Tyco International recently decided it would keep its headquarters in Bermuda. A number of state treasurers, public pension funds and unions are calling Tyco unpatriotic -- which is not a very pleasant thing to call anybody, especially when the United States stands on the brink of war. Their argument is that America needs all the help it can get from taxpayers these days, and it's just plain unAmerican for an American company to hole up in Bermuda or Barbados or any other offshore tax haven.
Now you may remember that Tyco's former top executives were charged not long ago with looting the company of $600 million. Since then, the firm has got itself new executives and a new board, and pledged to become a leader in corporate governance. So what are we to make of Tyco's decision to stay in Bermuda?
The fact is, it was the shareholders of the new and improved Tyco who voted to stay in Bermuda, and they did so because Tyco pays lower taxes as a Bermuda company -- after all, that's the whole reason to be in a tax haven. Lower taxesmeans more money left over to be reinvested or distributed. So Tyco's shareholders obviously figure they'll do better in Bermuda than if they were incorporated in Delaware or any other place in the United States.
Don't confuse good corporate governance with what some might consider good corporate citizenship or patriotism. Tyco used to suffer from bad governance; its shareholders allegedly got bilked hundreds of millions of dollars because the firm was governed by a complacent board of directors and crooked executives.
Now Tyco has reformed itself. Good corporate governance means acting in the best interests of shareholders, and as long as it's legal for Tyco to incorporate in Bermuda and avoid paying U.S. taxes -- and if that's what its shareholders want it to do -- then Tyco is acting in the best interests of its shareholders.
Is Tyco being unpatriotic or unAmerican? That's for Congress to decide. Congress writes the tax laws, and can write a law that prohibits companies like
Tyco from moving to tax havens. Corporations can't be expected to be good citizens on their own if that requires sacrificing shareholder value for the sake of an abstract concept that hasn't even been legislated into law. If we want good corporate citizenship, Congress has to define what that means.
In the meantime, I'll settle for good corporate governance.
