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The Globe and Mail

Apple’s global battles highlight need for corporate foreign policy

Irish Finance Minister Michael Noonan said Monday that the country's appeal against the European Commission decision to recover about €13-billion ($19.3-billion) in taxes from Apple Inc. could take up to four years. The ruling earlier this month is being vigorously opposed by Dublin and has been dismissed as "political crap" by Apple CEO Tim Cook, putting the world's most valuable company by market capitalization at loggerheads with the world's largest political and economic union.

The commission's decision has also angered the U.S. government, which has accused Brussels of trying to make a play for tax revenue that, in Washington's view, should rightfully flow to the U.S. Treasury, given that Apple is headquartered in the United States.

At issue, therefore, is a complex international legal and political question of whether, as a European Union member, Ireland should be able to operate a low tax regime that has attracted a large array of multinationals, but that Brussels now asserts amounts to illegal state aid.

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While Apple has vowed to join Dublin in appealing the decision, it is aware that the issue of low taxation is one that divides public opinion and could potentially engender consumer backlash. For instance, some Irish citizens and groups opposed to Ireland's low corporate tax rates have petitioned for Dublin to accept the tax money for social programs. The issue requires careful handling, and the Irish government had already agreed for the need to review taxation for large foreign firms.

The commission's ruling, by far the largest anti-competition measure imposed on a firm by the EU, underscores the apparently growing potential for businesses to become intertwined in high-profile international political disagreements. The trend blurs the competing concerns of traditional national and international public policy with the concerns of the private sector, involving them in sometimes thorny issues such as legal and/or human-rights issues.

To be sure, this is not a new phenomenon, but it appears to be increasing in incidence and salience. This is driven by globalization as well as the growth of key industries, including new technology.

Indeed, this latest controversy is the second time that Apple has been caught in significant political controversy this year. In February, U.S. Republican presidential nominee Donald Trump called for consumers to boycott Apple products until the tech giant co-operated with the Federal Bureau of Investigation to help "unlock" an iPhone used in last year's San Bernardino, Calif., terror attack.

The incident, ultimately resolved after the FBI found a way to unlock the phone, followed Apple's refusal to comply with an order of a U.S. federal magistrate that the firm assist the powerful agency. Throughout the process, Apple insisted that while it was "shocked and outraged" by the attacks, it would refuse to comply because it would threaten customers' security.

The spat followed a decision by Apple last year to enhance encryption on its iPhones. With this change, the tech giant has said that it will not unlock devices for public authorities, even if faced with a warrant, claiming that doing so could set a legal precedent that the government could seek to use again and again.

It's not just tech firms forced to work with diverse political authorities across the world. Companies in many other industries, ranging from energy and extractives to consumer goods, have long been confronted with such challenges.

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In this complex territory, firms and indeed entire industries can attract scrutiny. For instance, members of the European Parliament passed a resolution in 2010, after the disputed 2009 Iranian presidential election, calling for EU institutions to immediately "ban the export of surveillance technology by European companies to governments and countries such as Iran."

To be sure, various international codes of conduct, including the UN Guiding Principles on Business and Human Rights, already exist and reinforce the legal and corporate social responsibility practices of individual firms. However, some of the most enlightened companies have recognized the need for a more decisive shift toward what has been termed strategic "corporate foreign policy."

Corporate foreign policy aligns a firm's external affairs activity – including media relations, risk management, corporate social responsibility, government affairs and operational planning – in a clear strategic framework. Recognizing the need for an unusual mix of core competences, such as advanced diplomacy in some of these corporate functions, capability can be enhanced where gaps exist.

Other example areas of capability in which firms occasionally have gaps include foresight and horizon scanning to anticipate and plan for social, economic and political opportunities and risks. Firms may also need clearer internal guidance for determining decision making, protecting stakeholders and/or remaining faithful to corporate values, especially in crisis situations.

The relentless march of globalization, with the interconnectivity this brings, means that few international companies will escape these pressures completely. Corporate actions are increasingly under the microscope.

For companies that are pro-active and invest in their capability, the prizes are potentially ever more significant. Yet for those perceived to misstep, the fallout can be increasingly damaging, both reputationally and also for the financial bottom line.

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