Thursday, March 17, 2016

25 companies more powerful than most countries

FP |  At first glance, the story of Accenture reads like the archetype of the American dream. One of the world’s biggest consulting companies, which commands tens of billions of dollars in annual revenues, was born in the 1950s as a small division of accounting firm Arthur Andersen. Its first major project was advising General Electric to install a computer at a Kentucky facility in order to automate payment processing. Several decades of growth followed, and by 1989, the division was successful enough to become its own organization: Andersen Consulting. 

Yet a deeper look at the business shows its ascent veering off the American track. This wasn’t because it opened foreign offices in Mexico, Japan, and other countries; international expansion is pro forma for many U.S. companies. Rather, Andersen Consulting saw benefits—fewer taxes, cheaper labor, less onerous regulations — beyond borders and restructured internally to take advantage of them. By 2001, when it went public after adopting the name Accenture, it had morphed into a network of franchises loosely coordinated out of a Swiss holding company. It incorporated in Bermuda and stayed there until 2009, when it redomiciled in Ireland, another low-tax jurisdiction.

Today, Accenture’s roughly 373,000 employees are scattered across more than 200 cities in 55 countries. Consultants parachute into locations for commissioned work but often report to offices in regional hubs, such as Prague and Dubai, with lower tax rates. To avoid pesky residency status, the human resources department ensures that employees don’t spend too much time at their project sites.
Welcome to the age of metanationals: companies that, like Accenture, are effectively stateless. When business and strategy experts Yves Doz, José Santos, and Peter Williamson coined the term in a 2001 book, metanationals were an emerging phenomenon, a divergence from the tradition of corporations taking pride in their national roots. (In the 1950s, General Motors President Charles Wilson famously said, “What was good for our country was good for General Motors, and vice versa.”) Today, the severing of state lifelines has become business as usual.

ExxonMobil, Unilever, BlackRock, HSBC, DHL, Visa—these companies all choose locations for personnel, factories, executive suites, or bank accounts based on where regulations are friendly, resources abundant, and connectivity seamless. Clever metanationals often have legal domicile in one country, corporate management in another, financial assets in a third, and administrative staff spread over several more. Some of the largest American-born firms — GE, IBM, Microsoft, to name a few — collectively are holding trillions of dollars tax-free offshore by having revenues from overseas markets paid to holding companies incorporated in Switzerland, Luxembourg, the Cayman Islands, or Singapore. In a nice illustration of the tension this trend creates with policymakers, some observers have dubbed the money “stateless income,” while U.S. President Barack Obama has called the companies hoarding it America’s “corporate deserters.”

It isn’t surprising, of course, when companies find new ways to act in their own interest; it’s surprising when they don’t. The rise of metanationals, however, isn’t just about new ways of making money. It also unsettles the definition of “global superpower.”