Culture, trust, and vocabulary are all intertwined, something that’s on full display every tax season.
Not the taxes you paid last week, although that is what brought the subject to mind. I’m talking about the corporate overhead every cost center manager has to pay.
In most large companies, managers call this a “tax” or, maybe, a “tithe.” For most of us, “tax” implies coercion by a remote, implacable authority. “Tithe,” while more benign, still has overtones of compulsion. Either way, like real taxes, those who pay the headquarters tax have no expectation they’ll get any benefits from it, and a strong expectation that headquarters’ wasted efforts will be wasted inefficiently.
With actual taxes we all know we do receive benefits, and could even enumerate some of them if pressed: Not only national defense, a diplomatic corps to make national defense less necessary, a system of criminal and civil justice, and the so-called social safety nets, but also basics like potable water, sewage handling, road maintenance, and, here in Minnesota, snow removal. These are benefits we take for granted until, as the citizens of Flint discovered, they don’t happen.
Our distrust of government long ago became cultural. Neither evidence as a driver nor nuance in our thinking affects the certainty of our conclusions. Propose that any branch of government is valuable and efficient and you’ll become an object of immediate ridicule.
If you collect or are funded by corporate overhead, beware the risk of guilt by association. If managers call it a tax, then a tax it is, with all the cultural freight the word hauls with it.
The parallels get worse. Some of the taxes we pay supports government’s regulatory responsibilities. Most of us recognize the reason for regulations when they’re taken one at a time, whether it’s an EPA regulation that prevents corporations from releasing toxins into the water supply or a zoning ordinance that prevents your neighbor from turning his backyard into a junkyard. But taken as a whole we all know government regulation is bad and imposes unfair burdens.
The taxes cost center managers pay to corporate headquarters support a regulatory regime as well, from Internal Audit to workplace safety to enforcement of IT’s information security standards.
Taken one at a time and properly explained, much of headquarters-imposed regulation makes sense, too, but that doesn’t mean anyone appreciates Compliance as a collective noun any more than we appreciate government regulation as a collective whole.
Right about here the parallels start to break down. The federal government is, as someone once explained it, the world’s largest insurance company, protected by the world’s largest armed force: Social Security, Medicare, Medicaid, and the Departments of Defense and Homeland Security account for something like 90% of the federal budget. Whether these are valuable or not is a matter of personal philosophy.
One hopes headquarters’ spending on security and internal insurance services is more restrained, and that the value of the services headquarters provides is, once listed, commensurately less controversial.
Or not. As is the case with the services we receive from our various levels of government, ask your fellow cost center managers if the value they receive from headquarters justifies the overhead charge they and you pay and they’ll express the same doubts citizens express about government services — doubts about both value in principle and efficiency of delivery.
Ten or twenty years ago I might have recommended that everyone at headquarters should just develop a thicker skin and ignore the grumbling. But I think it’s fair to say that at a societal level the question of government taxes vs value has contributed to the toxicity of our political dialog.
It isn’t much of a stretch to anticipate that grumbling about the “headquarters tax” in your company can poison relationships between headquarters departments and the business areas they support in ways that damage the company’s overall effectiveness, not to mention its ability to adapt to changing marketplace conditions.
What’s to be done?
First, make sure you can enumerate the benefits you provide. If you don’t understand what they are you probably don’t provide any.
Second, make sure you provide them efficiently and effectively. If you aren’t sure (and you aren’t sure), ask the departments you support, or hire consultants to ask for you.
And third, encourage everyone to stop calling their corporate overhead a tax. For that matter, don’t call it “overhead” either. Instead, choose a term that has some connotation of value.
Call it rent.