The tax affairs of an organisation, now more so than ever, directly impact and influence reputation and brand.
KPMG’s annual CEO Outlook survey was interesting reading for those keeping a watchful eye on the continuing rise of reputation risk as a headline concern of the C-Suite. The results of the global survey saw reputational and brand risk make a meteoric rise in the list of the most important risks faced by CEOs: from outside the top ten in 2016 to third place in 2017 (after operational risk and the challenges of emerging technologies). CEOs also considered that reputational risk would have the second biggest impact on the growth of their organisation over the next three years.
This trend was replicated in the UK cut of the survey results: reputational and brand risk was the third most influential factor that UK CEOs expected to impact their organisation’s three year growth plans, and 71% said that building trust among external stakeholders has risen to a top three business priority.
What do these results mean for the responsible tax agenda? We believe that the tax affairs of an organisation, now more so than ever, directly impact and influence reputation and brand.
Firstly, business is operating in an increasingly transparent environment. The increasing speed and geographic spread of both social and mainstream media means that business needs to be on the front foot and ready to defend and protect its brand.
In tax we see this very clearly: for example, the increasing likelihood of tax news to make the headlines, and in the requirement for our largest groups to comply with country by country (‘CBC’) reporting, summarising their headline tax numbers. Whilst there is currently no requirement for organisations to go public with their CBC reports, there are increasing calls for Governments to make this change. Against this backdrop, many are considering whether voluntary disclosure of some (or all) of the key facts could help protect their reputation, and help control the flow of the information into the mainstream.
Secondly, there is increasing pressure on CEOs to demonstrate that business success is more than just generating healthy financial returns for shareholders. Instead, the focus needs to be on demonstrating a broader responsibility for customers, employees, society and the environment.
Many are now directly linking tax behaviour to an organisation’s broader corporate culture. Jane McCormack, KPMG’s Global Head of Tax has commented that “in some countries, the interest from civil society in the question of who is paying their ‘fair share’ of tax has resulted in tax behaviours being seen as an indicator of wider corporate culture, impacting reputational risk and public trust.”
CEOs are quickly realising that taking a socially responsible attitude towards their organisation’s tax profile is a very tangible way of showing a breadth of corporate responsibility, as well as acting to boost progress on their broader corporate social responsibility objectives – whether it is promoting fair and transparent business practices, giving back to society, or helping to bring to life what is meant by “corporate ethics”. And of course there may be second level benefits, such as the organisation being seen in a more positive light by employees, customers and supplier, or an improved relationship with tax authorities.
Our prediction is that reputational and brand risk promises to remain high on the C-Suite agenda. Those organisations which proactively look to manage their risk will increase their focus on all contributing factors, including tax. But those who fail to keep a broad perspective may find that their tax affairs are hitting the headlines for all the wrong reasons.
For more information on KPMG’s support for the responsible tax agenda, contact Janette Wilkinson.