Incursions, diversions: Walgreens makes right choice to keep HQ in U.S.
Despite shareholders concerns, ultimately, it was the right long-term decision for the retailer
|"Walgreens store" by Anthony92931 - Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons|
You have to give Ben Franklin his due — he had a knack of saying clever things. That’s probably why he’s on a C-note.
For example, I’m sure most of you remember his assessment of death and taxes; namely that those are the only two things anyone can be certain of anymore. He could have added another certainty, however, one that ties in with both: We all want to avoid them too, both death and taxes.
Lately, one of the recurring business headlines garnering attention, particularly here in Chicagoland, involves the move by companies to reincorporate abroad, a so-called inversion, to take advantage of lower corporate taxes.
One of those companies coming under close scrutiny for considering an inversion was Walgreens, the well-known drug store chain. It seems the retailer known as “America’s Pharmacy” was thinking about moving its headquarters from Deerfield to Switzerland, which is where Alliance Boots GmbH, the European pharmacy chain Walgreens had just finished acquiring, is located.
As per our political climate these days, the thought of a retailing icon slipping off to Bern to reduce its tax rates from 35.7 percent to 20-some percent brought some immediate reactions. This past July, Illinois’ Senator Richard Durbin wrote a letter to Greg Wasson, president and ceo of Walgreen’s, urging him to stay put. He reminded him that nearly all of the company’s $2.5 billion in profits came from Americans who pay taxes.
His pithy, “Is ‘the corner of happy and healthy’ somewhere in the Swiss Alps?” quickly became a sound bite with teeth.
Even President Barack Obama got involved, urging the Department of Treasury and the Internal Revenue Service to look into incursions and to find ways to curtail the practice.
Thankfully, but to the chagrin of many shareholders, Walgreen’s board of directors decided that “it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S.” Citing both the risk of a protracted IRS battle as well as a public backlash involving such a move, Wasson said the tax-saving inversion could have backfired, placing the company “in a significantly worse position…” the Chicago Tribune reported.
Personally, I’m happy the company decided not to move to Bern, even though I understand it is a lovely city. And while I agree that everyone has a right to take advantage of whatever tax benefits there are, this inversion phenomenon doesn’t seem to fit well with this notion of “Buy American.”
I recognize that many believe this represents a bit of government bullying, or more specifically, Democrats taking a page from the Republicans and using that much-maligned word, “unpatriotic,” as an election-year gambit.
But as Rob Garver points out in The Fiscal Times on Aug. 6, corporations aren’t patriots.
“For hundreds of years, people have remarked on the futility of expecting corporations to behave as though they have some sort of conscience,” he writes. “Edward Thurlow, Lord Chancellor of Great Britain in the last decades of the 18th century famously said, ‘Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like.’
“So, the Obama administration’s recent push for ‘economic patriotism’ as an antidote to the trend of ‘corporate inversions’ …feels like little more than an attempt to wring some political advantage from a problem that can really only be solved through legislation. Specifically, through corporate tax reform.”
Garver later says that attempts have been proposed, even by Democrats, of reforming our corporate tax laws. He then reminds us that given the current Congress’ record for tackling tough issues, one shouldn’t expect any miracles.
In the midst of all this, I came across an interview that Forbe’s Paul Laudicina did with Paul Bulcke, Nestlé’s ceo. In the interview, Bulcke talks about the need for long-term leadership from chief executives instead of short-term earnings. As he explains, “The real value of a company is creating shared value.”
Bulcke goes a step further for ceos. “We are, and have to be part of the solution to society’s problems. Businesses are even in a position to moderate some of the discussion, because a company has the privilege of having an almost 360-degree view, whereas others may see a problem only from a specific angle. All stakeholders — including companies — are part of the solution.”
Walgreen’s decision wasn’t an easy one, but — long-term — it was the right one. And Bulcke’s vision for ceos isn’t an easy one either. But again, it’s the right one, since we are, indeed, all stakeholders.