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Archives for: June 2007

Will green marketing save the planet?

Posted on 25/06/07 by Anja Schaefer
 

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Money ProgrammeMoney Programme

Get the facts behind the big business and finance stories from around the world - and down your street.

The idea of green marketing is that there is a sizeable market segment of green consumers who are willing to pay a little more for environmentally friendly products from environmentally friendly companies. Producers and retailers will react to this green demand and environmentally friendly practices will be pushed through the supply chain. So far so good, and actually rather familiar. Green marketing dates back several decades now, with specialist manufacturers and retailers such as Patagonia, Ben and Jerry’s, the Body Shop and so forth, leading the way.

But there are problems with this nice idea of greening the world through marketing. And that’s not even so much that companies do it in order to increase sales or profits. Of course they do. They are not charities, after all. And if it really delivered the environmental goods, why would it matter? The programme already lists quite a few problems with the various environmental targets and actions described by retailers.

It’s all a bit much for the average consumer

No, the biggest problem is that expecting consumer demand to drive a green revolution may not work. There is no doubt a (small) segment of dedicated green consumers who will go to significant lengths in order to inform themselves about the environmental footprint of their consumption and to reduce this as much as possible. But how many consumers will really be able to interpret carbon footprints on product information, even if Tesco’s actually manage to calculate these with any degree of accuracy? And that is only one environmental issue to worry about. In addition there are things like packaging, organic production, sustainable resource use, and so on and so forth. It’s all a bit much for the average consumer even to get interested in, never mind knowledgeable about.

And, if taken to natural conclusions, green consumption would surely require some sacrifices, i.e. no strawberries in winter, less cod and many more. Can we really expect millions of individuals to make these decisions for themselves so that the green demand then can trickle through the supply chain? More likely it would at least require some concerted action from consumers, government and industry to start tackling the problem. Market forces alone may not solve it.

Further reading

 
Anja Schaefer

About the author

Anja Schaefer is a Lecturer in Management at the Open University Business School. She’s been lecturing in marketing and corporate social responsibility for eight years. Anja has published material on consumer behaviour, sustainable consumption and corporate environmental management.

The BBC and the Open University are not responsible for the content of external websites.

 

PermalinkPermalink Categories: Marketing, Green business

 

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Private equity – who’s paying for their profits?

Posted on 05/06/07 by Janette Rutterford
 

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Money ProgrammeMoney Programme

Get the facts behind the big business and finance stories from around the world - and down your street.

'The AA; Rescue or Wrong Turn?' highlights the advantages of private equity to at least some stakeholders. Whilst the private equity takeover of the AA has not been a good experience for all employees, or even customers, private equity investors have already got their investment capital back, and are looking forward to billions of pounds of profit when they sell the AA on. How did they do it?

Firstly, by taking advantage of the glut of money around the world. Banks are falling over themselves to lend money, at ultra-low interest rates and with no strings attached. And the private equity firms do not even need to have a good credit rating. They secure the debt they borrow on the assets of the companies they buy. With pre-determined debt interest costs, any increase in profits from reducing staff numbers, for example, goes straight to the private equity investors.

But there is another reason why private equity is a ‘no brainer’. Debt interest payments, and not equity dividends, are tax deductible for corporation tax purposes. All private equity investors have to do is to buy a company, load it with debt, and benefit from reduced tax bills. The stakeholders who pay for this are a country’s taxpayers. Lower corporation tax receipts usually mean higher taxes elsewhere. This has had such a major impact that some countries have changed their tax laws.

For example, the private equity purchase of the main Danish telecoms operator, TDC, in early 2006 for 13bn euros (with a special dividend of nearly half that paid to private equity investors less than six months later) was 90% debt funded. It is estimated that this private equity financing alone has reduced Danish corporation tax revenues by more than 12%, and the recent private equity takeover of Danish cleaning company, ISS, will have made matters even worse for the Danish government – and for Danish taxpayers. The Danes are currently conducting a review of the tax deductibility of debt payments. And the German government is reforming its corporation tax rules, also with a view to limiting the tax deductibility of debt. However, Ed Balls, Economic Secretary to the UK Treasury, said recently that the government had no plans to review the tax deductibility of debt principle as far as UK-based firms were concerned.

This tax game is nothing new. Leveraged buyouts in the 1980s aimed to exploit exactly the same tax relief. That boom ended when interest rates went sky high, and a recession meant interest payments had no profits against which to be offset. If interest rates go up this time, or if there is a recession, we will experience a sense of déjà vu. But the secretive nature of private equity companies will make it much harder to find out exactly who is bearing the pain this time around.

Further reading

 
Janette Rutterford

About the author

Janette Rutterford is Professor of Financial Management at the OU Business School, having previously worked in corporate finance and investment. Jannette's research includes pension funds, equity valuation and investment history, in particular the history of women and wealth.

The BBC and the Open University are not responsible for the content of external websites.

 

PermalinkPermalink Categories: Business Strategies

 

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