Because of this country’s non-competitive corporate tax laws, U.S. companies are pursuing so-called tax inversions, where they merge with foreign counterparts and headquarters abroad. Just last month, auto parts supplier Johnson Controls and rare drug manufacturer Baxalta merged with European companies in Ireland to take advantage of its 12.5 percent corporate tax rate. This follows similar recent moves by major American companies, including Pfizer and Medtronic.
Rather than explaining their relocation decisions forthrightly, inverting companies have mostly evaded and hid from the tax issue. They should confidently explain that inversions allow them to escape the country’s 39 percent corporate tax rate and double taxation of foreign profits, in turn providing resources to improve products, expand operations, give employees raises and return money to shareholders. But because they haven’t defined their actions, their opponents have used their actions to define them.
The response to these inverting companies among the left-wing media, policymakers and activists has been swift. The New York Times has called them “brazen tax dodgers” and “corporate runaways,” and high-profile policymakers have called them a “virus,” “corporate deserters” and “unpatriotic.” Activists are planning boycotts and calling for new taxes and regulations.
We’ve seen this movie before. Businesses that hunker down and hope the bad public-relations storm will pass are the ones whose roofs are ripped off. Why don’t we see more aggressive positioning? Mostly because company staffing is built around the development and delivery of a product or service. A dedicated staff to anticipate and quickly defuse attacks on the brand or the mission is rare.
By the time stakeholders demand a response, the task falls to some combination of marketing, communications and government affairs teams. It is a delegation that arises from the conceit of having a “crisis communications” plan that effectively says, “Break glass in case of fire” — rather than a “crisis prevention” plan that identifies the arsonists or anticipates their action before they start the conflagration. The management of a horse that has already left the barn is generally a disappointing effort. The result is caving to a manufactured base of hostile public opinion.
When companies try the compromise route they discover they’re dealing with economic terrorists. Activists don’t want to improve the business model. They want to eliminate it. The war on soda for supposedly driving obesity is a good example. Taxes and cup size regulations will only keep activists at bay for so long. The goal is to continually move the goal posts until we treat soft drinks like tobacco.
Brand attacks are found in almost every business sector, from energy production to food manufacturing. Environment, health, tax and labor issues are favorite sandboxes where the activists play. Public companies with big brand investments are generally ineffective soldiers in these wars (though there are excellent outliers).
My own observation of why some companies are better than others in managing these “competitors” to their business is simply described. It comes down to the DNA of the CEO. Those with either intuitive vision or battle scars from previous confrontations have the confidence to act early to change the debate.
But few CEOs are comfortable with this strategy, even when the facts support their position. And intra-industry competition makes things even more difficult. I’ve seen evidence of corporate schadenfreude expressed through industry trade groups. One company may restrain their industry organization from being too aggressive in rescuing a competitor.
As the activist community gains victories with new restrictions on businesses, they do high-fives and dance on the graves of products, services and practices they have decreed offensive. This loose mob of unelected and unappointed actors has more time than moral authority to wage commercial war. They are unashamed of the methods and messages they use to manipulate public opinion.
Even more challenging, these campaigns are continually evolving to avoid effective responses much like bacteria that learn to resist antibiotics. And each unfortunate win generates more activist enthusiasm and ammunition for the next attack.
• Richard Berman is president of Berman and Co., a Washington public affairs firm.