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Reputability LLP are pioneers and leaders globally in the field of reputational risk and its root causes, behavioural risk and organisational risk. We help business leaders to find these widespread but hidden risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.

Tuesday, 6 May 2014

Caffè Nero Blackened

One of Caffè Nero's customers, Steve Pottinger, has written to return his loyalty card.  He complains of their failure to pay any corporation tax on their profits.  "I'm aware that what you do is perfectly legal... but at a time of austerity when vital services face cutbacks, it sticks in the craw.  Loyalty cuts both ways. But you seem to have a disconnect when it comes to your responsibilities to paying your dues."

The story is that whilst Caffè Nero made £21m profit last year, it didn't pay any corporation tax.  At least the previous year, when it paid no corporation tax on almost £40m profit, the reason seems to have had to do with tax-deductible interest the company pays to its Isle of Man parent company on debt used to buy the business.  There is no suggestion this is illegal; but many see it as amoral.  The company has declined to comment on the exact explanation.

Whatever the truth, Mr Pottinger's letter has gone viral and Caffè Nero faces a Starbucks moment because at least Costa provides a decent alternative cup of coffee from outlets that regularly advertise their corporation tax paying virtues.

The episode illustrates two important points.

The first is how the internet has disestablished the establishment.  Nowadays if you have a grievance and know how to catch the public mood, it is easy to coalesce large numbers of fellow-thinkers in a way that was unthinkable before the internet.  Starbucks and Maclaren (the buggy-makers) and United Airlines are among the many who have learnt this to their cost. 

Second, if an individual's issue fires the public imagination to damage a company's reputation, it ceases to be the individual's problem and becomes the company's.  This was rapidly appreciated by United, who responded well to Dave Carroll's viral video.  Maclaren also responded nimbly.  Starbucks eventually recognised that the way it arranges its tax affairs can affect its business adversely and now pays some UK corporation tax.

No doubt it will not be long before Caffè Nero too wakes up and smells the coffee.

Anthony Fitzsimmons
Reputability LLP
London
www.reputability.co.uk

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