With the continued public rantings about tax avoidance and the like, the FTSE4Good independent committee, which complies the list by measuring the performance of companies that meet globally recognised corporate responsibility standards, and in turn facilitates investment in those companies, has been asked to consider excluding companies engaged in overly aggressive tax reduction policies from this ethical index.
…with tax avoidance so commonplace among multinationals some fear that if this was used as a means of ‘culling’ the index and ranking stocks according to the ‘ethics’ of their tax practices, not only would there be no ‘ethical’ index, there would be no stock left in which to invest!
Still, Some Are Trying…
…to come up with an ‘ethical’ ranking based on considerations of tax.
- Jacky Prudhomme and Helena Vines-Fiesta, co-heads of Environmental, Social & Governance research at BNP Paribas Investment Partners, are said to be working on a system for screening out companies with inappropriate tax practices. This Paris-based asset manager had 513 billion euros in assets under management as of March 2012.
- Michael Lewis, tax policy adviser with ActionAid – which has campaigned against multinationals shifting profits beyond the reach of tax authorities in developing countries – believes their work on a guide for investors outlining how they can pressure companies on tax could help funds develop a framework that could determine ‘ethical’ tax criteria.
- Charles Hennan, investment director at British fund management firm Kennox points to a regime that could screen companies based on his view that if a firm is paying a low rate of tax, chances are, it’s unsustainable.
- In a similar vein some investors consider how far increases in net profit are due to operational improvements, which can be maintained, or to tax management. which , in theory, can be reversed by a robust tax audit.
Seems to me….
…that if the FSTE4Good wants to factor matters of ‘tax’ or more precisely the avoidance of it , in its list of criteria to rank socially responsible stock it must not ask whether the practice of tax avoidance by a company itself is ‘unethical’ but rather how much does the company’s practice of tax management affect its bottom line?
If profits are driven principally by creative, but perfectly legal, book-keeping, rather than good operational management and the strength of the company’s brand, product or service then this could be legitimate grounds for an ‘ethical’ judgement.