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Sociopolitical corporate risks for 2010

By: Henry Funk

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The year of 2010 has brought a great amount of optimism to the business community, but are we, as both an economy and as individuals really in the green. With the new president of the USA promising to promote and support the economy many people would be led to believe that the economy is finally raising back to the level it once was. However, in order to see the true picture we must look at the socialpolitical risks.

The main socialpolitical
corporate risks are primarily those of tax avoidance and corruption risks.

Recent statistics have shown that tax avoidances costs the UK 13 billion pounds per year, however, this is barely a factor to take into consideration when we look at the level of potential tax avoidance made on a multinational level. The largest corporations that control the greatest of amenities, those being gas, electricity, fuel and minerals all bring with them the potential for tax avoidance. The reason for attempting such a feat is simply that by doing so they are able to create more funds in order to expand greater then the competition. However, the problem is that in developing countries the money given through tax is heavily relied on and therefore is not questioned. In order to stop this, the corporation known as PWYP, publish what you pay, has been working at persuading corporations to be transparent with the amount of tax that they pay.

This will, as expected, cause problems with those corporations as contracts will likely need to be renegotiated for fairness and equality reasons. By increasing the costs of the corporations this will in turn increase all businesses costs whether they produce a service or goods. In the longer run this would mean that the already damaged companies would then need to pay out more money before full consumer confidence and spending power has been restored. However, the corruption risks are far more worrying.
Corruption risk is seen to be one of the biggest concerns as statistics have shown a rise in both 2008 and 2009 and all indicators have pointed to a much higher rise in the current year.

However, in order to combat this, the department of justice has increased both its investigations and its convictions forcing corporations to look internally and correct the issues they have willingly overlooked. With the new clamp down on corruption corporate executives must now institute internal mechanisms to prevent, detect, and remediate violations of the Foreign Corrupt Practices Act (FCPA). If they do not take immediate action then the directors themselves could be fined, or as the courts are pushing for, jailed for a short period of time. This could, in effect, damage the economy further by making companies spend money doing internal investigations, both draining funding for expansion and slowing down progress.

In conclusion, although it may not seem likely that tax avoidance and corruption within companies will cause damage to the economy a good economist knows that where ever there is money generated or spent there will be an effect on the economy. In truth the possible effects are far removed from the more obvious problems such as unemployment and lack of overseas trade. For now we can only hope that the economy will sustain itself even with the wrongly timed actions of multinational governments.

Article Source: http://depositarticles.com/

James Hudson is a corporate risk specialist. For more information about corporate risk and related services, please visit www.begbies-traynorgroup.com/security-risk/

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