Sunday, July 11, 2010

Another Outing for the Soapbox

Morose Funfair Art

Today I climb wearily on my soapbox and try to change the world.

Yes, I have been trying to get an idea heard that I believe is the way forward in building a better world for future generations. Laid out below is an entry I have posted on another of the UK Governments ‘crowd sourcing websites.

I would like to propose the radical idea that government considers making corporate taxation voluntary based on providing companies the voluntary option of achieving certification for good standards of ethical behaviour.

This provides a way for government to remove a raft of regulation and legislation while at the same time allowing businesses that treat their stakeholders well have the opportunity to leverage their ethical behaviour so that it translates to the balance sheet.

By stakeholders in a business, I mean shareholders, customers, suppliers, employees, the environment and the community.

Sharp business practice is contagious. When a company discovers a way to cut costs at the expense of a stakeholder, they are able to compete that much more effectively against companies that try to uphold a higher standard of ethics. Of course, when there is a sufficient public outcry over a particular practice, governments and regulators have moved to legislate against it. Sadly they too often find that there is little they can do to stop it or it is too late to save some businesses. It also leads to greater regulation and legislation, larger government, increased overheads in audit and an increase in governance costs for all businesses.

At the moment, the only measure of a company's success is the balance sheet. This determines the share price and thus the way the markets perceive a company. The only way a Government can truly influence this is through taxation and the best way governments can ensure ethics are maintained in business is by making corporate taxation voluntary.

Governments should empower organisations such as Trade Unions, Environmental Groups, Supplier Organisations, Local Councils, and Consumer Groups to set up ethical behaviour standards that represent what they consider the ethical way to conduct business. Government itself should also maintain a certification scheme that allows it to act against excessive bonuses and reward companies that employ people in development areas.

If a business meets these standards and gains certification, then that business should be exempted from a proportion of their tax bill - thus improving their balance sheet, profits and share price. A particularly good company that consistently achieves the highest ethical standards should therefore pay little or no tax.

This doesn't increase the size of Government because existing external bodies would run the schemes. These external bodies would be allowed to charge for the certification. If certification is revoked, then a minimum period of five years would need to elapse before a company could re-apply. Should a company voluntarily withdraw, then this period would reduce to two years.

The external bodies would be allowed to charge for certification so that they would be able to afford the resources to run them properly. It is also possible to allow different certification bodies to compete with each other over certification. E.g. Different Trade Unions could all offer their own schemes as could different environmental charities. This would allow market forces and competition amongst the certifying agencies.

Companies would not be forced to accept expensive, over the top schemes because if a particular certification was too onerous, the companies would just choose to pay the tax instead.

Companies that operate using good ethical principles would be rewarded in the bottom line and thus their share price meaning that these companies would be better placed to compete with companies that enhance their profits at the expense of their stakeholders.

Government would then be able to reduce legislation and regulation that was covered by the certification schemes, thus reducing the size of government. It also provides an opportunity for significant inward investment from good companies that would be rewarded for their ethical principles.

It would also change the way that certain stakeholder groups engage with business from one of confrontation to one of partnership.  It would also require businesses to consider the ethics behind their business choices.

This is a long term strategy. It would require the engagement of various groups and their education into how best to approach setting up a certification. The taxation changes would require phasing in. However, it should be approached with radicalism and the principle that the companies with outstanding ethical practices would end up paying no tax.

The groups willing to represent the various stakeholder groups would need to be identified along with the various legislation and regulations that cover their particular areas of interest. As the certification schemes become available, and then the government would implement the taxation changes. The certifying authorities would then take on responsibility for monitoring the legislation and regulation within participating companies.

While it may seem a radical idea that the stakeholders become responsible for monitoring legislation, it is logical. They represent interested parties and are best placed to receive and investigate complaints of non-compliance.

One particular safeguard for the system to work is a strengthening of tax evasion legislation and punishments to make key executives directly accountable for making sure they are following the rules of the system and are being honest in all their dealings surrounding certifications.

I’ll climb down of my soapbox now. Should you think that this idea is worthy of proper consideration by the UK Government, then please go to the website and vote for the idea and leave a supportive comment.

Thank you.

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