Category: Business ethics

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Blog Barter agreement and corruption

On February 15, 2011 the German newspaper „Süddeutsche Zeitung“ (see also here) reported about a potential case of corruption between the two German industry giants Deutsche Telekom and Volkswagen.

In order to win a major contract with Volkswagen, several senior managers of Deutsche Telekom’s business customer segment (T-Systems) allegedly agreed to continue a multi-million Euro sponsoring contract (terminating in mid-2010) with the football club „VfL Wolfsburg“. The football club plays in Germany’s first league and is fully owned and controlled by Volkswagen. The continuation of the sponsoring was obviously perceived to help win a big (several hundreds of million Euro) contract with Volkswagen.

DeutscheTelekom seems to have discovered irregularities and obviously informed the prosecutors actively.

But why should this be considered to be wrong in the first place – as so far none of the involved managers is accused of having done the deal for a personal benefit?

Volkswagen holds 100% of the ownership of the club. So the deal could be considered as another example of a classical barter agreement: Instead of just offering a single product/service for money. You could reconstruct the deal as an agreement on multiple levels – the deal as a give-and-take.

The fundamental principle of reciprocity is deeply ingrained in the human mind and why shouldn’t it apply to business settings if both parties benefit and no individual benefits at the cost of the organization or shareholders?

The ethical dilemma again sits in the stakeholders around the situation.

What was the effect of this deal on other ICT companies bidding for the deal with Volkswagen? Were others in a disadvantaged position just because they could not offer the extension of a sponsoring of VfL Wolfsburg? (The sponsoring contract dated back to the times of gedas – the former IT subsidiary of Volkswagen which was later taken over by Deutsche Telekom.)

And the story also nicely illustrates the massive impact of the recent corruption scandals. Large companies have changed their attitudes with respect to „creative“ deal-making. What would have been perceived as a perfectly correct (or even as particularly positive and creative) deal, now is rather being investigated internally and even actively communicated to government agencies for further legal investigation. Big business seems to have learned its lesson.

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Corporate taxes as ethical issue

On January 26, 2011 the Financial Times reported about new information on the IKEA corporate structure. According to this report, all IKEA stores have to pay a royalty fee of 3% of their revenues to a foundation that is under ultimate control of the the owner’s family and that is located in the low-tax country Liechtenstein.

This foundation is reported to own the IKEA trademark and to have capital reserves of up to 14.4 billion USD.

This disclosure raised concerns especially as the IKEA company originated in Sweden – a country that is famous for its comparably high taxes. And of course: Deducting a 3% royalty fee from the revenue increases cost and reduces profit – which in turn is taxable in all the countries IKEA is operating in.

The FT article acknowledges that the corporate structure seems to be perfectly legal and reports that the IKEA founder Ingvar Kamprad said, that „taxes were a cost like any other, and all costs needed to be kept to a minimum“ to fit to the company’s low-cost philosophy.

This case throws another interesting light to the ongoing discussion about the role of taxes within the broader CSR discussions. What is the social responsibility of business in terms of tax payments? Is it morally acceptable to try to search for each and every possible way to reduce taxes? Which effect might this have on the functioning of countries and societies? How do the effects of „tax engineering“ compare to the usually rather small budgets for CSR departments and/or ethical initiatives? Can and should companies do everything to reduce their taxes – as long as they don’t violate the law?

But how about individuals? Should companies behave differently from us as individuals?

 

Addition on November 22, 2013 (@ 15:05 CET): If this is of any interest to you – please also see here:

http://www.youtube.com/watch?v=xvxRePIv85Y