HAMISH MCRAE: Getting big firms to play fair will be one of the coming decade’s themes, so invest in those with ethics and profits
Companies have to behave fairly, and be seen to behave fairly, or they are liable to come a cropper.
Take Amazon, for instance. Its founder, Jeff Bezos, is the richest person in the world. But how much US Federal tax did his company pay last year? The answer is zero.
I’m sure there is nothing illegal here; they are too smart for that. But there are costs to giving the impression that you play dirty.
No laughing matter: There there have been costs to Amazon’s Jeff Bezos for giving the impression that you play dirty
We saw this last week when Amazon was forced by political pressure to abandon its plan for a new second headquarters in New York.
The city was offering incentives of up to $2.5 billion (£1.9 billion) to get it to move there – until the sudden backlash.
The trouble, sadly, is that it often takes a much heftier clobbering for companies to start behaving in a more ethically responsible manner.
And by that stage, shareholders are likely to have lost a fortune and face a long wait for their investments to recover.
There are a host of examples. The banking sector has taken a decade to recover from the poor governance that led to the financial crash in 2008. As our report on page 95 shows, this week we are likely to learn that only now have profits returned to pre-crisis levels.
The oil industry has been hit by environmental disasters which it should have prepared for. BP was nearly destroyed by the Deepwater Horizon oil spill in the Gulf of Mexico in 2010, and again it has taken the best part of a decade to recover.
Other oil giants have, over the years, faced catastrophes too: Shell with the Piper Alpha platform explosion in the North Sea, Exxon with the Exxon Valdez oil spill off the Alaska coast. More recently it has been the motor industry that has been caught on the wrong side of social and economic change, and we are seeing now a frantic scramble to switch from diesel to electric.
Environmental lapses have speeded this up. What is astounding is that it never occurred to Volkswagen managers that while it was clever to devise a way of cheating emission controls, it might not look so smart when the trick was found out.
The costs to VW of that decision are now estimated to be upwards of $35 billion.
The good news is that I have begun to detect a mood change among investors.
Many are rightly fed up with such catastrophic reverses and are targeting firms that behave badly in the environmental and social spheres, or have weak governance, before something goes wrong.
Investment groups have even coined an acronym, ESG – which stands for environment, social and governance – to judge corporate behaviour and gauge the risks companies face.
My hope is that pressure from the investment community will nudge them towards better behaviour far, far earlier in the corporate cycle.
Getting companies – particularly the high-tech giants of America – to play fair with the wider community is going to be one of the big themes of this coming decade.
One aspect of that must be paying a reasonable amount of tax.
We all know that Amazon has some clever ways of cutting its bills: for example, I see that when I buy some ink for my printer the Amazon address at the bottom of the email is 38 avenue John F. Kennedy, L-1855 Luxembourg.
And in the short run, it may look clever to use every legal twist that high-paid accountants can dream up to cut a corporate tax bill – and in the case of Amazon, also suck subsidies from communities to get it to move there.
But push too hard and Amazon – and companies like it – will find people ready to kick back.
A footnote on the early ending of the production of the Airbus A380 super-jumbo jet.
The UK Government stumped up something like £450 million in so-called ‘launch aid’ for Airbus back in 2000, to be repaid after each sale. We have got some of that back, but by no means all.
It would be good to know how much this project has cost taxpayers, given all the other things that we could have done with the dosh.
Getting big firms to play fair will be one of the coming decade’s themes