In the wake of a growing number of corporate greed-inspired headlines, shareholders, workers and, more recently, government officials had challenged the tax avoidance move, claiming it put jobs at risk, and placed corporate executives further from the control and oversight of shareholders and US regulatory agencies (see Connecticut Treasurer, AG Challenge Stanley Works – Again ).
Margin of Error?
The New Britain, Connecticut-based tool company had sought and won shareholder approval for the move, in a controversial vote on May 9 by the slimmest of margins.
That margin, and controversial instructions provided to 401(k) participants regarding the voting of unreturned proxies, led to challenges from Connecticut state officials and union leaders and an inquiry from the Securities and Exchange Commission (SEC) (see Participant Mailings Lead to Stanley Revote ).
Stanley had predicted it would save $30 million a year by reincorporating in Bermuda.
Institutions Weigh In
Recent offshore moves have continued to draw strong criticism from pension funds, intuitional investors and union members alike (see Funds Speak Out on Nabors Reincorporation ).
Less than a week ago, California Treasurer Phil Angelides, who sits on the boards of two of the largest pension funds in the nation, announced his intention to pull state money out of companies that leave the US for offshore tax havens – and proposed a blacklist of 23 companies that have undertaken such moves to avoid taxes (see Cal. Treasurer Targets Firms Heading Offshore ).
In recent days members of the US Congress have taken retaliatory steps against such measures, seeking to withdraw lucrative government contracts from firms that make the offshore moves. That legislation could force firms to either forego millions of dollars in contracts or incur significant legal and tax-related costs to return to the US.
In June, the Senate Finance Committee approved a bill that would treat companies that are considering or that have made a change in their legal address since 1996 to offshore tax havens such as Bermuda as if they never left.
Stanley Chairman John Trani cited those actions in an interview with Dow Jones, as weighing on the firm’s decision to stay put.
According to the report Trani said that Congressional leadership had asked Stanley on both sides of the aisle “to support their efforts toward rectifying this situation by enacting legislation that will create a level playing field for companies incorporated in the U.S.”
Firms looking for some offshore relief complain that the US corporate-tax system puts them at a severe disadvantage compared to foreign competitors, who generally pay taxes only on their domestic income.
While the American government has made some attempts to mitigate that impact with a system of credits, that system hasn’t been enough to stem the tide.
Speaking of the government intervention, Trani said “We have honored their request, and the ball is now in their court. Ignoring this problem will not make it go away, but can only accelerate the trend of fewer US headquartered companies.”
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