Mind Your Own Business: A Maverick's Guide to Business, Leadership and Life by Sidney Harman

Author:Sidney Harman
Language: eng
Format: mobi
Publisher: The Crown Publishing Group
Published: 2003-10-27T14:00:00+00:00

Earlier essays have spoken of our business philosophy. I will comment on how it affects our financial and tax planning. We, like most good-sized companies, frequently receive sophisticated proposals for the reduction of taxes. This is an area we pay a great deal of attention to, especially because a high percentage of our total profits is generated in Europe.

Among the proposals we received recently was one that recommended the transfer of a portfolio of intangible assets to a low-tax-rate country such as the Cayman Islands. We were advised that by doing so we could significantly reduce our European taxes. We reviewed the proposal thoroughly and rejected it because we found it weak in theory and unworkable in the structure of our business. It might work in another company, differently organized from our own—one, for example, with a central engineering department. We would have been obliged to create a structure merely for the purpose of this financial engineering. We chose not to.

In recent years, we acquired several European software companies to increase our engineering capacity in that critical area and to accommodate the significant automotive OEM business already committed to us. When the acquisitions were completed, we reorganized our European corporate structure to enhance our ability to deal effectively with labor laws, capital requirements, benefit structures, and corporate governance. As part of that process, we were also able to take advantage of opportunities under current European tax laws to improve the tax efficiency of our European operations. Tax laws and regulations vary widely from country to country, and they often change—as frequently as every year. There is no permanent set of tax laws or regulations.

Our responsibility to our shareholders is to generate world-class products and to earn appropriate profits on their sale. Where do we draw the line when we work at effective financial management? Our guiding principle is that it must comply with the relevant legislation in each country where we do business and are taxed, and it must be consistent with rational, logical, and orderly business practice.

We saw the plan we rejected as a questionable piece of financial engineering. We saw the one we accepted as the natural derivative of a structural change that provided a serious and legitimate tax opportunity, an opportunity vigorously promoted by the European nation.

I present the contrast of the two examples because, though we are prudent, we are also vigilant. We receive new proposals virtually every month, and we reject virtually all of them as excessive because they do not meet our strict standards.

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