Ó Springer 2005
Evaluating the Ethics of Inversion
Susan H. Godar Patricia J. O’Connor Virginia Anne Taylor
ABSTRACT. In the last ﬁve years, a number of U.S. companies have either moved their locus of incorporation to countries with more favorable tax laws, or announced such moves. Given this trend toward ‘‘inversions’’, and the polemics that have accompanied it, we offer two ways in which the ethics of such a move can be evaluated. We provide multinational executives with two applications of ethics to inversion: Kant’s deontological theory and the consequentialist perspective of utilitarianism. Susan H. Godar (Ph.D., Temple University) is professor and chairperson in the Department of Marketing and Management Sciences at the Christos M. Cotsakos College of Business, William Paterson University. Her research, primarily on virtual teams, business ethics, and marketing pedagogy, has appeared in such journal as Teaching Business Ethics, Journal of International Management, Industrial Marketing Management, and Services Marketing Quarterly. She has also co-edited two books on virtual teams in business and in teaching. Patricia J. O’Connor is associate professor of Philosophy at Queens College, City University of New York. She earned a Ph.D. in Philosophy from the University of Exeter, U.K. After three years as associate provost at Queens, she spent three years at Brooklyn College, CUNY, leading academic assessment there. Her research interests include business ethics, the ethics of academic administration, and the scholarship of teaching. Virginia Anne Taylor is associate professor and director of the MBA program at William Paterson University. She earned a Ph.D. in International Business from Temple University. Her research focuses on globalization, localization, and international dispersion of value-added activity, business ethics and pedagogy, the ethics of regulation, transfer pricing and taxation. Thirteen journal articles and three book chapters have been published in outlets such as the International Journal of Strategic Management: Long Range Planning, the Business Research Yearbook, the Annals of Cases in Information Technology, the Journal of College Teaching & Learning and the Journal of Business & Economics Research.
KEYWORDS: Inversion, ethics, Kant’s deontological theory, utilitarianism.
Introduction On May 9, 2002, stockholders of Stanley Works, the toolmaker, voted to move its locus of incorporation to Bermuda. Under the terms of the resolution, Stanley would not move its physical headquarters from Connecticut, but would no longer be a U.S. corporation. Instead, it would join companies like Tyco, IngersollRand, Accenture, and Seagate Technologies in reincorporating in a Caribbean tax haven. The company would hold a meeting there annually, but would otherwise conduct business as usual. Public reaction caused Stanley’s management to defer the move and schedule a revote on the measure. The company eventually removed this item from consideration. Politicians in the U.S. are labeling inversion, this movement of business incorporation locations to offshore tax havens, ‘‘unpatriotic’’ and ‘‘immoral’’ (McTague, 2002). Many multinationals are becoming interested in using this tax reduction strategy, which is legal under current law. We will set aside the ﬁrst characterization, ‘‘unpatriotic,’’ for debate among politicians. Our paper considers the second characterization: whether it is unethical for companies to redomesticate to avoid taxes in their home country. Using Kantian theory and an attenuated deﬁnition of ‘‘citizen,’’ it is clear that inversion is indeed unethical. Using stakeholder theory in conjunction with utilitarianism, the question remains open. Since we foresee difﬁculties for multinationals attempting to use this latter decision framework, we attempt to assist executives by identifying ﬁve groups of stakeholders and...