Starbucks: Well-intentioned voluntary tax is not the way forward

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If Starbucks thought this year couldn’t get any worse, then the backlash to its decision to pay a £20m bounty to HMRC last week must have caught it by surprise.

“We’ve listened to our customers,” said Kris Engskov, managing director of Starbucks UK and a former aide to President Bill Clinton, in an open letter published in national newspaper advertisements on Friday. “We know we are not perfect. But we have listened over the past few months and are committed to the UK for the long term.”

And then it all went horribly wrong for them.

Tax experts described the company’s payment proposals as “commercially gobsmacking”. Politicians said it proved the UK’s tax system was being treated as a “complete joke”. Even tax campaigners lambasted the move as “just a desperate attempt to deflect public pressure”.

These complaints were compounded by Starbucks (NasdaqGS: SBUX - news) deactivating the comment facility on its UK website unlike early blogs, which were swamped with comments from customers threatening to boycott the stores. “The emotion of the issue has taken us a bit by surprise,” said Engskov last week.

And as I write, activist group UK Uncut is planning demonstrations throughout the country this weekend , “transforming” Starbucks stores into refuges, crèches and homeless shelters.

Given its high street presence, Starbucks is clearly more vulnerable than most to a massive public outcry against its tax affairs and it seems the threat of a public boycott of its stores has been the real spur for Starbucks to write this cheque to the Treasury.

Margaret Hodge, the MP who has led the criticism of Starbucks, acknowledged as much when she said it was a step in the right direction. “People voted with their feet and I think Starbucks has been hit by that, have reacted to that, and that is a good thing.”

Whether you agree with that or not, the new reality is that business leaders are being held to account for real or perceived wrongdoing every week. It’s a further example of both the power people now have and the increased expectations that they have of business leaders. Even TV presenter Gary Lineker got in on the action tweeting: “Starbucks to pay some tax in future. How terribly considerate of them.”

Social media has empowered people to sanction and create mass movements against those businesses which they perceive to be behaving in the wrong way whether that is an allegation of tax avoidance, of fixing interest rates, of phone hacking or incompetence around an environmental disaster.

Starbucks has built its business around a strong sense of community but that has all been undone in the UK in a week where the Chancellor has delivered another tough message about the economy. This follows HMRC’s revelation in October that a total of £32bn had been lost to tax avoidance in the past year.

In such a febrile climate, it doesn’t take much to aggravate customers who have been loyally buying their premium-priced tall skinny lattes from you for years and instantaneously you are dealing with a backlash from thousands of people who don’t accept what you are doing.

As Mrs Hodge pointed out last month, illegality has got nothing to do with it it’s the perception of wrongdoing that has agitated customers and prompted the vitriolic reaction that we have seen this past week.

The naive decision to shut down the comments facility on its website also went totally against the way a modern business should behave. It also stoked the accusation that Starbucks is looking for a neat and tidy fix to this crisis rather than being open, authentic and transparent about how it is working with the UK authorities to find a mutually agreeable way forward.

While I’m sure good intentions are at play here on Starbucks’ part, this is a wrong-headed way for the UK authorities and businesses to sort out their tax affairs. Starbucks can no more decide how much tax to pay than its customers can decide how much to pay for a cup of coffee. This has to be an issue for policymakers to address, not individual businesses taking tactical decisions to pay additional taxes in order to keep their customers happy.

The advertisement that Starbucks ran talks passionately about “acting responsibly” and I have no reason to doubt those sentiments Starbucks is a business that has grown around a strong central belief that being a good corporate citizen makes solid business sense.

But we are moving from a world where image was everything to one where the reality of what you do is what matters. In a world of radical transparency where you can’t tell the taxman you make a loss and suggest to investors that the business is profitable the slightest whiff of wrongdoing can be exposed in seconds, and businesses that don’t adhere to the very highest standards will be called to account.

The new price of doing well is doing good. And not behaving responsibly can cost a lot more than £20m.

David Jones (Xetra: 898370 - news) is global chief executive officer of Havas (Berlin: HAV.BE - news) , co-founder of One Young World and author of Who Cares Wins: Why Good Business is Better Business