Corporate tax avoidance tops list of UK public’s ethical concerns about business

Corporate tax avoidance is the primary ethical concern the British public have about business behaviour, and companies must increase transparency to regain public trust, according to research conducted for the Institute of Business Ethics (IBE).

As part of the Attitudes of the British Public to Business Ethics 2015 survey, respondents were asked to identify up to three issues of company behaviour (from a list of 16) which should be addressed most urgently. Thirty-four per cent of respondents selected corporate tax avoidance.

Executive remuneration was the second most pressing issue (cited by 25% of those polled), followed by exploitative labour practices (20%), employees’ freedom to speak out about wrongdoing in the company (19%), and discrimination in the workplace (18%).

Tax avoidance has ranked as one of the top two concerns since it was included in the IBE’s annual survey of public opinion for the first time in 2012.

“There is a deep sense [among the general public] that there is something unfair about the fact that companies avoid paying tax whereas everybody else in the population has very little choice,” Simon Webley, IBE research director, said in a webinar discussing the findings.

IBE Research Hub Manager Dan Johnson recognised the contentious and difficult nature of the issue: “Corporate tax planning is a very legitimate exercise, and tax evasion is illegal, whereas corporate tax avoidance fits this sort of grey area in the middle. It’s the aggressive tax planning that really gets under people’s skin.”

Webley acknowledged that the issue was being addressed generally and much more information is coming out. “I personally don’t think anything serious will happen until there is much more harmonisation of corporate tax rates and approaches, particularly in the Western world, but basically worldwide, because people will always go if they can to avoid paying tax. It’s a natural thing.”

IBE Director Philippa Foster Back outlined how companies can improve public perceptions of the issue.

“Internal engagement is needed around the decisions and circumstances behind tax positions, and then these need to be communicated externally. Reputations can still be damaged by legal tax avoidance, which is why it is good practice for companies to have a clear and transparent statement showing their position on payment of tax,” Foster Back said in a news release.

While executive pay ranked second among the public’s concerns, the percentage of respondents raising it has fallen significantly. It was flagged by 34% of respondents in 2012, compared with 25% in 2015. Foster Back described this as a sign that businesses are “beginning to engage and communicate what they are doing to rectify situations like rewards for failure and inflated bonus packages.”

Exploitative labour practices are an area of increasing concern (20% this year, up from 12% in 2012). Media coverage of poor conditions for garment workers producing for global fashion retailers has contributed to greater public awareness of these issues.

The enactment earlier this year of the UK modern slavery act, which requires companies to report on the initiatives that they are taking to prevent slavery from occurring in their supply chain, has also placed the spotlight on such practices.

Closer to home, the balance between work and home life for employees is also gaining prominence. It was cited by 15% of respondents this year, up from 8% in both 2013 and 2014. It was found to be of particular concern to respondents between ages 35 and 54.

How ethically does business behave overall?

The survey also asked, “How ethically do you think British business generally behaves?” The percentage of Britons who think that business behaves unethically has risen steadily from 29% in 2010 to 40% in 2014, levelling out at 39% in 2015.

“Public trust in business is flatlining. Business needs to do more to effect a step change in public opinion. While there are some companies doing great work in this field, there are still those that the public perceive are not engaging in ethical business practice,” said Foster Back.

The survey found there were clear generational differences in how business conduct was perceived, with 16- to 34-year-olds taking a more positive view. Sixty-six per cent of that age group said they considered business to behave ethically, compared with 63% of 35- to 54-year-olds and 49% of respondents over 55.

Opinions as to how businesses conduct themselves today compared with ten years ago are fairly evenly spread, however. Thirty-one per cent of respondents thought that businesses behave more ethically than they did ten years ago; 29% said they behave “less ethically”; and 38% said they behave about the same.

—Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.