Winning Outside the Spirit of the Game

At the soccer World Cup this past summer, Argentina’s Luis Suarez intentionally knocked away a last minute shot-on-goal by Ghana with his hands.  Had Suarez not punched the ball away, Ghana would have scored and won.  He is not a goalie, so this was, obviously, against the rules.  He was ejected, Ghana was given a penalty kick—which they missed—and the game went to overtime.  In the end Argentina won.  By the letter of the law, Suarez didn’t “get away” with anything; he was ejected and banned for the next game, and Argentina played a man down.  But at that split second when the ball was heading towards the net, Suarez made an economic decision: in the tradeoff between being ejected/suspended and letting the ball past, he chose the former—playing within, and outside, the rules at the same time.  Argentina won the game, and you’d be obligated to use the word “fairly”, but Ghanaian fans can be forgiven for feeling resentful at the same time.

I find myself asking similar questions when I look at many of today’s businesses and their structures, strategies and products.  If a company is playing “by the rules” but out of the “spirit of the game”, how should we feel about them?  Perhaps the easiest example is in the recent credit crisis.  There were certainly instances of illegal activity, but for the most part, these bad loans and shady financial products were within the rules.  Yet, we can certainly argue that they were out of the spirit of the game (depending on what game you were playing).

But take a company that claims no evil.  Due to some crafty, yet legal accounting, a holding company in Bermuda, an empty office in the Netherlands and setting their “headquarters” in Ireland (only 2,000 of their 20,000 employees), Google has paid about 3 billion dollars less to the United States government in taxes.  This has reduced their effective tax rate to 2.4%, the lowest of any American tech company.  Facebook and Microsoft are scrambling to follow suit; the strategy has resulted in Google’s share price being roughly $100 more than it would have otherwise.  Yet they aren’t breaking the law; they’re a public company and clear (though defensive) about what they’re doing.

In the spirit of the game though, especially if we look at the fact their American offices dwarf their Irish offices, doesn’t this feel like a legal breaking of the rules?  Sure, it’s smart business, but if you’re, say, a factory owner or a real estate firm manager that doesn’t have the luxury of overseas offices and holding companies the way a tech company does, aren’t you a little pissed?  We’re voting in the same elections; we’re driving the same scenic interstates; we’re protected by the same bloated Defense Department.

It’s going to be interesting to watch, with global economic borders crumbling, how these scenarios evolve.  If a company is playing to the letter of the law, yet manipulating it outside of the spirit of the game, the only way to correct the fairness of the situation is to adjust and/or abolish the rules.  But as finances, trade, talent and offices become more entwined around the world, all under different governments, it’s going to be harder and harder to identify the exact spirit of the game, and judge how “right” each player is in the way they participate.  Google is doing what’s best for its business and you can’t fault them for it.  And at the same time, you could make a very strong argument that what they are doing is better for the American people: the savings wrought from their financial juggling is found in their healthy share price; Uncle Sam never gets to touch it (until you sell the stock).  But the tough question is the “fairness” angle, and what game of capitalism we’ve agreed to play.  Google and their shareholders may be quite proud of what they’ve done, but that factory owner or real estate manager just down the street may not be as enthusiastic.

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Follow Caleb at www.twitter.com/calebgarling

Caleb Garling lives in San Francisco and wrote The St George’s Angling Club, available at

www.calebgarling.com

 

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2 Responses to Winning Outside the Spirit of the Game

  1. Soog says:

    Sports have Competition Committees that keep rules current and for the best interest of the game. They can change a rule before every season. They can also test them.
    Tax law is far more cumbersome and the players are better funded. If it were only as easy as in sports. But I don’t hate the player. I hate the game.

  2. Inderwies says:

    I had no idea was using offshore tax sheltering. Indeed, most firms do, but their “leadership” in this area surprises me. Keep shining light on important knowledge.

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