With April 18 looming, we certainly expected to be conversing about income tax this time of year. But who could have predicted the words “Panama Papers,” “Mossack Fonseca” and “tax inversions” would be rolling off our tongues during last weekend’s barbeque?
While we live in taxing times, a few people, including world leaders and their relatives and some celebrities, allegedly attempt to avoid paying quite as much tax by engaging law firms in exotic locales to set up shell companies and other tax-avoidance schemes. At least that is the implication of the 11 million documents leaked from Panamanian law firm Mossack Fonseca two weekends ago. From the moment the story started trending last Monday, Mossack denied any wrongdoing, noting it’s never been charged with a crime during its 40-year existence. Allegedly caught in this web are Russia’s leader Vladimir Putin, soccer star Lionel Messi and Iceland’s prime minister, who was forced to step down.
Things mushroomed from there. The next day in Washington, President Obama took aim at tax inversions, where companies change the location of their headquarters to lower their U.S. tax bill. The $160 billion proposed merger of Pfizer and Allergan of Ireland—where Pfizer would have relocated to Ireland—was scuttled. The next day, Pfizer CEO Ian Read penned an op-ed defending his company’s actions and blasting the government.
The heat touched other corporate mergers, some that include tax inversions. Among brands feeling the government heat against proposed mergers are Staples and Office Depot, insurers Aetna and Humana, Anthem and Cigna, and beer behemoth Anheuser-Busch InBevand SABMiller.
Friday morning The Wall Street Journal reported the White House was “racing to make a final flurry of regulations affecting broad swaths of the economy.” In short, it was a tough week for brands. That prompted us to ask how corporations that are planning or are involved in executing moves such as tax inversions can do so while maintaining their reputations? In addition, is it a good idea for CEOs to mount the soapbox and take positions on industry issues?
Step 1. It Is What It Is: The pros agreed on the need for honesty and transparency when a tax inversion is in the offing. “Corporate inversions very much need to be considered a part of the reputational mix,” said Robert Mathias, president/CEO, Ogilvy Washington. At a time when consumers expect good citizenship by brands, “if a tax inversion is seen as a violation of that trust, that citizenship pact, then there can be true reputational harm,” he added. So what to do? “First and foremost, [brands] cannot pretend that the tax benefit is not a motivating factor. It is and all stakeholders know it.” Stephen Hahn-Griffiths, VP, U.S. strategy consulting, The Reputation Institute, agrees. “Brands should speak openly about tax inversions. They are a way to make more money.”
Step 2. Values and Emotion: Brand communicators need to tie the rational, financial choice of doing a tax inversion “with emotional items, which are the goals and aspirations of your company. What that does is make [an inversion] seem more relevant and palatable for all concerned,” adds Hahn-Griffiths. The first discussion should be with employees, he says, “your brand ambassadors,” followed by investors and customers. Brands’ messages should “put the benefits [of an inversion] in context and make a case as to why they are fair and appropriate,” Mathias says. “And then make the case for the ecosystem as a whole—employees, supply chain, communities, not just investors and management.” Adds Deborah Hileman, president/CEO, The Institute for Crisis Management, “The value to investors, for example, probably differs from the value to end-user customers.” All stakeholders need to understand “how they will benefit from the transaction,” she says. Gene Grabowski, partner, kglobal, says communicators should “…be careful to make the broader case that [inversions] will lead to job creation and economic growth that will benefit everyone, not just corporations.” Mathias notes, “Most important, this all has to be both true and credible, otherwise things will go downhill quickly and management risks losing all control of the process.”
Step 3. Soapbox Derby:Is it advisable for brand CEOs to make their case to the general public via an op-ed? “While the tactic of making their case publicly is somewhat risky, the executives believe they have a good case to make,” Grabowski says. If CEOs remain silent, “opponents of [inversions] will dominate the discussion and have undue influence over regulators and lawmakers.” Says Hileman, “op-eds offer an opportunity to tell the brand’s story directly to a specific stakeholder group…a thoughtfully crafted message” can “support reputation and reinforce the company’s position on an issue. Messages perceived as whiny or complaining, however, can achieve the opposite if the perceived stakeholder benefit is weak or unclear.” Hahn-Griffiths notes, though, a “one op-ed fix-all solution is really not advisable.” Direct, tailored messages to stakeholder communities is the better route.
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