Sometimes the news isn’t what you see—it’s what you don’t see. In this case, the news is two companies that you don’t see in the newest iteration of the Fortune 500: Medtronic and Mylan. That’s because to its credit, Fortune kicked Medtronic and Mylan off its prestigious list for deserting our country by moving their domicile out of the U.S. for tax purposes while continuing to be run from here.
Why did Fortune kick out these companies, which would have ranked 185th and 368th, respectively, while another big-time list, the Standard & Poor’s 500 index, treats them like American companies?
“The Fortune 500 is going to remain a list of companies based in the U.S.,” Scott DeCarlo, Fortune’s list editor, told me. “We want to maintain the integrity of the list.” Since 2000, Fortune, my former employer, has kicked 10 companies off its 500 for leaving the country. S&P had a similar policy but reversed it five years ago.
There’s a second thing that we don’t see: the public outrage that we saw a year ago, when household names Walgreen and Pfizer were considering doing deals to desert our country, and Medtronic and household name Burger King completed such deals.
The fuss quieted down when Walgreen and Pfizer’s desertion attempts fizzled, Medtronic’s went through, and Burger King’s got the imprimatur of Warren Buffett, who has stored up tons of public goodwill by denouncing anti-social Wall Street behavior. Buffett’s Berkshire Hathaway conglomerate (whose shareholders include me) helped finance Burger King’s takeover of a Canadian company, Tim Hortons, with the renamed Restaurant Brands International establishing its domicile in Canada.
A year ago, there seemed to be a small chance that Congress would make it much harder for companies to become foreigners for tax purposes while continuing to be based here and benefiting from our intellectual and educational infrastructure, rule of law, deep financial markets, great places to live and work and all the other things that make America America.
People including me suggested an ER type approach: stop the bleeding with short-term-fix legislation, then resolve the underlying problem by reforming the corporate tax code.
But it was not to be. When Treasury Secretary Jack Lew and then President Obama began using the economic patriotism trope after Fortune and The Washington Post had run my Fortune essay calling out corporate deserters, any chance of a bipartisan compromise disappeared. The Treasury later issued regulations that killed some would-be desertions and made Medtronic’s more difficult, but nothing substantive has happened since. Short-term-fix legislation, introduced by Rep. Sandy Levin (D-Mich.) and his brother, since-retired Sen. Carl Levin (D-Mich.), went nowhere.
Meanwhile, corporate desertions continue, sometimes in mutated forms. For example, as I wrote in February, two of the three companies whose desertions had been upended by the Treasury’s new regulations were acquired by previous deserters: Salix Pharmaceuticals by Valeant Pharmaceuticals, and Auxilium Pharmaceuticals by Endo International.
From 2002 through 2009, S&P tossed nine companies off the 500 when they moved offshore. S&P had always listed what I call “never-heres”—companies like Delphi (the successor to the U.S.-domiciled Delphi, which had gone bankrupt) that have never been domiciled in our country.
In 2010, to make some index fund investors happy and foreclose possible competition from rival indexers, S&P stopped kicking deserters out of the S&P 500 and started adding back the ousted ones. A year ago, the S&P 500 had 28 deserters and never-heres. At year-end 2014, 29. Now, 30. Next year, who knows.
Alas, the S&P 500 matters more to companies than the Fortune 500 does. Get kicked off the Fortune 500, and your pride and image are hurt. Get kicked off the S&P 500, and index investors, who collectively own a huge chunk of your stock, have to sell and your stock price gets hurt.
I’m pleased that Fortune has kept the faith, and hope that next year, it won’t have any deserters to kick off its list. However, I’m afraid it will—Monsanto, No. 197, may do a deal with Swiss-based Syngenta.
The bottom line: Absent a miracle in Washington, the bleeding of corporate tax revenues out of our country will continue. Drip, drip, drip.