Tuesday Profile: A multinational take on job creation and tax code overhaul

As chief executive of the Organization for International Investment, Nancy McLernon is among an elite group of business leaders in Washington shaping the debate on economic policy and job creation.

But McLernon is quick to note that her group — which lobbies on behalf of more than 160 foreign-headquartered companies with subsidiaries in the United States — also inhabits something of a different landscape from other business shops in town.

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In a recent interview with The Hill, McLernon signaled that OFII member companies are probably under less pressure to invest in the United States than those that are domestically based. But she added that foreign companies that are active in America are also more likely to come under criticism when policymakers are in a protectionist mood.

“When you’re a U.S.-born company, you’re here. But when you’re a global company, based abroad, you have a lot of different locations to choose from,” said McLernon, whose group, the only of its kind in Washington, counts a range of companies as members, from Sony to pharmaceutical giant AstraZeneca. 

“Over the last 20 years, we’ve seen this change in the way global business operates. The direction now is to locate global operations all over the world, where a country has a particular competitive advantage,” she said.

OFII has been in the thick of policy battles this year. McLernon and her staff, aided by feedback from the financial officers of OFII companies, have started pushing for an overhaul of the tax code, a cause that has also been taken up by other groups, such as the Business Roundtable.

Foreign-based companies found themselves on the defensive in February after Deutsche Börse agreed on a merger deal with the parent group of the New York Stock Exchange, NYSE Euronext. Some questioned whether the iconic American exchange should have those sorts of ties with a foreign-based multinational — a line of thinking that OFII argues is out of step with the realities of the global economy.

Protectionist rhetoric also surfaced in the fight over the Air Force’s prized contract to build aerial tankers. The defense giant EADS lost out to Boeing in the competition, a result cheered by some lawmakers who said a foreign-based company such as EADS should not win the contract, despite their plan to build the fleet in Mobile, Ala.

Both of those incidents sparked talk of keeping jobs in the United States and preserving the American character of a company, the sort of rhetoric McLernon knows all too well. The OFII chief executive, for example, questioned the “Buy American” provision in the stimulus package and other policies that she said cast doubt on the Obama administration’s commitment to free trade.

The OFII executive stressed how much her companies invest in the United States, and peppered her responses with statistics about “insourcing” — the term her group uses to describe the U.S. jobs created by her companies.

“They now employ 5.6 million Americans directly. That’s not to say what they do indirectly,” McLernon said during the interview, noting the research and development the Swiss-based pharmaceutical company Novartis performs in Massachusetts and the high-end appliances that Electrolux plans to build in Tennessee.

On tax reform, McLernon’s group says an overhauled IRS code could push foreign-based companies to expand their operations in the United States, citing a survey of OFII financial officers last year that dubbed America’s corporate tax system relatively weak.

“Having an economy that attracts these companies from the world to come here and do business is a mark of a competitive economy,” McLernon said, when asked about how she would approach the question of tax reform with policymakers. “And explaining how many of these companies would be able to increase their investments in the U.S. if we were to lower the [tax] rate would help move the conversation forward.”

The current top marginal corporate tax rate is 35 percent. President Obama and other administration officials have expressed interest in bringing that down while eliminating tax breaks and loopholes.

McLernon applauded the president for backing tax reform. She said some OFII companies that currently get preferential treatment from the code would gladly give up their breaks for the certainty of a lower rate.

“What our executives have said is that the tax credits, stimulus programs — all of those are short-term fixes,” McLernon said. “To make the U.S. long-term competitive, lowering the tax rate is the way to go.”

But despite the praise for the White House, McLernon’s take on what a tax-reform package should look like underscores the difficult of crafting a proposal with broad support.

In his State of the Union address, the president emphasized that any corporate tax-reform package must not add to the deficit, a line other administration officials have repeated in recent weeks.

McLernon, like other business leaders and some Republican lawmakers, has signaled that it would be hard for a revenue-neutral plan to increase American competitiveness. She says taking away all the deductions in the tax code would only bring the rate down around five percentage points.

If not adding to the deficit is a major focus, McLernon said, “We’re not going to get to where we need to go on the rate itself. We’ve got to get to 25 percent or lower, I think.”

McLernon began working at OFII when it was formed roughly two decades ago, starting with just a handful of member companies. The organization was so diminutive at the beginning that McLernon shared a desk with her fellow employee.

In the years that followed, OFII’s membership list multiplied faster than its staff roster, which now stands at seven. As the number of companies she represents has grown, McLernon says that her businesses have become more vocal about their reasons for wanting to invest in the United States. 

“Initially, there was more of a hesitation than there is now,” McLernon said. “Now, without question, there is a sense of pride that these companies have about what they contribute to the U.S. economy.”

That evolving approach, McLernon indicated, has come in handy in the last couple of years, as the American economy fell to depths not seen in decades. Last year’s midterm campaign also featured a fair bit of economic protectionist rhetoric.

“After 20 years of working on it, it’s going to ebb and flow,” McLernon said. “In times of recession, some of the jingoism gets a little more loud.”

Luckily, she added, not only has the economic climate improved in recent months, but so has the rhetoric from policymakers. 

“I think that the president embracing globalization as he did in the State of the Union, in a way of saying, ‘The global economy is here, let’s make globalism work for us,’ is a much more positive message to send to the world,” McLernon said.