An intriguing question from my millennial son studying Psychology and Business and just finishing his first module on sustainability. Amazon's decision to continue systemic, aggressive and deliberate tax avoidance in the age of the worst economic crisis brings this great question into sharp focus.
Codified into Rethinking Capital's language and concepts of intangible assets, liabilities and risks, what is Amazon doing in taking this decision?
It could be said that Amazon hasn't actually made a conscious decision to continue to aggressively avoid paying tax. But to our minds, a decision not to make a decision (what we call a non-decision) is also a decision. Indeed, good governance should require a Board to consciously make decisions in tax and other controversial areas periodically. If the decision is to continue and justify the decision on the grounds of paying all tax that it is legally required to pay (blah, blah!), then so be it, notwithstanding that this trotting out an excuse is in itself a yet another decision that further damages reputation--thereby repeating the four-part logic above.
As a thought experiment, let's imagine that good governance legally required Amazon's board to make a decision on its tax strategy and consider each of its decision options, recognising that we're really all in this economic crisis together and being a fortunate beneficiary of the age of Covid-19 comes with social responsibility. Taking the parallel of Novo Nordisk giving away free insulin during the Pandemic, it becomes clear to Amazon's board that some organisations are doing more of the right thing and that other decision options are possible.
So let's imagine that Amazon examines the option to temporarily reduce its transfer pricing rate (the means by which tax is artificially avoided through over-pricing the value of intangibles) from around 6% of net revenues to say 2% or 3%. I don't know how much additional tax Amazon would pay but it would be material and would make a serious statement of Amazon's recognition of its social responsibility.
How would this decision option be codified? What would Amazon be doing?
When decision options are properly codified and represented through an intangibles lens, it becomes apparent how doing the right thing is properly rewarded. We'd even argue that doing the right thing becomes a legally enforceable obligation of decision-makers.
And yes, it may mean that Jeff Bezos may only have just enough to live off for 999 lifetimes. But it's fair to assume that he'll just about get by in this one.
History will one day tell the story (whilst laughing) about how society lost control of the first phase of the networked world to the modern equivalent of feudal landlords. Had we really thought it through, online shopping, search, taxis and social media really should be publicly owned social enterprises and not run for short-term profit at all costs. Each will inevitably be broken up, just like John Pierpont (JP) Morgan's domination of railroads in the first stages of the industrial revolution. The sooner that Jeff Bezos and his equivalents recognise this and adjust their behaviours, the better for society and their investors.
They are, after all, just lucky beneficiaries of a moment in history. And with that comes a legal and moral responsibility to show the way and do the right thing.
I dare Amazon to try this decision on for size. Winston Churchill used to say that he would write a note summarising both sides of an argument and 'try them on, like hats'. I promise that this hat will feel good, though very strange first time around.
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The economy has clearly changed. Intangibles dominate the global economy but accounting practice hasn’t kept up. As a result financial statements don’t show what is actually creating value (intangible assets) or those things that could lose value (intangible liabilities, such as climate risk).
Ultimately the fact that there is a gender pay gap is the result of decisions made, no doubt by men, based on a belief that motherhood isn’t as valuable as earnings for the company. And balancing gender pay (over time) is similarly a decision, able to be made, by men, who are choosing not to make it. Call it a conscious decision not to make a decision. Now that the gender gap has been exposed, how can the decision to balance it be enabled?