Last Christmas my wife, who knows my interests well, bought me a newly released book. "Build to Change: How to Achieve Sustained Organizational Effectiveness," by Edward Lawler and Christopher Worley. In so many details the book convinced me of something that you and I knew already for some time: The days news travelled at the speed of telex have passed, and the world has become a village. Previously, companies introduced reform when change was manageable. Strategies were adjusted, workforce repositioned, habits changed and reporting lines redirected.
Those days we tended to label this in different ways: diversification, focus on quality and business re-engineering. They all had one thing in common, and that was that reform was meant to last just for a while.
These days, however, change happens so fast and frequent that most companies suffer from high intensity; change management programs come and go and have become a constant battle against the unknown. Besides the human factor, the intensity has left companies feeling locked-in and dysfunctional and less focused on the market.
Besides the pressure change puts on strategic management, it made me realize once more the huge impact this trend has on the tax environment. As an example, in its annual survey, Ernst & Young showed that year after year 80 percent of international trade is done between associated companies (companies related through shareholdings, management or factual control).
You can (almost) argue state that tax affairs deserve a place in the boardroom. (As Warren Buffett would say: a stakeholder with a share of about 10 's 35 percent deserves attention.) This is true, as most tax laws (including those in the Baltics) are generally written in a closed circle and so disregard economic reality. Add on events like Enron and Parmalat and their legislative responses, such as Sox 404 and "loi vivendi," and we have an environment where tax risk management is "key."
Sounds tough? Let me tell you, it is! Creating adaptive systems, developing internal competition for ideas, labor and capital as the books suggests in order to survive will only make the job tougher. My suggestion: Try to design an organizational model in your company that has the ability to refocus in line with the perpetual flow of future data it faces. A dynamic data-engineered institutional environment, you could say, without changing the system itself. Then design a tax policy that can resist the stretch without giving in on its core values and standards. Finally: don't get carried away too much by attractive one-time stand-offs.
Luc Nijs is head of Tax at Sorainen Law Offices