Another Outing for the Soapbox

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.

The Cautionary Tale of Albert Nightswerve, the Widget King.

My balneal yeomen, many apologies if you are waiting for Part 43 of “A Couple of Tenors Short”, but those of you who have been following this blog may have realised that I discovered my battered soapbox while I was dry-cleaning my llama. It brought back good memories and I have decided to give it a bit of an airing over my ideas of ethical taxation in business.

I have already drawn your attention to my ideas over how voluntary corporate taxation could be used to encourage the best ethical practice in business. Indeed, I have already entered the idea on the UK Government’s Freedom site here as well as providing a copy on my Blogspot site, here.

Today, I am hoping to convince more people of the benefits of this idea by relating the cautionary tale of Albert Nathaniel Nightswerve, the Widget King. It is in the hope I can persuade more people to go to the Freedom site, comment and give the idea a high score. If I can, who knows, maybe a politician will take notice and I will get the chance to explain the idea in more detail within the corridors of power.

Albert Nightswerve was the second son of Nathaniel Nightswerve, the brewing and embrocation magnate. While away at University, Albert had a wonderful idea about how to produce a better widget. Funded, by his father, he opened Acme Super Widget Ltd in a small allotment shed in deepest Northamptonshire.

The Albert Nightswerve widget wasn’t exactly an overnight success. Albert spent many hours tinkering with his widget. Eventually, the hard work started to pay off and the orders started to trickle in.

The entrepreneurial Albert took the opportunity andmoved his operation to a lock-up garage behind the gas works, a few hundred yards from his allotment.

It was with good reason that Albert became known as the Widget King. Albert was a man of principle and strong character. Despite the various trials and tribulations he faced, he vowed that Acme Super Widget Ltd would operate ethically and responsibly. That his company would not only bring the world the best widget possible, but he would make sure that it did it in a way that stayed true to his high ethical principles.

He vowed that he would treat his employees as people, not as payroll numbers and that he would never lay anybody off who wasn’t prepared to leave. When the company moved to a state of the art factory complex, he made sure that there was a crèche, a medical centre and a social club. The company operated a good pension scheme, offered good salaries and generous paid holiday. Albert wanted to make sure that his employees were rewarded for their efforts and loyalty.

The cost of the new factory was inflated a little by Albert’s insistence that it be energy efficient and that it include a recycling unit that would allow old widgets, even those from other manufacturers, to be recycled and pollution avoided.

In his quest for the perfect widget, Albert invested in research and development, new plant and encouraged innovation.

The suppliers were also in Albert’s mind. All bills were paid promptly, even though this meant having to have a few extra staff in his accounts department. On occasions, he even paid in advance when he knew a good supplier was experiencing cashflow issues.

Acme Super Widget Ltd also made sure that it put something back to the community by making sure that a proportion of profits went to local charities and that staff were encouraged to participate in local schools and voluntary groups, even if this meant giving them a few extra hours paid leave.

As the company grew, Albert was rightly proud of his achievements. On the day that the company became Acme Super Widgets Plc, he took all his staff and suppliers out on a free picnic.

Then along came Joseph T. Bloggs.

Bloggs Corp had been watching the widget market and realised there was a commercial opportunity. They designed their own widget. Taking advantage of EU and government grants and by borrowing from the banks, they set up a factory in a development area to produce it. Employing a slick salesforce supported by a massive advertising campaign they entered the market.

There was little difference in the Widgets so it became a good old corporate set to.

Apart from the salesmen, Bloggs paid the lowest wages it could to its staff. It didn’t give a pension or healthcare. Terms and conditions were determined by the statutory minimum. Wherever they could they used agency staff rather than employees.

Bloggs didn’t bother to recycle old widgets or get involved in community projects. Payments to suppliers were done on their terms, often 50 or 60 days after the invoice date. They renegotiated terms regularly, every time exerting pressure on suppliers to reduce prices or adding fees and penalty clauses.

Faced with all of this, Albert worked even harder and Acme Super Widgets did manage to compete, mainly because Bloggs Corp had to service a large debt.

Yet, when it came to the profit figures, Bloggs Corp were better. They had a bigger profit. Their share price was higher, their shareholders gauging success purely on profit.

Then one day, Joseph T. Bloggs used that share price to his advantage and launched a hostile takeover offering Bloggs Corp stock for Acme Super Widgets stock. He cited his efficient ways of working and promised to introduce his efficient business practices into Acme.

Albert died the day after Bloggs Corp closed his factory. The entire town came to a halt as his funeral cortege moved slowly through packed streets. His passing was mourned by his now unemployed workers. Suppliers came from miles to pay their respects.

The state of the art factory was shipped to Eastern Europe piece by piece to be re-assembled and staffed by even lower paid workers. Eventually Bloggs Corp closed their other UK factory and transferred all production there. The UK based suppliers found they had lost all widget custom as that too moved abroad.

There’s nothing left of the Acme Super Widget factory now. It was sold off for executive housing to repay some of the Bloggs Corp debt.

The UK widget industry, once the best in the world is no more.

The annoying thing is, that it all could have been avoided. Having an innovative ethical based corporate tax system would have meant that Albert’s principles would have been rewarded and his profits and share price improved. His ethical principles would have been rewarded by money off his tax bill. The higher profits would have meant a higher share price, thus avoiding the takeover.

So, my grieving yeomen, listen to this cautionary tale and think hard. I hope I’ve convinced you that ethical taxation that rewards men of principle and vision like Albert Nightswerve, the late and deeply mourned Widget King. Good corporate ethics makes a huge difference to peoples’ lives.

If I have convinced you, then please take time to visit the Freedom site, vote and comment. Who knows, you could be giving Albert a long lasting and fitting memorial.

It is times like these that I wish I still had that scratchy label in my underpants and could get this message out to more people. No longer having the tag of ‘most interesting’ that brings the curious to my ramblings, I rely on you to make mention of this blog in your own and spread the word. Make sure that principled entrepreneurs like Albert are rewarded.

Thank you for your time and your patience.