In the 1990’s the likes of Robert Maxwell was rightly held in low esteem after he plundered the pension funds of companies which he controlled. This major criminal activity only came to light after his death, in a presumed suicide after falling from his yacht. Ultimately the establishment of a Pension regulator and Pension Protection Fund came from Maxwell’s actions.
In more recent years, Philip Green has been criticised heavily for taking action which was not illegal, by firstly taking very substantial dividends from the BHS group, and then selling the company to a novice purchaser who was neither experienced nor wealthy enough to keep the business afloat. There was an adverse effect on the BHS pensions schemes which took many months of huge pressure to encourage Green to make substantial payments to the pension fund.
In the field of taxation a more aggressive line of challenge by HMRC and the support of the Courts has resulted in a number of commercially marketed tax saving schemes being declared unlawful. The outrage which erupted when comedian Jimmy Carr was found to have sought to shelter income using the so-called K2 Scheme resulted in Mr Carr drastically reversing his actions. To be blunt, his career could have been badly damaged if the public had boycotted him.
This fear of public disapproval has ramifications in the world of corporate business too, as the public becomes more aware of some of the impact of globalisation and international tax planning. International global players, such as Apple, Google, Starbucks and Amazon, have had their tax affairs discussed publicly and have experienced some uncomfortable public grillings from The Business Select Committee. (CHECK) It has been noticeable how the public has been prepared to take direct action, such as boycotting of Starbucks coffee shops in protest at the small amount of profit related tax paid in their country. The US tax regime is pretty high for corporate players and there has historically been a culture of maximising tax saving, provided the behaviours are not illegal. Now there is a further filter to apply – namely is this morally right?
There have been instances where the tax paying entity has volunteered to pay more tax in the UK than would be required under the letter of the law. This seems likely to be an attempt to forestall consumer action. There may even be an attempt to deflect wider government and international moves to capture globalised revenues – suggestions of the introduction of some form of turnover tax surcharge as a price of doing business in a country may be the direction of travel.
Turning to the high profile tax cases involving Rangers Football Club – where the Supreme Court found that the Employee Benefit Trusts (EBTs), which were intended to afford substantial income tax protection to players and coaching staff, were ineffective. This resulted in substantial additional tax being due, which may be of limited import to the insolvent Rangers entity but will have more effect on other currently solvent companies which used similar structures, which were popular at the time.
All of which leads to a corporate law point – the duties of a board of directors – codified in the Companies Act 2006.
The directors have a general duty to promote the company’s success
In exercising that duty the directors also need to take into account various factors – and this is where judgement comes in.
These factors include:
- The likely long terms consequences of a decision
- The interests of employees
- The need to foster business relationships with suppliers, customers and others
- The impact of the company’s operations on the community and the environment
- The desirability of maintaining a reputation for high standards of business conduct and
- The need to act fairly between members
If the directors of some of the companies involved in the various scenarios mentioned above had run through these factors, then one suspects that many of the decisions would have been different. The move towards a more ethical business environment is probably not solely as a direct result of the 2006 Act, but what is clear is that there is greater public awareness of moral issues, and the media (especially social media) are informing corporate decision making even in the private company arena. It’s important to understand that every business interacts with the public somewhere along the line.