Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Corporate citizens of somewhere

Posted by hkarner - 24. März 2018

Date: 22-03-2018
Source: The Economist: Schumpeter

A golden age of companies having fistfuls of different passports is over

WHEN it comes to companies and their passports, there is a flutter of activity in the air—and a reek of hypocrisy. This month Qualcomm, an American-domiciled tech giant which does 65% of its business in China, booked most of its profits last year in Singapore, and pays little tax at home, successfully lobbied the Trump administration to block a hostile takeover on the ground that its independence was vital to ensure American strategic supremacy over China. The predator was Broadcom. It is listed in America but domiciled in Singapore, where it gets tax perks. On November 2nd, four days before its bid, it announced a burning desire to shift its legal base to the home of the brave.

In Europe, Unilever, which a year ago demanded that the British authorities help it fend off an unwelcome takeover by Kraft Heinz because it was a national treasure, is shifting its sole base to the Netherlands (at present it is split between London and Rotterdam). The consumer-goods firm says it wants to simplify its structure. But it has been an outspoken critic of London’s open takeover regime, and is probably relieved to shelter behind more protective Dutch rules. In Asia, Alibaba, a Chinese internet giant that has its domicile in the Cayman Islands, its principal office in Hong Kong and its listing in New York, has been invited by China’s government to float its shares “at home” in Shanghai, an offer it cannot refuse.

It is easy to view these events as just more examples of companies being opportunistic, cynical or both. But in fact a bigger trend is afoot—corporate flag-waving. After years of having more than one identity (rather like fictional spies having a safe-deposit box full of passports) companies are electing, or being forced, to show more allegiance to a particular country.

For three decades, a golden era for globalisation, the trend has gone the opposite way. Companies have unbundled their nationality from operations in the pursuit of efficiency or strategic advantage. The slicing and dicing of identity has occurred in at least half a dozen dimensions.

Take, for example, the frequent difference between where firms put their legal headquarters, where they put their de facto headquarters and where their decision-makers reside. When Anshu Jain was co-chief executive of Deutsche Bank between 2012 and 2015, it was often said that the German lender was run from London. ArcelorMittal, a steel firm based in Luxembourg with French, Belgian, Indian and Indonesian roots, is run by the Mittal family, who live in Britain. Jean-Pascal Tricoire, the boss of Schneider Electric, a French industrial firm with global interests, is based in Hong Kong.

The tax residence of firms is similarly unmoored. Apple is run from California but routes its foreign profits through Ireland, where it says key subsidiaries reside. Nor do regulators need to be physically close to their charges. HSBC, a global bank based in London, relies on profits from subsidiaries supervised in Hong Kong. Companies create intellectual property abroad; foreign pharma firms do most research in America. Then there is the final dimension of nationality: where a firm’s shares are listed. Dozens of Chinese internet companies are quoted in New York. In 2011 Prada, an Italian fashion house, chose Hong Kong over Milan.

This unbundling of nationality had a powerful logic. A firm might achieve a higher valuation by listing its shares in one country, get a lower tax bill by domiciling subsidiaries in another, and offer a better quality of life for its executives in a third. In some cases having multiple passports also allowed firms to win the support of more than one government, or undertake mergers that would have otherwise raised nationalistic hackles. Renault-Nissan-Mitsubishi has taken this idea to an extreme, operating as an alliance of firms with their own corporate governance that are linked by cross-shareholdings and some common management.

Today it is still possible to find firms keen to transcend nationality. On March 14th Prudential, an insurer that operates in Asia and America, said it would spin off its European unit, maintain its domicile in London but no longer be supervised by British regulators. SoftBank, a Japanese telecoms and tech firm, has set up a $100bn investment fund that is domiciled in London but mainly invests in Asia and America. But the overwhelming trend is for companies to shed their multiple passports, for three reasons.

First, some shareholders argue they are too expensive to maintain. BHP Billiton, a mining firm with listings in Sydney and London, has come under attack from an activist fund to simplify its structure. Analysts gripe that Renault’s alliance is too fiddly to value. Second, some firms are seeking the protection of one government—as in the case of Qualcomm and, perhaps, Unilever. Third, as a more protectionist climate takes hold, governments want firms to locate more activity “at home”. A recent example is Saudi Aramco, which was due to list in London or New York, but is now most likely to float its shares only at home. One reason is to help catalyse Riyadh’s development as a financial centre.

Passport control

The end of the golden age of corporate cosmopolitanism may make some governments feel more secure. But it could become a zero-sum game, where each country squabbles to get a bigger slice of a fixed pie. For the world’s great corporate entrepots, this is bad news. As nationality becomes rebundled, fewer firms will place particular functions away from their headquarters.

The most intriguing question is whether it is good for companies to be tethered to one place. Now that it is a ward of Uncle Sam, Qualcomm may be unable to cut back on pointless research or relocate jobs from America. Unilever may find the Netherlands cosy but Dutch sensibilities on pay restrictive. And being more protected ultimately breeds complacency. Multinationals may come to miss the days when they could stride the planet, belonging to everyone and no one at the same time.

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