The law and the window* May 27, 2013 at 1:10 pm
Laws are only imperfectly aligned with public morality. We (nearly) all agree, for instance, that theft is wrong, but a substantial number of people don’t see speeding as immoral. Moreover, even when something is legal, it isn’t necessarily moral. Indeed, as Louise Weinberg points out, there is in US law “a rather large legacy of judicial opinions struggling with immoral law—the old cases on slavery”.
Eventually, if the gap is big enough, the law is changed. Slavery was abolished, after all. This process is neither certain nor swift, but it is a foolish corporation who gets on the wrong side of it. Behaving legally does not necessarily protect against reputational damage, as Barclays has found out†. What you don’t want to do, then, is wait until the day before the law changes to get your house in order.
It’s therefore odd to hear that Google’s Eric Schmidt
has continued to defend his company’s tax position, saying if Britain wanted to collect more tax, it should change the law. In a phrase less snappy than the more celebrated “don’t be evil”, Schmidt said Google had “a fiduciary responsibility to our shareholders”
Yes, he does have a responsibility; but that extends to not destroying the company’s reputation too. Now obvious there is a calculation here – will outrage about tax structuring go away? My guess is that it won’t, and that companies that behave legally but in a way that comes to be generally seen to be unethical, will suffer. We can’t yet predict if current events represent a paradigm change in public morality, of course; nor can we say how Google or Apple or any of the others will be seen in future. But Schmidt and his peers have a duty to at least ask themselves the question. As Jonathan Weil says (apropos Apple), tax structuring may soon be seen as indicative of a more general lack of trustworthiness. That is something that no manager should accept lightly for investor trust, once lost, is not easily regained. You quickly become the unpleasant and unacceptable face of capitalism. Companies like Google and Apple, which desperately need to be seen as hip, should think very hard before they risk carrying that label.
*That’s the Overton window.