Yesterday, as usual, I woke up to the sound of BBC Radio 4’s ‘Today’ programme and a report on the apparent infiltration of tax consultants from the ‘Big Four’ accountancy firms into HM’s Treasury department. These consultants were on short-term placement in Whitehall to help civil servants understand how tax loopholes are exploited (legally, of course) and support those civil servants in the drafting of new schemes and policy. All in a spirit of openness, collaboration and public service, don’t you know.
In the newspapers and at earlier hearings, the Chair of the House of Commons Public Accounts Committee Margaret Hodge has railed against the morally-dubious business practices of the Big Four and others in aiding corporate and already-wealthy individuals avoid paying their ‘fair share’ of corporation tax in particular. A shameful roll-call of big name clients….Starbucks, Google, Amazon, Four Pillars (only joking about the last one!) have also been in this picture in recent times.
Spokesmen for the Big Four have provided assurances that their placement of young, inexperienced advisors into the Treasury is a benign and worthy activity. Really, what could a smart, university-educated, youngster with ‘only’ up to seven years working experience working in a tax advisory capacity, possibly do to undermine the Government’s efforts to tighten-up the public embarrassment of gross corporate tax avoidance? Well, I can’t help thinking cynical thoughts and, as I’m steeped in the world of procurement, it reminds of the question about to what extent should buyers facilitate the close engagement of supplier placements in their own businesses as part of their supplier relationship management (SRM) efforts?
We’re told that working closely with key suppliers is essential if buying organisations are to harvest the full potential value from their relationships, whether that’s supply chain efficiency, innovation, risk mitigation or cost improvement. Co-location and deepening relationships are enablers to that value creation and its harvesting, and there are reported examples where this happens. I’m not about to argue (in principle) with such practice as, in our client work, I’m often an advocate, but this practice must be undertaken with clear-sightedness and an understanding of whose business interests such arrangements serve.
When companies encourage co-located collaboration with suppliers, they are looking for a competitive or service improvement edge; the focus is on not only the impact on the buying company but also those of downstream customers. The question to ask is “how can this supplier collaboration serve the interests of our customers and help us be more profitable and win more business ourselves?” Who gets the share of the spoils from the collaboration is a function of the commercial leverage (or power) each party brings to the transaction whilst, of course, all parties must ‘win’ to some degree or the collaboration will break down and fail.
As well as opportunities to improve value, these arrangements also carry the risk of some loss of knowledge power (informational asymmetry favouring the buyer). The supplier is able to access a wider range decision-makers and information about the buyer’s business; increasing transparency in the relationship that can lead to the buyer’s loss of leverage in future negotiations, where previously some obscuring of the facts could have helped the buyer secure a better deal.
So, back to the Treasury and the Big Four. The Treasury’s role, in addition to policy and governance, is to develop tax revenue-generating mechanisms and to distribute funding to support the other government departments and agencies. The leaking of potential tax revenues through loopholes is an important area of concern and is obviously attracting attention and effort to address it right now. One can imagine brainstorming sessions involving inside and outside advisors alike, looking at current practices deployed by the tax-advising consultancies aimed at avoiding tax for their clients. But there’ll undoubtedly be other meetings around the efficacy of modified or new schemes where the Big Four representatives will provide some critique, and in doing so, will gain insight on any shortcomings or new loopholes. Does anyone seriously think they’d be excluded from these discussions?
Massively simplifying the tax system would result in fewer government resources required to manage the system and offer fewer loopholes for the tax advising experts to ‘manage’. There’s the rub; the Big Four have surely zero interest in simplification as their client value proposition is being to navigate system complexity on their clients’ behalf. Ongoing access to the inner workings of the Treasury is manifestly in their interest and remains a risk to the Treasury as long as they continue to offer such access.
To the wider question of buyer-supplier collaboration and co-location, what advice would I give procurement people? Certainly involve suppliers in a range of value improvement activities but do so once it is clear that those suppliers are committed to the task and that the buying organisation can retain control of those activities. Be realistic throughout and calculate the risks of the potential loss of leverage. Remember that regardless of the quality of your relationships and value-improvement initiatives with key suppliers, in tough economic circumstances an urgent cost saving edict from the CEO’s office can stall SRM progress and undo much good value-creating work.
On the other hand, my advice to sales and account managers is to continue to seek access to your customer’s organisation; wrap your intentions to grow revenues and profitability in collaboration and the language of shared-interests. Build close alliances with decision-makers across the organisation, systematically go about uncovering the needs and interests of the all the key players, and weave this knowledge and insight into your own value propositions. Your presence on ‘the inside’ will make it extremely difficult for a competitor to gain access and you will be in pole position when it comes to helping the customer construct its tender documentation and decide on its bid evaluation criteria.
I know the above is hardly the language of whole-hearted buyer-supplier collaboration or (dare I say it) ‘win-win’; but it is perhaps the voice of vigilance and realism. Don’t shoot the messenger.