| The purpose of financial centres - a key consideration |
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| The cultural aspect of a particular financial centre may not be top of the list in the decision-making process - but it is very important, said Aidan Walsh. |
Some may question how culture could make such a difference to a financial centre, so Aidan Walsh, tax partner, financial services group at Ernst & Young, offered delegates his explanation: ‘in some cultures entrepreneurs are seen as people who have grabbed a disproportionate share of a fixed-size pie: in others they are seen as creative generators of wealth from nothing, people who have increased the size of the pie. In some cultures the rich are admired, whilst in others they are seen as selfish people who have not supported their less well-off relatives and friends.’
Walsh said that although these may be extreme examples, they highlight the fact that a country’s overall view will affect every aspect of doing business in that region.
According to Walsh, it is increasingly important for companies to consider the culture in a particular financial centre, as well as giving serious thought to internal company culture to assess if there is a good fit between both entities. ‘A good example of this was the Sarbanes-Oxely rules in the US,’ said Walsh. ‘For some non-US companies listed in the US these presented few problems, but for other companies the rules presented an intolerable burden and some of those handed back their US listings.’
When making a location decision, the abundance of cultural interactions have to be taken into consideration, which may seem like a big problem - so why would anyone bother? ‘The reason is that cultural differences should be viewed as a fantastic opportunity,’ said Walsh. ‘Culture affects how we perceive and solve problems, so companies could ask “where could we go that would give us extra skills and new problem-solving expertise?” This becomes one of the reasons why a company will settle on locating a particular activity in a particular centre - it should explicitly ask the question: is this centre a useful cultural fit for us?’
Walsh believes that ‘accidental’ financial centres are superior, ‘as they arise because the local culture naturally results in with financial activities gravitating to the location; every aspect of the environment there favours global business.’
He also said that ‘deliberate’ centres may aslo have one or more fantastic features, for example a very low tax rate or a useful regulatory regime. ‘But this may fit into a culture that does not really support global business at all - for example, the tax rate may be low, but that is not much use if the compliance burden is enormous.’
Nevertheless, according to Walsh the accidental or deliberate may be useful designations when deciding generally what centres are the most attractive. ‘However, what might seem like the most unattractive location may be an ideal fit for a company or for a particular line of business, or to solve a particular problem. This is one reason why the largest financial institutions tend to have operations in every financial centre - each individual centre is the best solution to some particular problem.’ |
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| Article appeared in the August 2008 issue.
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