Customer Loyalty Trumps Public Opposition to Corporate Tax Inversions

U.S. companies considering a relocation abroad face broad opposition from American voters, but the views of consumers aren’t likely to translate into boycotts, according to marketing experts.

Public disapproval of corporate tax inversions is strong across all industries, with about two-thirds of voters saying they’re against U.S. firms like Burger King Worldwide Inc. moving their headquarters to another country, according to the results of a recent Morning Consult polling.

And while that means businesses face an unsympathetic jury in the court of public opinion, they needn’t worry about a hit to sales so long as they have a good grasp of their customer base, say experts in consumer behavior and marketing.

“I don’t think that Burger King is focused on the opinions of elders, people who are 65 and older,” said Ann Bastianelli, who has led national advertising campaigns for McDonald’s Corp. “They’re interested in 18-to-25-year-old men, and those guys are not talking about tax inversions. They’re talking about Triple Whoppers.”

“If it’s how much meat versus the views of Wall Street,” it’s no contest, she said.

That viewpoint is supported by data from a previous Morning Consult poll showing 18-to-29-year-olds were the least familiar with corporate tax inversions compared with other older age groups.

Still, influencing consumers, especially young adults, can happen a lot faster than just a decade ago thanks to social media, said Lars Perner, a marketing professor at the University of Southern California’s Marshall School of Business.

“Public opinion could probably turn around rather quickly if this became a major topic on social media,” he said.

With about 25 percent of the public unfamiliar with the practice of tax inversions, that leaves a decent chunk of voters and consumers who are open to persuasion.

Boycotts, however, are more easily threatened than implemented, according to Perner. “There’s a big issue of follow-through,” he said. “In practice, boycotts can become inconvenient for consumers.”

For consumers, price still matters. Only five percent of respondents 65 and older said they’re more likely to buy a product or service from an inverted company, even if the price is unchanged. But if the price declines, 16 percent in that group said they’d be willing to make a purchase. For adults in the 30-and-under crowd, that likelihood jumped from 28 percent to 45 percent.

Companies looking to blunt any criticism stemming from inversions have some simple tools at their disposal, said Hema Yoganarasimhan, an assistant professor at the University of Washington’s Foster School of Business.

“Highlight some positive aspects,” she said. “Is it good to the environment? Good employee benefits? Shareholder values?”

She also said it’s worth reminding the public about the basics of tax inversions.

“The key thing is that it’s legal. It does make people upset, but it’s not illegal.”

The pitfalls of inversion terminology were underscored last week when Houston-based Civeo Corp., which provides housing and accommodations for employees working in the energy industry, said it will execute a “self-directed redomiciling” to Canada since that’s where most of its business takes place. While the maneuver isn’t exactly the same as an inversion – Civeo didn’t acquire another company but conducts a substantial amount of business in Canada – the announcement was ill received, particularly in the market. Civeo’s stock plummeted 46 percent on the day it went public with the decision.

While firms often present the decision to invert as being in the best interest of shareholders, the debate has spilled over into the political arena, with lawmakers asking whether the accounting maneuvers are in the best interest of the country.

Democrats fired the opening salvo in the war of words by describing the offshore tax deals as “unpatriotic,” a descriptor used by both administration officials and Democratic lawmakers.

“Certainly that would resonate with the GI generation,” said Bastianelli, who’s now a senior adjunct professor of marketing at Indiana University’s Kelley School of Business. “But as you push further south – younger in demographics – that’s not the experience of those Americans. They’re much more broad-minded about lots of topics than age groups that are older.”

A better tack for inversion opponents, experts say, would be to emphasize any potential loss of American jobs since that’s something voters can understand better than corporate tax structures.

“This is very abstract idea to consumers,” Yoganarasimhan said. “The effect is very indirect on them. If people want the companies to be held accountable they have to make a more direct connection to how this causes harm or something negative. Maybe schools don’t get funding,”

David Burton, a senior fellow in economic policy at the Washington-based Heritage Foundation, said another way to look at the “unpatriotic” argument is to question the patriotism “of those who keep the U.S. tax rates so high” since they’re maintaining the highest corporate tax rate among industrialized countries.

The corporate tax rate in the U.S. is close to 40 percent, while Canada’s is 26.5 percent and Ireland’s is 12.5 percent. Both countries have become destinations for the headquarters of U.S. companies.

Treasury Secretary Jack Lew last month announced new rules aimed at discouraging U.S. companies from pursuing inversions. The regulations prohibit access to certain tax benefits for firms that move overseas, but they stop short of harsher restrictions that would prevent even more offshore tax deals.

Few public figures have spoken out in support of inversions. After Warren Buffett’s Berkshire Hathaway Inc. helped finance Burger King’s acquisition of Canadian doughnut chain Tim Hortons Inc., the billionaire investor said BK’s relocation to Ontario stemmed from a desire to increase foreign revenue, not to escape the U.S. tax system.

The merits of that argument fall short with voters, Morning Consult polling figures show. Half of the respondents disagreed with the statement that some U.S. companies relocate overseas primarily to expand international growth opportunities. Thirty-four percent said they agreed that such moves were not executed simply to avoid higher tax rates.

The 84-year-old Oracle of Omaha is also in the minority when it comes to his age group. Morning Consult polling shows that young adults are twice as likely as the 65-plus crowd to approve of Burger King’s move to Canada.

The issue of corporate inversions may become a moot point next year, with both White House officials and top Republican lawmakers saying an overhaul of the tax code is on the agenda for next year. In the meantime, companies looking to relocate abroad appear poised to retain their customer base, even if they lack overall public support.

Morning Consult