Flailing Starbucks has fallen to 'age of damage', says Havas global chief
A series of "wrong" decisions surrounding how much tax Starbucks pays in the UK has led the global coffee chain to become the latest brand to suffer in "the age of damage", according to Havas' global chief executive David Jones, and he believes Google and Amazon will be next.
Last Thursday (6 December), Starbucks volunteered to pay £10m to HMRC, the UK’s tax office, for the next two years following revelations that it had not paid any corporation tax for the past three years.
However, the unprecedented move has been criticised by the Havas leader as "misjudged", and he believes the ensuing backlash from Government and pressure groups has been heavily symbolic of the new age of communications in which brands now operate.
In an interview with Marketing, Jones, who leads the second largest advertising group in France and the sixth-largest communications group in the world, called the furore now engulfing Starbucks, "an absolutely typical example of the age of damage".
He said: "Where they [Starbucks] got it wrong, I think their intentions are good, but they misread and misjudged the mood… tax is not something you decide unilaterally how much you are going to pay.
"People are not happy with their response, what they should have said is we are going to find out how much we should have paid, we’re going to pay that tax and they would have put the issue behind them. And it should have come from the very top of that company."
Social media driving social responsibility
The 46 year old behind Havas Worldwide (formerly Euro RSCG), Cake and MPG, has dubbed this decade "the age of damage", an era in which businesses that are not socially responsible will suffer damage because of it.
He said: "Social media has empowered people to sanction leaders or businesses who do not behave the way they want them to... People can find out everything about a company today and they can create mass movements against that company."
Last month, the coffee giant told MPs it had made losses for 14 of the 15 years it has operated in the UK, achieving just a small profit in 2006. The committee said it found the claims for the chain, which has more than 700 outlets in the UK, "difficult to believe".
Citing a Reuters report, Jones noted: "Starbucks claimed that they were making a loss but on the transcripts of their earnings calls, reporting back that they very happy with the profits that they are making in the UK, and that the UK business is profitable.
"At the same time they are telling everybody and the tax office they are making a loss, their CEO and CFO and others are talking about the success of the UK business, and how the guy who has been running the UK business has been so successful he is coming back to run the US.
"And about how the money they have been making out of the UK business is going to actually drive and fund their growth in the rest of the world…They have been caught by this digital footprint."
Social media is creating what Jones believes will be a bigger transformation for businesses than the arrival of television. In his view, social media and social responsibility are not separate subjects, but entirely interlinked.
He said: "Social media has taken social responsibility out of the silo and has put it very firmly in the P&L statement."
In the coming years, the chief executive believes businesses that are the most socially responsible will be the most successful, and will reap huge benefits from the power of social media as employees, shareholders and consumers become passionate advocates for brands and businesses.
As a counter example, of a brand leader successfully engaged enough to know when and how to act, Jones pointed to a Virgin Mobile ad which had all the hallmarks of creating a social media storm yesterday (9 December). The offending ad showed a man covering the eyes of a woman while holding a gift, with a caption asking: "The gift of Christmas surprise. Necklace? Or chloroform?"
Jones noted: "Richard Branson reacted very, very fast to an ad that has been judged by many to be making fun of rape. It was done by Virgin Mobile in America, it’s not even his company - he doesn’t own it - but he reached out, apologised and has said he has let them know that he finds it unacceptable."
For Jones: "Transparency, authenticity and speed are the rules of social media but they are also the rules of running a modern business, and I think it needs to come from the top."
His advice for Starbucks going forward is deceptively simple. "What they need to do is actually just be very transparent, very authentic and very open.
"We live now in this world of radical transparency, and I think that if you get caught – people don’t expect perfection, but they expect honesty – Starbucks could easily have come out and said ‘look, yes, we did make a mistake, we did say we were making a profit on those earnings calls, and actually what we were doing as any global business was to minimise our tax exposure.
"'We understand that it was probably the wrong thing to do, we’re going to talk to the UK tax authorities, we’re going to work out what they think is fair and we’re going to settle that and move on'."
Following the announcement by Kris Engskov, country managing director of Starbucks, to pay "higher corporation tax in the UK – above what is currently required by law", Jones admitted the company could "look stupid if they backtrack from it", but insisted, "the resolution comes from how much the tax authorities think they owe".
The lack of transparency is likely to remain the key stumbling block for Starbucks as it seeks to regain consumer trust during a period of austerity in which the Government has pledged to crack down on tax avoidance.
Starbucks UK would need to turn a profit of £41.6m if it was to legitimately owe HMRC the £10m corporation tax it plans to pay next year. UK Uncut, the pressure group mobilised via Twitter and encouraging direct action against the chain, noted that even at £10m per year, Starbucks will still be paying £5m less tax than its nearest competitor, Costa Coffee.
Warning to Google and Amazon
And it is not only Starbucks currently said to be caught in the crosshairs of Jones’ ‘age of damage’, with the chief executive fingering two other notable global businesses in HMRC’’s firing-line for aggressively minimising their tax exposure.
"I think Google and Amazon are next," Jones said. "The only difference that Google and Amazon have is that they are (effectively) a monopoly, and secondly they do not have real world stores that you can go and boycott."
During last month’s committee hearing, MPs rounded on Amazon's representative saying they were left frustrated because he was "evasive and unprepared to answer legitimate questions". The company, which has 15,000 staff in the UK paid just £1.8 million in tax in 2011.
The MPs report also said Google accepted profits should be taxed in the countries where they are generated but accused the company of having "undermined its own argument" because it remits its non-US profits, including those from the UK, to Bermuda, which has a favourable tax regime.
Jones said: "The second these issues come up you need to react instantly, rather than thinking these issues are going to go away. I would have launched a review of the tax that we have paid over the past five years, I would have gone into negotiations with the tax authorities on how much they believe that we should have paid, and I would have been very transparent and candid throughout. And almost apologise."
The Havas man, who in the past has been a communications advisor to Prime Minister David Cameron, warned: "People want businesses to behave to a whole new standard, and if you don’t behave to that standard, they’ve been empowered to take you down."Follow @DurraniMix
This article was first published on marketingmagazine.co.uk
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