Thursday, October 08, 2009

Corporate social irresponsibility

Can the incessant imperative to generate profits in a world of gloves-off competition ever be made compatible with ethical norms? Our friend Prem Sikka addresses this issue in his latest article for The Guardian's Comment is Free section. We recommend you read the entire article, but here is what he says about how the drive to maximise profits extends to tax avoidance and similar financial dodges:

Within companies, daily routines encourage employees to prioritise profit-making even if that is unethical. For example, tax departments within major accountancy firms operate as profit centres. The performance of their employees is assessed at regular intervals, and those generating profits are rewarded with salary increases and career advancements. In time, the routines of devising tax avoidance schemes and other financial dodges become firmly established norms, and employees are desensitised to the consequences.

With increasing public scepticism, and pressure from consumer groups and non-governmental organisations (NGOs), companies manage their image by publishing high-sounding statements. Ethics itself has become big business, and armies of consultants and advisers are available for hire to enable companies to manage their image. No questions are raised about the internal culture or the economic incentives for misbehaviour. It is far cheaper for companies to publish glossy brochures than to pay taxes or improve customer and public welfare. The payment of fines has become just another business cost.

We have said it before, and we say it again: paying the right amount of tax, at the correct time and to the appropriate tax authority in the country where profits are generated, is the litmus test of corporate responsibility. Well done to Prem for another thought provoking article.


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