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Posted at 12:17 PM ET, 12/12/2012

Google’s Silicon Valley morality tale


The shadow of a journalist is cast on a screen with the Google Inc. logo at a news conference in Seoul, South Korea, on Thursday, Sept. 27, 2012. (SeongJoon Cho - BLOOMBERG)

Google is one of the leading players in a modern-day Silicon Valley morality tale, particularly now, since it is among the American multinationals using sophisticated international tax shelters to avoid paying billions of dollars in taxes. According to Bloomberg, nearly $10 billion in revenue and $2 billion in taxes due disappeared into a Bermuda Triangle of shell corporations, offshore subsidiaries and clever accounting maneuvers such as the “Double Irish With a Dutch Sandwich”. Even for Google’s biggest fans, it’s now a fair question: Whatever happened to the unofficial company motto "Don't be evil"?

To be fair, nothing Google did was illegal — the company simply executed well-known tax loopholes to perfection in the interest of maximizing returns to shareholders. Moreover, Google is hardly the only tech company caught with their Bermuda shorts pulled down around their ankles. Across Europe, there has been an outcry against tax-avoiding multinationals, with an emphasis on cracking down on the offshore tax activities of the tech world’s biggest players, including Amazon, Apple and Microsoft. In the UK earlier this month, British lawmakers took turns publicly admonishing the leaders of some of America's biggest companies, claiming that they aren’t paying their “fair share” of taxes.

These are not just harangues from our cash-strapped European friends, they are evidence of a fundamental change to the way we view Silicon Valley’s most successful tech companies. When Silicon Valley darlings transform from small private companies into huge, multinationals, it fundamentally changes the definition of business-as-usual within the tech industry. Suddenly, tech companies have a role to play in cracking down on sweatshop labor conditions at factories where their gadgets are made. They have a new-found responsibility to battle government censorship policies anywhere in the world, from China to the Middle East.

In short, the world’s most innovative companies are now expected to also be the world’s most moral ones. Companies like Google are expected to do not only the legal thing but the “right thing” without being forced to by regulators or cajoled by lawmakers.

Until now, traditional notions of corporate social responsibility (CSR) have taken into account factors such as a company’s impact on the environment, efforts to give back to the local community, and the ethical treatment of workers in foreign locales. And by these traditional measures, companies such as Google and Amazon are among the most responsible corporate citizens in the world. One CSR poll, for example, routinely ranks Google as among the Top 5 most responsible companies in America.

For Silicon Valley to retake the moral high ground, what’s needed now is an innovative way to include “being a responsible tax payer” as another key factor in what it means to be a socially responsible corporation. According to preliminary work published by Harvard Business School, for example, companies that avoid sophisticated tax dodging strategies are also companies that report lower rates of financial fraud and managerial malfeasance. Similar thinking can be used to convince corporate boardrooms that paying a responsible tax in the short-term may actually pay off in the long-term.

As long as Wall Street equates “shareholder value” with “maximizing profits,” though, this may be harder than it sounds: every extra dollar paid to the Tax Man is one less dollar paid to shareholders. It will take a company of the stature of Google — a company already recognized as one of the most responsible corporations in the world — to convince others in the tech world that even the faintest whiff of impropriety that comes from creating a maze of shell companies to shelter revenues from tax authorities is ultimately bad for business. Like it or not, Silicon Valley’s biggest tech companies are the embodiment of American democratic values in the world.

Now, they need to play the part.

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By  |  12:17 PM ET, 12/12/2012

 
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