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Power Sheet – November 25, 2015

Pfizer CEO Ian Read has become either a hero or a villain. He acknowledges readily that his giant deal to merge with Irish-domiciled Allergan is meant mostly to reduce his company’s taxes by billions of dollars as a result of moving its own domicile to Ireland. It’s an outrage! “Disgusting,” Donald Trump called it. Bernie Sanders agreed: “This merger would be a disaster for Americans who already pay the highest prescription drugs prices in the world.” Or, good for him! American companies face the world’s highest corporate tax rates, and without this deal, Pfizer must confront foreign rivals “with one hand tied behind our back,” as Read put it.

I don’t see Read as a hero or a villain. This deal is an especially big, high-profile example of a CEO making a type of judgment that every CEO makes every day, and the right judgment is far from obvious.

The deal is clearly legal. It will undoubtedly reduce Pfizer’s tax bill. As CEO, Read must fulfill a fiduciary duty to serve his shareholders’ interests. And as Judge Learned Hand famously said, “there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.” In a world of simple economics, the Pfizer-Allergan merger wouldn’t raise an eyebrow.

Of course the world isn’t that simple. Read has to balance tax advantages that can be calculated to the dollar against uncertain but possibly huge costs from consumer outrage and resulting government action that could increase Pfizer’s taxes, damage its brand, add regulations, and restrict future options. In the real world, doing this deal might actually reduce Pfizer shareholders’ wealth from what it would have been.

What’s the right decision? When Walgreen announced its merger with Alliance Boots last year, it planned on a tax inversion, moving its domicile to Alliance’s home country of Switzerland. But the outcry was sufficiently great that CEO Greg Wasson canceled the inversion because it would have led to “potential consumer backlash and political ramifications.” The deal went ahead, and Walgreens Boots Alliance today is a Delaware corporation.

CEOs make these decisions on a smaller scale all the time. Do I cancel our philanthropic program for an immediate, definite economic gain, or continue it for an uncertain but possibly greater gain in the form of goodwill? Do I close the money-losing plant that is sapping the value of pension funds that own our stock but that employs thousands in an economically depressed area, or do I keep it open? These are not choices between right and wrong. Those are easy. Like all real dilemmas, these are choices between right and right. Legitimate arguments support each choice, but the leader can choose only one.

It’s often overlooked that the most committed advocates of corporate social responsibility agree with free-market stalwarts that these decisions are, in the end, about the best way to maximize long-term shareholder wealth. I have yet to meet even one CSR advocate who believes otherwise. The socially responsible course, they invariably argue, is best for increasing the corporation’s value over the long run. But what’s really socially responsible? That’s what the Pfizer-Allergan debate and the many others like it are all about.

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What We’re Reading Today

The new HP stumbles out of the box

Now that Hewlett-Packard has become two companies – Hewlett Packard Enterprise and HP Inc. – investors got new insight into the struggles the businesses face as the old combined company issued its last financial results. HP Enterprise CEO Meg Whitman and HP Inc. CEO Dion Weisler provided forecasts below expectations. HP Inc, which sells printers, reported that lower prices cut into profits. It’s looking to launch 3D printers by 2017, perhaps by buying a company that makes them. Fortune

Takata ignored employee warnings

Takata’s U.S. employees warned leadership about faulty airbags, which led to eight deaths, as early as 2000. They thought the company hid results from Honda, a customer. The news highlights a breakdown in communication from front-line employees to higher leadership and CEO Shigehisa Takada. The company is paying millions of dollars in fines and losing customers over a recall that has reached 19 million vehicles in the U.S.   WSJ

Turkey tries to ease tensions

President Tayyip Erdogan said the country did not want further escalation with Russia after shooting down a warplane flying near its border. Russian President Vladimir Putin said the act warrants “serious consequences,” and Prime Minister Dmitry Medvedev signaled the response could come in the form of canceling joint projects and hurting Turkish firms doing business within Russia. Reuters

Auto union lands best deals in a decade

As U.S. car sales rise, United Auto Workers members employed at Fiat Chrysler, General Motors, and Ford received some of the best terms in years during recent labor negotiations. It’s a huge victory for UAW President Dennis Williams. But  Fiat’s Sergio Marchionne and Ford’s Mark Fields have already signaled that they may move some production to Mexico. NYT

Building a Better Leader

Need to develop a good parental-leave policy?

Make sure to include procedures for off-ramping and leave-liaisons. Harvard Business Review

A bank CEO calls bonuses bogus

New Deutsche Bank CEO John Cryan says they don’t make anyone work harder. Fortune

“Faux leaders” often fall short as times get tough

That’s where courage reflected in values, perspective, and ownership can cull out the fakes. SmartBrief

Turkey Talk

New York City reassuring parade goers

The city has stepped up anti-terrorism efforts in the wake of the Paris attacks in order to prepare for the Macy’s Thanksgiving Day Parade. Police Commissioner William Bratton said that he’s working with Homeland Security and Paris officials to coordinate response to potential threats and that 1,300 counterterrorism officers will be in the area during festivities. The city expects record crowds. Fox

Holiday travelers prepare for long delays

In spite of a State Department warning from Secretary John Kerry about heightened security concerns and threats of terrorism this Thanksgiving weekend, travelers will be flying in large numbers. Airlines are advising passengers to get to the airport early because of increased security on some of the busiest days of the year.  NYT

Malls pressure stores to open on Thanksgiving

Mall owners are leaning on many small retailers to open Thanksgiving day, taking their cue from J.C. Penney’s Marvin Ellison, Macy’s Terry Lundgren, and other large tenants, several of which will open Thursday afternoon or evening. WSJ

Up or Out

Charles Cawley, founder of MBNA Corp, a credit card issuer that sold to Bank of America for $35 billion in 2005, died at the age of 75. NYT

Fortune Reads and Videos

Google blames bug for dropping Yelp, TripAdvisor rankings…

…while boosting its own services on mobile. Yelp and TripAdvisor are skeptical. Fortune

Brazil arrests CEO of its largest investment bank 

André Esteves, CEO of Grupo BTG Pactual SA, was charged with obstructing an investigation into the Petrobas corruption. Fortune

Private space companies soon to get Obama’s backing

A bill that would exempt the industry from some regulation until 2023 sits on the president’s desk.  Fortune

What we will learn from Black Friday

With 135.8 million people expected to shop in stores or online this long weekend, the stakes are high for retailers. Fortune

Happy Birthday

Jeffrey Skilling, former CEO of Enron, turns 62 today.  Biography

Jenna Bush Hager, daughter of George W. Bush, turns 34 today.  Biography

Caroline Kennedy, U.S. ambassador to Japan and daughter of John F. Kennedy and Jacqueline Kennedy Onassis,  turns 58 on Friday.  Biography

Former “Daily Show” host Jon Stewart turns 53 on Saturday.  Biography

Former Homeland Security Secretary Janet Napolitano turns 58 on Sunday.  Biography

Chicago Mayor Rahm Emanuel turns 56 on Sunday.  Biography

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