an undisputed master in tax engineering,
structuring his corporate empire in Byzantine ways to minimise its fiscal
exposure. Though addicted to tax handouts, Mr Branson dislikes handing over
money to the taxman.
In
1971, the budding businessman briefly landed in prison for doctoring the
accounts of his record company. It proved time well spent for behind bars Mr
Branson became aware of the supreme importance of navigating the boundaries of
the permissible with tax avoidance schemes such as the use of multiple trust
funds set up in exotic locales. Earlier this year it was discovered that Virgin
Care, one of his many business ventures, handles well over £2 billion in monies
for the National Health Service (NHS) but somehow manages to avoid paying a
single penny in taxes. The company, registered in the British Virgin Islands,
claimed not to have made a profit since it was founded in 2010. This is true.
Accounts are set up in such a way as to not show a profit in the UK.
In
2013, Mr Branson became a tax exile and moved to the British Virgin Islands in
order to deny Her Majesty's Revenue and Customs well over £1 billion in taxes.
He insisted that his move was merely inspired by the natural beauty of the
Caribbean archipelago. Whilst he enjoys life on a private island, Mr Branson
companies are seeking large government bailouts amounting to well over the
billion pounds that he squirreled away surreptitiously. Small wonder that the
high-flying, fast-moving Virgin-tycoon enjoys draping himself in the union jack
as he scores yet another strike for British industry: as an ardent advocate of 'socialism for the rich', Mr Branson has fared exceptionally well cosying up to
the state.
Though
it is inevitable that some companies find it hard to embrace the spirit of the
moment and let go of their old ways, the post-corona world may not look too
kindly on their lack of commitment. The state, and the body politic it
represents, are set for a major comeback. Most pundits agree that laissez
faire, the unbridled supremacy of unfettered market forces, will take a severe
hit once economies start to emerge from the lockdown. It will no longer be
enough to make pledges for a gentler form of capitalism. Corporate social
responsibility (CSR) is likely to take on more concrete forms.
The
present pandemic-induced economic crisis is different from previous recessions
that usually had been caused by major failings in one particular sector
spreading to infect the entire market. No single economic actor bears blame for
the pandemic which, in a sense, proves a great equaliser. With nearly the
entire business community in the same proverbial boat, a vessel taking on water
at an alarming rate, systemic-wide solutions offer the only hope for salvation.
CSR
is set to take on additional meaning. For the second time in just over a
decade, taxpayers assume the responsibilities of shareholders as losses are
again being socialised. Expect shareholders to clamour for the privatisation of
profits – their presumed inalienable right – once the business activity picks
up. However, just as the scope of this crisis is unprecedented, the untold
trillions of euros and dollars being disbursed by states and their central
banks are not merely buying relief: they are buying a stake as well.
In
their struggle for survival, few large companies realise this. Most chief execs
seem to think this is just another bailout put in place to ensure the
continuation of habitual business practices after the recession has ended.
Boeing
CEO Dave Calhoun knows better and is reluctant to make use of the billions in
federal aid money earmarked for his company. Mr Calhoun was one of the first to
warn that acceptance of the bailout funds implies a loss of corporate
independence. Though his troubled company can use the help, Mr Calhoun has
vowed to look for loans elsewhere. Chief execs unable to ignore the helping
hand of government must come to accept that the centre of gravity of their
fiduciary responsibility is about to shift from shareholders to government.
However, that need not be a cause for concern.
As
the contours of the post-corona world order slowly emerge, it becomes clear
that the vast sums of cash injected into distressed economies cannot be repaid
anytime soon - or at least not in the traditional way.
Inflation
may ultimately help rid balance sheets of burdensome liabilities. Central banks
could also decide to monetise the problem. Some economists are already now
suggesting that it might be worth dispelling the fictional notion that the
trillions in credit issued will ever find their way back to the central banks.
Instead, that credit could conceivably be funnelled via easy instalments to
governments which may want to use the windfall to slowly rebalance their
accounts in preparation for the next crisis. The bailout trillions are here to
stay. The more important question involves determining the ultimate
beneficiaries of the cash.
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