Starbucks has trouble in the spotlight
LONDON, ENGLAND - OCTOBER 16: The signage on a branch of Starbucks Coffee on October 16, 2012 in London, England. It has been reveled that Starbucks, the world's second largest coffee chain, has paid no tax in the UK for the past three years despite sales exceeding 1 billion GBP. Since first trading in the UK in 1998 Starbucks has paid 8.6 million GBP in income tax with total sales of over 3 billion GBP in the same period. (Photo by Oli Scarff/Getty Images) / Oli Scarff
(MoneyWatch) Europe's age of austerity has shone a bright light on those who have and those who have not. In the corporate world this has meant a lot of attention to the companies who have a lot of revenue and profit, but which have not paid much in the way of taxes.
Amazon, Google, Facebook, IKEA, Vodafone, TopShop and tony grocers Fortnum & Mason have all come under enormous scrutiny and been the target of consumer protests because while they're palpably profitable, they return precious little money to Her Majesty's Revenue and Customs. In the U.S., of course, companies like GE have already been criticized for their use of tax shelters and their tendency to appear more profitable to their shareholders than to their tax officer.
Starbucks executives, however, have taken a bigger hit than most and this week. Executives from the company will be questioned by a parliamentary committee about Reuters' finding that the company had paid only $13 million in corporate tax on cumulative sales of $4.7 billion.
Starbucks has been singled out for this treatment by politicians for the simple reason that consumers are especially furious with the coffee company. YouGov is a polling company which measures the brand value of companies daily. On Monday, public perception of Starbucks fell from 0 to -25, with no end in sight. That means the company has now suffered more damage than Nike after the Lance Armstrong doping news.
What makes Starbucks special? In part, the problem is its visibility and success. If consumers are angry about Google and Amazon, where can they go to show their displeasure? Sure, Google has nice London headquarters but most people don't associate the company with a place and even low tech consumers know that the business doesn't really run from central London.
Starbucks on the other hand has coffee shops in almost every British town. That means it is a great target and protests in front of the stores has raised the company's profile and lowered its public reputation. Visibility is a mixed blessing. As a major sponsor of the London Olympics, McDonald's qualified for a tax break but the public indignation which that provoked swiftly led to the company declining its tax advantage.
It doesn't help to underestimate the public. In a statement, the company said, "Over the last three years alone, our company has paid more than $254 million in various taxes, including national insurance contributions, VAT and business rates." But national insurance is equivalent to social security, VAT is paid by the customers and business rates are a function of renting premises -- in other words, these are NOT the taxes consumers are complaining about. Trying to be disingenuous in this way is simply stupid, since everyone can see through it and get even more angry that they are being patronized.
There are big lessons here for any large, profitable business operating multinationally. American culture is still hugely enjoyed and valued but such enthusiasm doesn't disable critical thinking. Appearing not to contribute to the society in which you operate is always bad business -- but never more so than during tough economic times. The public mood around the world is incensed by cheating it sees everywhere and visible targets have nowhere to hide.
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