CORPORATE CRIME OBSERVATORY

Kish Parella:

Just to add to that, a couple of things that we could think about is also when we say a lack of clarity regarding what it is that we mean by CSR and why we're doing it. So, two people can talk about CSR and one could mean something very specific regarding environment and somebody else could mean something very specific when it comes to governance or it comes to human rights. And I think part of it is when companies engage in CSR, just coming at a firm level, what their specific commitment to CSR looks like and also why they're doing it; and that can reveal institutional capacity issues that maybe they need if they're not executing in the way they could to the best of their ability, because they don't have the capacity or maybe it's done in collaboration with other types of actors. And then, this also goes back to motivation, go back to the framing issue that Ann identified, which is that why are you doing this? And that can reveal something about who needs to be invested in the organization, what the time frame of that commitment could be and maybe shifting it from one kind of motivation to a different kind of motivation.

 

Diane Ring:

This back and forth has made me think a bit about how this conversation, at least to date, and really even before bringing such a CSR business ethics perspective to the conversation, how tax lawyers talk about this. I referenced before being on these prior panels and the question being what do you do when you hit the line? If it's clearly not permissible, easy to tell your client not to do it; but what do you do when it is, but you don't like it, you think it's unethical? And whatever exactly that means. And one of the things that you constantly hear is lawyers say what you can and should do is try to come up with all the reasons it's going to be bad for the business, if they do this reporting, this tax practice, that we think probably is legal, but we're uncomfortable with; if they decide to do it, what are the parade of horrible that will happen? They'll be on the front page of the name the newspaper you most fear and it will be revealed and the fallout from that will be far worse than the tax savings that they got. As I said, that's a standard technique that lawyers discuss as a way to navigate the space of what they think of as ethics, they worry it might be personal ethics, as opposed to just baseline everyone should follow and they use this as a way to work through that. But in hearing this, it also makes it sound like does that tip it into a business calculus? And so, if it's a business frame and then if the company isn't doing well, I view it differently. It's been our go-to answer, just loosely in the tax world, to solve this borderline tension where we experience it, but I’m not sure I’m hearing that necessarily being the most effective big picture way to deal with the problem.

 

Ann Tenbrunsel:

Yes, I agree Diane. It might work in that situation, but your suggestion that it might cause future decisions to be viewed in that same frame and that might tip it a different way another time is a real concern. And so, I think what you want to be thinking about is how do you convince them from a moral perspective, rather than this calculus. I would say though, because of what we call motivated blindness – the tendency to not see the unethical behavior of others when it's not in our best interest to do so – that you should even further ask yourself what else am I ignoring that I haven't even coded as potentially problematic, because I'd rather not see that unethical behavior on their part. And there are lots of reasons why you may not see their behavior. There's research that shows they took auditors actually and they gave them financial statements – they took real auditors working at one of the Big Four and they gave them real financial statements – and they said tell us whether or not you think these are acceptable, if there are any errors; what they do in their normal job. And half the people they said hypothetically pretend you're an auditor of the firm and the other that you're an independent auditor; and auditors of the firm simply like being told, hypothetically in this very sterile environment, we're 30% more likely to say that the statements were okay than independent auditors. And the only thing that was different was one word the firm or independent – auditor of the firm or an independent auditor – and that substantially changed the way they viewed the identical piece of information and caused them to overlook it. So, I would say as a first step begin to think about what situations you aren't paying attention to that are on that border and that you're not even seeing.

 

Diane Ring:

Dawn, I didn't know if you were about to say something.

 

Dawn Carpenter:

Well, I was I was fascinated by Ann's discussion, because I agree with what she's saying. I guess what I would say from a broader view, rather than the individual view, is that when we look at ethics in finance, one of the things that we use as a measure – and perhaps Diane this is guidance for tax counsel – is that we really look to see are we serving our clients’ interests. And I think that's a lot of what you were describing, but we add a little caveat which is: are we serving our clients interest to the very best of our ability up to the point where we see our clients’ interest being extractive to the interests of society or the benefits of society? So, that's when the red flags go up and I think about classic examples – and I’m using these firms’ names just as proxies, not to call out their necessarily uniqueness – but I take someone like Goldman Sachs or JP Morgan, who advised the governments of Greece and Italy on how to deal with their debt crisis and how they presented their financials to the world. These are firms who have an expertise in financial engineering that's extraordinary and also in regulation. So, the question in my mind is did they serve their clients’ needs best by structuring a way to keep them underneath certain caps that allowed them to go on and have a little bit more freedom in the way they do their work? And yes, they did. But at what cost? It cost dearly those societies when the markets went the other way. And so, that's where I see perhaps an example of when you've maybe served your clients too well and not taken into account the broader impact on society.

 

Diane Ring:

This is a little bit of a shift, that's not quite as subtle of the gray area, but it's related – and it's something we've talked a little bit as a group in the past – which is to the extent that certain economic behavior endorse like tax reporting behaviors become a bit normalized, despite being in an area we think is not even gray – maybe really not appropriate – how do you undo that trend? How do you unnormalize an economic crime? How do you shift perspectives? Magical answers offered.

 

Dawn Carpenter:

Kish, let's give that one to you. Don't mean to put you on the spot.

 

Kish Parella:

Well, that's a hard one, I was looking at that. It's interesting, Diane, that you identified shifting those norms in this very specific context, because I think that's going on in so many different areas of CSR that there's this unlearning of certain norms that have gained saliency. I think my go-to answer is all this information, but information is irrelevant if it doesn't have an audience who is going to care about it. And I think that, maybe from my perspective as an educator, part of it is just what it is that we're doing when we're training professionals or these norms take ground, because whether it's in a business school or in a law school or whatever sub-discipline the part of the formative development of these professionals allows for certain norms to take hold. And maybe at that stage, if we start introducing our students and young professionals into a broader framework, that could be really helpful. And then, in opportunities to identify these norms for what they are and the sources of these norms, because often they're misattributed; they're attributed to say legal doctrine, when sometimes the legal doctrine does not support that idea, it's actually not legal, it's cultural or it's a social norm. And so, identify the sources, that would allow for the critical examination of both the norm itself, its consequences and I think that would be a good step forward. But I am curious to see what my co-panelists also would say about this challenge.

 

Dawn Carpenter:

Kish, I thought that was a very good answer. I put you on the spot for that one, but it also made me think just quickly about incentives; what is the incentive of the person who is called to make the decision? And if the incentive is a reward for maximizing client satisfaction, maybe that's not the right lever.

 

Ann Tenbrunsel:

I was also thinking, Kish – as you were talking, which was a great answer – is fundamentally you have to identify and name the norms; and that actually can often be quite difficult. I have a colleague who teaches at the University of Chicago and she'll ask people what's the norm for the classroom or what's the norm? And nobody really has any great ideas. And then she stands up on their desks and starts walking across them; and of course, everybody's horrified and surprised and she says why are you looking at me? And they said we are not supposed to do that. So, we often don't know what our norms are, it's often very hard to articulate until we see them as being broken. And I think taking a step back and understanding what are the norms that are preventing us would actually be quite fruitful.

 

Kish Parella:

Yes, just in terms of skill development – and again, I have the hat off of an educator – but just these skills of reflection; I love your expression of naming that norm, I think that this is something that's challenging in CSR when I have law students and we're talking the intersection long business, enabling that norm and just forcing students and then professionals to do that exercise, but that's really what we're talking about as a group, which is identify motivation. One of the earlier questions, Diane, I think was why does CSR sometimes stumble? And sometimes we all come at it with assumptions and we don't take the trouble of identifying the motivation; and that can be very productive. But it could also be productive just to do that so things don't just become this automatic response at an organizational level or an individual decision-making level. And that itself can be useful.

 

Diane Ring:

One of the things that we've seen, trends that we've seen really across countries in the past year – it's not just this year, but you can really see some marked examples – are businesses, large corporations, taking on various kinds of responsibilities or roles that maybe belong to government; they step in and fill some of those needs in society. My question is – and then again, we've touched on this before – this idea of the role of the corporation in society, which actually sounds lovely that they're really playing a very much as quasi-governmental role, that doesn't really guarantee they're going to be ethical, right? And pursuing CSR, business ethics. And I think the question I wanted to ask is what might we worry about in that – we might want them to be doing these things – but what do we worry about as well? And how do you balance that?

 

Ann Tenbrunsel:

I’m just going to respond quickly, because it's just an insight when you were discussing this and that is this notion that they're taking on government functions and yet, if you have a stakeholder theory of the corporation, they aren't government functions at all that in fact the community and everyone else around you is actually constituents that you have to pay attention to. So, going back to our earlier conversation, the notion that the government should take care of the community is a norm, or at least a potential assumption that we have. But many of the newer models of corporations as entities would suggest that that's too narrow.

 

Kish Parella:

I was going to say one thing. I worry about the first reaction is just the arbitrariness of it all. How hard or challenging is it to plan this division of labor? And I definitely appreciate Ann's point about, under stakeholder theory, whoever is either you could think a private public working collaboration or whatever it is, I would worry that it would become difficult to predict what kinds of functions these various corporations are going to do in the future, just because they happen to be doing it now. And without that predictability, it would have this consequence of what does that mean for government capacity to do those things? There needs to be some framework for us to understand that this is just not something of the moment, but it is part of the stakeholder model or something permanent going forward, before we can plan accordingly, I think.

 

Dawn Carpenter:

Yes, I think that we've identified something that is an important shift in dynamic, perhaps just in the power structure and how we organize our societies when we do start thinking about companies taking on what are otherwise thought of as social or political functions. I think about even something like a private prison do is that a function that a corporation should take on versus a society in general? That's a whole other set of research topics, but they are corporate entities. So, Kish, I think you and Ann are raising some important issues as it relates to thinking about whose role is which and have they morphed, are they complementary or are they in competition with one another?

 

Diane Ring:

And I was thinking about how this all fits with our discussion a little bit earlier about ethical framing. If the reason as a corporation I’m taking on any of these responsibilities, whether they're somewhat predictable or not, if it's not driven by an overarching ethical view of my relationship to society – back to your language Dawn – what I extract from society, but simply because I see a strategic relationship right now with government, maybe I get regulatory space or advantages by being so participatory and helpful now. If those are the reasons, not a deep-seated overarching ethical vision, then is it back in a business frame and a business calculus? And so yes, I did that and that certainly doesn't constrain me from doing something else good for business and in fact, maybe I feel good about myself that we did X, these past six months we did X in our community that I deserve a little space in my tax planning over in this other realm of my business life.

 

Ann Tenbrunsel:

Yes, a couple things. Business frames don't always result in unethical behavior, right? It's just that you're used to thinking about a decision in that way and that could have implications. We have found that of course, if you make the stick strong enough, the sanctions strong enough, people are going to behave how you want them to, because the calculation the cost benefit just says I'd be a fool not to. And I assume it’s the same thing with rewards – I personally haven't studied that – but I do think you need to think about likely we're all going to be in business, it's just the way we're used to. But we have found that, for example, if you prime people to think of the impact of their decisions on others – using very simple – that your ethical behavior in a business frame can be as ethical as in an ethical frame. I think it's really thinking about how do you impart interventions to try and bring the two frames potentially together. I understand, I think that point raises it'd be hard for government to plan if I am going to do this – I have no idea if this would be feasible – but some type of a five-year commitment, you're right to say this is what I’m going to do versus what this is what I did do, might be of use. I was part of a book and everybody investigated different companies and what they were doing in this space; and what you found is that companies did a lot with what worked in their strategic plan. So, if they were a company that had a lot of consumers that were women and their employees were mostly women – we looked at Sarah Lee – then, their CSR efforts tend to be focused in the women's space, which makes sense for them. There are strategic synergies that can occur that doesn't necessarily pit these at odds with profit or with a business; I mean, let's face it, businesses are in a business.

 

Dawn Carpenter:

Yes, Ann, I completely agree. I think of a company like Patagonia, who in their corporate DNA it is all about environmental sustainability and it's become – this is not a very precise way to say it – but almost like a cult-like following, a corporate loyalty around that bigger societal issue that's made that company very profitable.

 

Diane Ring:

Both of your last comments here exploring the strategic synergies that businesses might be able to find leads me to I think what will be probably our closing formal question for this part, which is: suppose this conversation is heard by policymakers around the world and you've got their attention and they want to take this seriously – the CSR, business ethics, moving it into tax – what might you offer as some initial recommendations? Some steps to take. They could be at different levels, different actors; but what would be these next steps? Who wants to go?

 

Dawn Carpenter:

All right, I’ll give it a try. This is difficult and I think if it was easy, we would have solved it already. And I think there are a lot of people who are recognizing that this is something that needs to be solved and you just look at the global problem that we have and moving money around so quickly with changes in the financial services industry, it makes transferring assets something that my teenager can do on her iPhone within certain domain. But the point is that flow of capital has just become so much easier. So, with that in mind, it makes it almost imperative to start thinking about frameworks and solutions that are not necessarily country-specific and that there can be some global consensus on standards or at least benchmarks for what is acceptable and unacceptable behavior.

 

Kish Parella:

I had two quick reactions, just for the broad question. Learning from the experience in business and human rights, I think there's a fair amount of clarity in this space regarding specifically what it is that NGOs and different types of actors and even companies themselves were talking about. Even with human rights, as broad as it is, the legislation tended to be sometimes narrow or specific and in terms of the kinds of behavior that are required of companies gain greater clarity with the United Nations guiding principles. So, I think that really helped orient the conversation among multiple stakeholders as to what it is that we're talking about, an identification of what is it that we want to see change and what is that consensus building regarding the next steps, even if it's not a finished product, so just the next stage. That's useful. And the other thing that I've noticed is drawing connections between different policy areas that could either be treated independently, so now there's a fair amount of conversation about the connections between corruption and human rights violations; and I think that is really important, just to build these connections between important areas of corporate misconduct that might otherwise be treated independently.

 

Ann Tenbrunsel:

And I would just bring it – because again, that’s where I come at it from – back to the individual level. And to me, next steps are always first understanding that you're probably not being as ethical or as in line with the values that you think that you are; understanding why that's the case. We know that we engage in forecasting errors – I predict that I’m going to behave better than I actually do in the moment. So, understanding that in those “in the moment” conversations, I’m likely to be deviating, even though I would never have said I would have not raised an issue or even said or did something that was against those values. I think we have to look at the role of euphemisms – that's the notion of financial engineering, Dawn, that you mentioned earlier – that's a language euphemism that makes what you were describing seem okay, because engineering seems sophisticated, but really what's behind that when we identify what we are doing as specifically what it is instead of trying to cover it up, I actually think we can be more in line with our values. And then, certainly understanding how to fix these conflicts of interest, this motivated blindness, big one that we use in my field is accounting firms and their clients as huge motivated blindness, because I want to keep them, because in the US I can choose them, I can fire them and I can also hire them to do my consulting, which ends up being more lucrative than the accounting income. So, you're just trying to “pass” on the accounting side to get to the other side and that certainly creates a huge problem. And there's been some interesting work where you pay people for – they did a study, I think it was in India – and you pay people from a common pool, so a firm doesn't pay their auditor, they get paid out of the pool and there are audits of the audits by this common pool. And both the auditor and the company pay a fine if their audits are not within 10% or whatever – this was actually on pollution emissions, so there were audits of that – and they found of course, that auditors became more accurate, because they were now going to be penalized and they weren't being directly paid by the client. But also, companies themselves just started reporting more pollution, because they knew the system wasn't rigged, they knew it was going to come out. So, there are structural changes, but again you have to identify what's underlying this that we take for granted, that companies can hire their own auditors – what does that mean down the road?

 

Diane Ring:

I was just thinking, as you all were walking through some ideas, how for example Kish, your point about building connections across areas – say tax and then something else we care about – how that fits in with how we use labels and words and motivate individuals. And I know previously we've talked about it's unpatriotic, pushing too hard at the boundaries of tax starts to get a word, it's unpatriotic, it's against the common good, taking from the fisk, there are ways in which maybe you can shift the mindset of the individual players and then maybe the individual actors, humans, and then maybe through those institutions as well. All right, I would go on and on, but we are now ready to turn to our Q&A, because we have quite a number coming from our attendees, which is no surprise – I just myself have so many more questions. What I’m going to do now is ask the recording to be turned off. And we are delighted for our summation to have Ololade Durodola with us; she is a Postgraduate Researcher at the Center for Financial and Corporate Integrity at Coventry University and as I said, she'll be providing our summation. So, Lola, over to you.

 

Ololade Durodola:

Thank you very much Professor Diane, it's great to be here with everybody. Thank you. I just want to give a special thanks to our fantastic roundtable panelists, it's been such a revelation at times within some of the thoughts that were brought onto the table and I really appreciate the energy and the passion that you have brought into the conversations. The panel started off with yourself, Professor Diane, introducing panelists as Professor Ann Tenbrunsel, Professor of Business Ethics University of Notre Dame; Professor Kish Parella, Assistant Professor of Law and Washington and Lee University; and our VIRTEU expert, Dr. Dawn Carpenter, Professional Fellow at Georgetown University, Kalmanovitz Initiative for Labor and the Working Poor, host of the Business Ethics podcast What Does It Profit? and Lecturer of Finance at The Catholic University of America. I realized that were in company of a very distinguished panel of experts, who work in – as you said, Professor Diane – in distinct yet very complementary areas of expertise. You started off on today's roundtable discussion about the biggest challenges that CSR, Business Ethics and Human Rights pose in the corporate world generally and how this can be brought along into the area of tax. Dr. Dawn stated that she'd worked in the financial industry and mentioned that there is the understanding that tax revenues are what actually makes the world work; I love that phrase, because she then raised these resources should be honest to foster public society infrastructure. Professor Ann was able to analyze why people behave in the ways that makes them deviate from their values and thereby, behaving unethically. She then queried why people and their corporations don't necessarily realize that they are in trouble and I guess in tax functions, until they discover that it's too late. Again, the reactive style, instead of being proactive in avoiding some of the issues that we see in the world today. Professor Kish contributed in the area of corporate conduct and she brought up issues about incentives being a decision making of firm levels, whether they were voluntary or in regulatory regimes and wondered to what extent regulations incentivize information gathering and how this information can be disseminated. There were also very important matters that were raised on if as long as issues were legal, then do we assume they are okay; and we talked about conflict of interest needing to be addressed and not just have imaginable fundamental changes as dominant in tax issues. And I think Professor Ann then raised about two dominance frames that are no different – the business frame mindset and the ethical framework sets – and analyze if incentives can take reward structures or sanctions structures to bring about changes on the new kind of regimes that we wanted to probably see in our tax world. We talked about the CSR, ESG, and talked about how fundamentally it was for us to talk on things as a market level, rather than just policy level; and we obviously had questions raised that were very interesting and opened the eyes of the panel also to different aspects of taxation, as one question raised was a concern that the scale was tilted a little bit towards the corporation responsibility angle, rather than the old school tax angle. And it was really interesting to hear some of the reflections of the panel on that and the other many questions. For me overall, it is obviously clear – and I know it would be to the panel – that tax issues are very hard to solve. I think there was a commentary about if they were really easy, then it would be solved already – of course they are hard to solve and that's why we're all here today. I know that tax illegality and immorality are subtle, but obviously they are very pervasive, we seek seriously obscure mechanisms that have global ramifications. And I thought that the panel did an excellent work to help us move the dial forward today in benefits to the VIRTEU project. And therefore, in my personal opinion, you have all met the aim of today's roundtable in analyzing Corporate Social Responsibility, Business Ethics and Human Rights in the area of taxation. Thank you very much for your contributions.

 

Diane Ring:

Well, Lola, thank you very much for pulling that together for us. I would love to thank our panelists today; it was just a delight to be part of this conversation. And of course, our attendees for joining us in this conversation and really raising the kinds of questions we're going to have to be able to address if we're going to move these issues forward. As a reminder, the next stage “Whistleblowers” will be Friday February 26th and we look forward to joining us for that session. Thank you again.

 

Costantino Grasso:

Thank you very much.