One of the best things about MOOCs are their flexibility. If life gets in the way one week, you pick up and continue on in the next. Discovering Business in Society has been a thoroughly enjoyable course – but I feel like it deserves my best focus and attention and sometimes…a week slips by….
This week we are going to look at a few points from week 6 and 7. There were a couple of points that I wanted to explore further : Just because it is legal, is it Ethical?, Tax Avoidance, Auditors: Who do they really work for? Get settled and lets set off on this exploration together….
Just Because it is Legal, is it Ethical?
It is legal to pay minimum wage but is it ethical? It is legal to not offer health/dental/RRSP (aka 401(k)s) benefits, but is it ethical? It is legal to outsource jobs, but is it ethical?
Businesses operate within a set of rules, regulations and laws – but what happens when the rules aren’t legal rules, but societal mores? By whose moral code should a business operate – especially if they are a multinational corporation? Should Western standards prevail over non-Western standards?
On this, I have no firm answers. In my youth, I would have said Western values mattered the most (let’s refer to those days as B.U. – before University). Now, I think there has to be a better balance.
A.U. I had the opportunity to work in an International Sales department of a local building supply chain. I dealt with business people and home owners from all over the world – including Sudan, England, Bermuda, Iceland, Germany and Japan. Each country had their own sets of values, rules and customs – some similar and some not so similar. We had a business agent in Japan who came to visit us one time and he brought me this lovely figurine of a traditional Japanese house as a gift. Luckily, I had read up on the customs ahead of time and knew from discussions with management about how to accept the gift and how it fit in within our own rules (we were not typically allowed to accept gifts). Did the gift cause me to offer better deals on materials? No, it didn’t. Did it make me prioritize this person when I had two jobs to do and only time to complete one of them? Probably. Was it a gift or a bribe? Culturally, it was a gift…but it changed my POV so could it have been a bribe? I don’t really know. (Yes, I still have that figurine, currently it is packed away or I would share an image of it).
Tax Avoidance: A Business Problem or Responsibility?
To start off with a reminder:
“Tax avoidance is not tax evasion. When a company is accused of tax avoidance, what has happened is that the company has chosen to enter into an arrangement or structure, which means there’s less taxes payable than would have been payable if a different arrangement or structure had been selected. It’s important to realise that if a company does make such a choice, then any tax liabilities that crystallised are satisfied. The company satisfies its tax liabilities. The company is not evading its tax liabilities. ” (Discovering Business In Society, Video 6.2)
Is it a problem when businesses avoid tax through the legal loopholes created by government? Are companies avoiding the spirit of the law by taking advantage of these opportunities? Who is responsible to minimize tax avoidance?
As a business operates within a set of rules, regulations and laws (referring back to Week 2), then the opportunities created within any of the rules, regulations and laws are the responsibility of those who create and enforce the rules, not those playing within them. The players are responsible to know the rules of the game and apply as they see fit.
If you’ve ever played a board game like Monopoly, you know that everyone has a slightly different interpretation of the rules, especially surrounding things like free parking, Houses and Hotels, Paying Rent if the owner fails to notice that you landed on their square, etc – they are not necessarily wrong in their view but it might not be in the spirit of the rules…
I think there is an argument to be made that businesses are responsible to their stakeholders to avoid tax as much as possible to become as profitable as possible. Employees want hours and raises, infrastructure requires maintenance and updating, shareholders want the biggest return on their investments and consumers want the best prices possible.
Auditors: Who do They Really Work for?
Auditors. The big 4. The final gatekeeper between the board of directors/management and the shareholders. Who do they really work for?
In theory, they are independent. But they are supposed to act on behalf of the shareholders, ensuring what is in the document to be fundamentally correct. That everything appears to be true (not that it is true, just that it has the appearances of being true).
But they are paid by the board.
How can an auditor being paid by the board be completely unbiased towards those who pay him/her? Would it not make more sense for the payment to be shared 50/50 by the board and shareholders? Or paid completely by the shareholders? Back in Week 3, we discussed how far we should trust businesses and things like annual reports – and how auditors just review and express opinions about the report being prepared in conformity with the standards. We also talked about accounting scandals… I’m not convinced that external auditors hired by the board are any better than internal accountants – I think shareholders should be hiring an external auditor to review every line of every book and ensure the reports are accurate (I’m sure there is an ACCA Chartered Accountant out there who could take that project on).
So this week we’ve come up on a few ethical dilemmas. Should a business behave according to societies morals when making business decisions – and if so, which ones? If a business has the single responsibility of being profitable, should they take every opportunity to avoid paying more taxes? Is this ethical? Or is it unethical to not do everything possible to ensure the highest ROI for each shareholder? Are annual reports worth the paper they are written on? Can auditors who are paid by the board do anything but rubber stamp the report ethically? Is it smart to go against the hand that feeds you?
More questions that answers this week. I hope you’ve had a chance to see something from a different perspective – or can share a different perspective below. Next week is week 8 – time for strategies and storytelling. It’s also time to decide if you want to write the exam and get the certificate for this course…