Why Stanley Works is no loss to Bermuda

(The Royal Gazette is Bermuda's daily newspaper. It seems they understand the US economy and US politics better than do most of the US media and many US voters.)

Some are reacting to the Stanley Works decision to remain in the US as if it was really bad news for Bermuda.

The decision may do more good for Bermuda than bad. With Stanley Works making the decision to stay in Connecticut, the pressure will finally be off Bermuda. Now we can go about doing what we do best - providing an infrastructure that does not strangle business.

The US politicians who fought for this Patriot Tax issue can now move on to something else. Stanley Works to the politicians was more about winning the battle and not about winning the war. These politicians were using patriotism as a means to political gain without taking into consideration the long term effects this bill will have on their own fragile economy. It would be interesting to see how much tax each one of the politicians, who was pushing this whole patriot tax deal, actually pays to the US government. It would be interesting to see how many tax shelters each has to prevent paying a minimum of 30 percent of his income to the US government.

Instead of placing so much emphasis on the laws of other countries, maybe it's time those countries that have income tax look at the way they collect taxes. Heavily taxed societies force people and businesses to look for ways to "cheat" the tax man. As Leona Hemsley pointed out when she was caught for tax evasion: "It's only the little people that pay taxes."

Instead of feeling like the international business industry is doomed in Bermuda as a result of Stanley Works being pressured by politicians to remain in Connecticut, we should be rejoicing. The losers in this political game are ultimately going to be Stanley Works when it finds it is no longer competitive with global companies who are not taxed on non-US income, the workers who will be out of jobs because Stanley Works will have to cut staff to remain competitive, the economy in Connecticut because unemployed people can't spend money they don't have and the US government who will lose income tax from the employees that lose their jobs and they will have to pay unemployment benefits to the people who could have remained in jobs.

Bermuda does not lose because the only reason Stanley Works wanted to reincorporate here was for tax reasons. Without a physical presence, the only people who would have benefited would have been the lawyers drafting the paper work and keeping the books for the company. Stanley Works would have been a true post office box as is so regularly written up in newspapers around the world.

What most Americans are not seeing are the deals that are being done under the table which will ultimately lose more taxes for the US economy than if Stanley Works would have reincorporated in Bermuda. The July 17, 2002 New York Times edition ran an article by David Cay Johnston called, "Bill Closing Bermuda Loophole Also includes Tax breaks". Cay says, "The bill would also create two permanent tax breaks that combined are worth $60.8 billion, nearly ten times the size of the so-called Bermuda loophole. These new loopholes tilt incentives in favour of American multinationals investing overseas rather than at home, critics and even some supporters of the bill said. Many speculate that the new bill will encourage companies to "move production and services overseas, costing Americans their jobs."

Speaking to average Americans about Stanley Works, I learned they were under the impression that Stanley Works was going to move its manufacturing operations out of Connecticut to Bermuda. They did not realise that it was merely a case of setting up a post office box to save taxes so Stanley Works could remain competitive globally. What will happen when Stanley Works starts moving more of its production to say Taiwan or China where it can operate more efficiently and Stanley begins to hire the local people there because it is much cheaper to do so? What jobs will people in Connecticut have then? What picture of Stanley Works will be painted then? Or will there be no mention of Stanley Works moving its production? After all it would still be an American company on paper despite the majority of its manufacturing and jobs being moved overseas.

Bermuda has not lost out by Stanley Works choosing to remain in the US. It has actually done us a favour because the US politicians will now move on to their next target. We can finally go about attracting companies that will add value to our economy by choosing to come here not just for tax reasons but because they feel they can operate more effectively and efficiently.

We're tired of being called a tax haven anyway. We're much more than that. We are an infrastructure which has not become overburdened with government red tape and interference. And as Bala Nadarajah [Director - Bermuda Monetary Authority] says, "our government process is not a "catch-me-if-you-can" type of regulation, rather the emphasis is on self disclosure."

Companies that choose us because we can help them with their global expansion will still come here. Companies wanting us for tax reasons may have to think otherwise.

What the US politicians need to be careful of is not adding to the woes of their deteriorating economy by forcing their companies to become noncompetitive with the rest of the world. According to the July 31 edition of the Economist: "New data suggest that America's recession last year was worse, and its recovery this year is weaker than previously thought." Some of their biggest companies have been destroyed over the last year in accounting scandals and people are already out of jobs. Instead of pushing patriotism for political gain, politicians should be helping their companies to be as competitive as they can so that they can pull through this very tough time in the global economy.

Cathy Duffy is a Chartered Property Casualty Underwriter (CPCU) and is now a freelance writer. She is a former executive of Zurich Global Energy and has 15 years experience in the insurance industry. She writes on insurance issues in The Royal Gazette every Monday. Feedback crduffy@cwbda.bm.

"These politicians were using patriotism as a means to political gain without taking into consideration the long term effects this bill will have on their own fragile economy."

It seems that the Bermuda media understands our politicians better than our media and most of our voters. Note that I did not include politicians. That's because the politicians (on both sides of the aisle and in the Whitehouse) know exactly what they are doing. They're voting themselves more political power, at the expense of the US economy and US taxpayers.

"The losers in this political game are ultimately going to be Stanley Works when it finds it is no longer competitive with global companies who are not taxed on non-US income, the workers who will be out of jobs because Stanley Works will have to cut staff to remain competitive, the economy in Connecticut because unemployed people can't spend money they don't have and the US government who will lose income tax from the employees that lose their jobs and they will have to pay unemployment benefits to the people who could have remained in jobs."

It seems that they understand the consequences better, as well. In fact, their final statement says it all:

"Instead of pushing patriotism for political gain, politicians should be helping their companies to be as competitive as they can so that they can pull through this very tough time in the global economy."

As Leona Hemsley pointed out when she was caught for tax evasion: "It's only the little people that pay taxes."

I recall reading that the Helmsley's paid over $500 million in taxes during the year in question, and that the dispute was over a couple of hundred thousand in deductions.

So, while the article reinforces the tarnishing of Mrs. Helmsley's image, she apparently pulled not only her own weight, but the weight of countless beneficiaries of Government Wealth Redistribution.

What I read otherwise seemed refreshing.

Stanley's move to Bermuda would have very seriously weakened and eliminated many shareholder rights.

Actually, as with comparable laws of most other Western countries, it was a trade off. The US politicos, anxious to increase their power, are quick to point out minor weakness in the laws of other countries, but are loath to even mention that those same laws also contain protections that our laws fail to address.

One of the primary reasons that so many companies choose either Bermuda or Cayman Islands, over other so-called tax havens, is that they don't present any problems that would preclude stockholder acceptance. In fact, those countries are considered to offer stockholder protection that is equal to or better than the US.

You see, there is one fact that you failed to consider:

It is the stockholders who must vote to approve such a move.

If company directors were to present an option to stockholders to move the company incorporation to a country where their rights would be reduced, the stockholders wouldn't just vote it down. They would laugh it down.

Sorry, Willie. Those darned facts just keep getting in the way, don't they? But, don't give up. We need people like you to shine a light on the inconsistencies of the left. Hang in there.

I recall reading that the Helmsley's paid over $500 million in taxes during the year in question, and that the dispute was over a couple of hundred thousand in deductions.

Very good point and absolutely correct. This is exactly why so many wealthy people are leaving the US for more wealth friendly climates. Countries like Bermuda and Cayman Islands are drawing our corporations, while countries like Belize, Panama and Ireland are drawing wealthy individuals. As the Helmsleys found out, if you are a US citizen, even your legally earned wealth is not safe from the US government. Furthermore, it wasn't even the couple of hundred thousand in deductions that they were after. They just needed a poster child for their latest scare campaign and the Helmsleys happened to hold the short straw.

With our lawmakers writing increasingly wealth punitive laws, is it any wonder that wealth is leaving this country at such an alarming rate? And, when the citizens and companies are not leaving on their own, foreign companies are coming in and buying up distressed US companies at bargain basement prices. Most people don't have any idea how many traditional US companies are now owned by foreign corporations or how many more are close to being absorbed by their foreign competition. But, a lot of former employees of those companies are all too aware of it. That's because, when a foreign company buys a US company, two things happen. 1) A good portion of the US jobs are sent overseas and 2) A good portion of the profits of the US company is shipped overseas.

Every time the IRS targets someone like the Helmsleys, to use as a poster child, it has exactly opposite the desired effect. They want to scare citizens into obediently bending over for them. But, what happens is that they scare more wealthy Americans into leaving, thus reducing the tax base and investment base in this country. Then, they have to raise taxes on the rest of us, just to stay even.

Take a look at the US government's official quarterly lists of expatriates. The US government has been keeping those lists since 1996. There is no reason for those lists, other than a vain attempt to scare Americans into staying. As you scan those lists, keep in mind that less than one in ten expats ever takes the formal step of renouncing their citizenship. After all, when you flee a tyrant, why would you tell him where you are going?

More and more wealthy Americans are being forced to leave, rather than risk becoming the next poster child for yet another IRS scare campaign.

What do you mean, IF ???

The company directors DID present present such a proposal.

In fact, they sent two sets of conflicting proxy instructions. One letter incorrectly indicated that taking no action on a proxy would be counted as a vote against the proposal. A later letter was sent out explaining that not returning a proxy would be counted in accordance with the plan's trust agreement, which calls for those noncast votes to be registered in the same ratio as the actual votes cast.

The proposal passed by just a narrow margin. But astute shareholders who pay attention to such details challenged the voting irregularities, initiating an SEC investigation.

Stanley has insisted that the vote was "fair and appropriate," but acknowledged that 401(k) participants might have been confused by the " unintentional mistake."

For a short period of time, Stanley management entertained the prospect of conducting a second vote. However, adverse reaction by shareholders (more in tune to the issue due to the publicity) caused them to withdraw the relocation proposal altogether. (Better for management to "save face" by withdrawing the proposal than to suffer a humiliating vote of "no-confidence" by shareholders opposed to the proposal.)

Stanley's attempt to "Enron" the 401(k) plan failed.

The company directors DID present present such a proposal.

Wrong.

In the case of Stanley, the company directors presented the stockholders with a proposal to reincorporate the company in a jurisdiction that is considered to have stockholder protections equal to or better than that of the US. This is proven by the very close vote of the stockholders. Had Bermuda not offered stockholders at least comparable protections, the stockholders would have resoundingly rejected it.

In fact, your post shows that what killed the Stanley move was not a lack of stockholder protections, but the conflicting proxies, that could only confuse West Palm Beach stockholders, but gave the sore losers a basis for a challenge, and the adverse publicity by a handful of US Congressmen and Senators, that scared stockholders enough to have an undue negative influence on a second vote. Even knowing that they would have to pay a capital gains tax as a result of the move, most of the Stanley stockholders and the stockholders of many former US companies, voted to make the move to Bermuda or Caymans in recent years, some by margins of more than 80%, because they knew that in the long term, they would benefit significantly from the various moves. If the protections offered by those other countries were not equal to or better than US standards, some of the savvy stockholders of each of the affected companies would have initiated a campaign that would have sunk every one of those moves, by even larger margins.

To be more specific, the Stanley deal was, killed by one representative and one senator from Connecticut, who used patriotism as a means to political gain, without taking into consideration the long term negative effects of their duplicity. I wonder what excuse those selfish politicos will give their unemployed voters in a few years, when Stanley is forced to either move completely offshore or be bought out by a foreign competitor, either of which will result in a shift of jobs to that foreign jurisdiction. But, not to worry. They're politicians. They'll have some other deception prepared for a gullible public, by then.

Like I said before, I know how it must irk you when the facts get in the way. You can't expect to be taken seriously, if you just pick and choose your facts or try to apply any sort of logic without including all the facts. But, I'm sure you won't let that stop you. Thanks for making my point about liberals.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.


	BUSINESS	Friday, August 16, 2002	Contact us
Last modified: August 12. 2002 8:51AM