There is more joy in heaven, as Luke’s gospel says, over one sinner who repents than over 99 righteous people who do not need to. The sentiment might explain the unrestrained glee over Facebook’s tax settlement.
On Friday the company, which like its Silicon Valley brethren has faced deserved flak over how it avoids tax by booking UK revenue through Ireland before zipping it off to the Cayman Islands, said it would change the way it works. In future, large advertisers — ones that buy enough ads to have to deal with a human being rather than book online — will pay Facebook UK, not Facebook Ireland. The social network will have a bigger turnover here as a result and, you would expect, bigger profits and so a bigger tax bill.
Keep the champagne on ice. More revenue does not have to mean more profits. Multinationals have a variety of tools they can deploy to keep British profits down. Facebook could, for example, load the UK subsidiary with debt, or pay big royalty fees offshore.
There is another twist, as my colleague Simon Duke reports this week — Facebook can count the lucrative stock options it has awarded its staff here as an expense against tax.
Friday’s concession, however, is a step in the right direction. HM Revenue & Customs should now apply itself to making Google book its UK revenues here, not in Ireland — a much more satisfactory outcome than January’s lame and opaque £130m settlement.
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Singer is right for Rolls
ROLLS-ROYCE is proud of its compliance with the UK corporate governance code, boasting of its adherence in the annual report.
On the recruitment of non-executive directors, the code says there should be “a formal, rigorous and transparent procedure for the appointment of new directors to the board”.
I’m not sure last week’s appointment of Bradley Singer, chief operating officer of the American fund manager ValueAct, passes the test. ValueAct, which owns a smidge under 11% of Rolls-Royce and is the largest shareholder, has made no secret of its desire for a board seat.
The aero-engine maker had a vacancy for someone with American experience — James Guyette, the former head of Rolls-Royce’s American operations, has stood down— but the net has not been cast wide in the search for a replacement — as wide, in fact, as the door of ValueAct’s offices in San Francisco .
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The directors were probably wise to ignore the fine points of the code and go with the pragmatic choice. Singer is just the kind of hard-headed outsider Rolls-Royce needs. He is from a breed of professional investors common in America but harder to find here — people prepared to take a deep dive into the details of the companies and home in on the strengths and weaknesses.
I would bet Singer and his team already know most of the details of Rolls-Royce’s performance; how each type of engine holds its performance targets over time, how they compare against products from the big American rival General Electric, and how the supply chain — the all-important web of operations, some in-house, some outsourced — contributes to the final completed engine. The expectation of some analysts that Singer will push for a break-up is wide of the mark.
A good appointment then, even if other investors will have their noses out of joint. If they feel really strongly about it, all they have to do is get together and vote Singer off the board, an opportunity that presents itself every year at the annual meeting.
Singer’s behaviour will be governed by a relationship agreement between ValueAct and Rolls-Royce — again, an idea imported from America.
If it works, other activists might pour in, demanding that recalcitrant boards give them seats in return for their promising not to behave outrageously. Other FTSE 350 boards will be watching nervously.
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Hard times, better pay
BOB DUDLEY, BP’s amiable chief executive, took home nearly $20m (£l4m) last year despite the company’s sinking share price (see chart), a record loss and the axing of about 5,000 jobs. The High Pay Centre said his package, which included an extra $6.5m bunged into his pension, showed how boards were losing “contact with reality”.
It’s hard to disagree; boards bang on about alignment between shareholders and executives, so that if the former suffer so do the latter.
Dudley’s compensation terms appear to work the other way. The justification will be that he is doing a good job in a tough industry — an argument that would work if his pay went down in the good times.
If a spurious rationale is needed to boost Dudley’s pay, how about linking it to a feel-good factor for BP’s customers. For every 10p a litre the petrol price goes down, he can earn another $20m.
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Over the past year the end result would have worked out about the same as the current, much more convoluted, pay policy.
