🍓Strawberry AI, Global Tax Rulings, and Signs of a More Transparent World

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In this Edition of S3T:

• 🗳️ Presidential Debate Highlights Need for Personal Economic Perspectives: Recent debates emphasize forming individual views beyond political slogans and election season rhetoric.
• 🤝 Brands Bridging Political Divides: Certain brands successfully appeal across the political spectrum, uniting consumers regardless of their affiliations.
• 🤖 OpenAI's "Strawberry" Enhances AI Transparency: The new ChatGPTo1, nicknamed Strawberry, offers improved explainability by detailing its reasoning and conclusions.
• 💡 Replit's AI Agent Plans Before Coding: Replit introduces an AI agent that outlines a development plan before building applications, potentially influencing future software development practices.
• 📚 AI Revolutionizing Education: Tools like Khan Academy's Khanmigo and Google's Illuminate are reshaping learning with personalized tutoring and interactive content.
• 🌍 EU Ruling Signals Shift in Corporate Tax Strategies: The EU Court's decision on Apple's back taxes highlights the need for multinational companies to adopt fair and sustainable business practices.

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Opinions expressed are those of the individuals and do not reflect the official positions of companies or organizations those individuals may be affiliated with. Not financial, investment or legal advice, and no offers for securities or investment opportunities are intended. Mentions should not be construed as endorsements. Authors or guests may hold assets discussed or may have interests in companies mentioned.

Economic Plans Debated

Coming out of this week's Presidential Debate, both sides seem to concede there was a clear winner in the debate, though they disagree about why. The debate this week - and the headlines leading up to it - highlighted the need for economic plans - including relief plans - even as headline inflation settled to 2.53%.

It's important to develop your own perspective separate from the political slogans and insults thrown about during election season. To level up your understanding and readiness to engage in discussions and decisions, see this week's Premium learning segment "Bees vs Termites: Unlocking Symbiotic Strategies for the 21st Business Environment" (under the Change Leadership Section below)

Bipartisan Brands

A specific set of brands are successfully appealing to Americans across the political spectrum, even as others seem to align only one side or the other.

See summary in this Sherwood note. Download full YouGov report here.

OpenAI releases "thinking AI" aka Strawberry

This week OpenAI rolled out a preview version of its "reasoning" model known popularly as Strawberry. ChatGPT Paying subscribers will see Strawberry in their choice of models - it goes by the name "ChatGPTo1 Preview".

The biggest takeaway for me was not the "astounding reasoning" capability of Strawberry but rather the explainability potential. Based on the testing I have been able to do so far, Strawberry might represent a significant leap forward in transparency...explaining what the model was doing, and how it arrived at its conclusions. This kind of built in explainability is something that AI Governance teams have wanted for years now.

AI developer tool shares its dev plan before proceeding

Replit has just launched a limited release phase of its AI agent, the "Replit Agent" that does application development in a step by step process that appears (to me) to be compatible with CDK-style controlled development that SOC2 regulated firms tend to favor:

• You start with a prompt, then the tool comes back with a proposed step by step plan.
• You can review the plan, tweak it if needed, then track with it, as it follows the plan to build out the app.

I don't expect to see regulated firms adopting Replit en masse, but I think this step by step style will be adopted by other software tool providers, along with a gradual phase out of the "spit-out-some-code" approach that today's Generative AI coding tools default to.

AI and Education

Industry - Academia AI Gap

As noted in the Stanford AI Index Report, in 2023 the tech industry produced 51 AI models but academia only produced 15. In addition, industry seems to be making inroads into the business of academia, as noted in the following paragraphs.

AI Tutors

Khan Academy continues to evolve an AI Tutor it calls Khanmigo, blazing a new trail out of the educator's dilemma over whether to use ChatGPT type AI bots or ban them from the classroom. The AI tutor prompts students to think through a challenge - step by step - rather than just giving them the answer. Schools that want to try Khanmigo can request information and pricing here.

Related:

• Cast-strapped education districts seem to be hopeful that AI Tutors can enable a more personalized learning experience.
• See also EdTech: Are AI Tutors the Answer to Lingering Learning Loss?

Grad Level Learning

Google's new Illuminate can take a white paper and turn it into a mildly vapid conversation. Listen to a few samples and tell me if it isn't the 2nd coming of drive time radio, bantering about transformer architectures and the like. That said it does seem to hold potential as a learning tool, especially as user communities gain confidence that the tool is providing accurate summaries.

Bees vs Termites: Unlocking Symbiotic Strategies for the 21st Business Environment

Corporations, communities, and customers are intertwined in ways that can't be ignored or exploited indefinitely. The notion that corporations can thrive while their customers and communities suffer is not just unsustainable; it has become increasingly unviable as the global consequences force more rigorous scrutiny and accountability mechanisms.

Peak tax evasion: have we reached a tipping point in multi-national tax schemes?

This week EU Court of Justice (ECJ) - the rough equivalent of the US Supreme Court - ruled that Apple owes $13B in back taxes. The ruling signals a potential shift in how multinational companies approach tax avoidance strategies.

Traditionally, global corporations have "shopped around" for the most tax-friendly jurisdictions, relocating key business functions—or at least the appearance of said functions (see Coca Cola's tax case and this 244 page explanation of its labrynthian scheme) —to these locations in order to minimize taxes.

However, the Apple ruling demonstrates that even years after establishing these schemes, they can be scrutinized and result in significant financial penalties.

The EU ruling involves a central court (ECJ) overriding Ireland's legal position (that Apple was compliant), forcing Ireland to collect $13B. If negotiated agreements between multi-national companies and nation-states can be overturned by a regions courts, what does that do to the business climate for that region? Will the EU fall out of favor as a market & base for multi-nationals?

Adding to this complexity is the increasingly multipolar world order, where geopolitical tensions, sanctions or reputational risks may limit where companies can or want to do business.

Corporate leadership teams are right to sense they are at a crossroads here:

• Adopt more transparent and compliant tax strategies, as the risk of both regulatory backlash and geopolitical limitations grows in this shifting global landscape? OR
• Double down on sponsorship of political candidates who promise to cut taxes and regulations?

Unfortunately neither of these choices may get to the root problem...

What is the root problem to solve?

The root problem on the surface can be seen as the fundamental misalignment between global business practices and national tax systems, which creates persistent issues with fairness, enforcement, and economic competitiveness.

Here's a three-point breakdown of the root problem:

1. Fragmented Global Taxation Systems: Each country sets its own tax laws, leading to inconsistencies that multinationals exploit. Companies can shift profits to low-tax jurisdictions even if their operations and value creation primarily take place elsewhere. This undermines tax fairness, as corporations can avoid paying their fair share in the countries where they generate most of their revenue.
2. Regulatory Lag and Enforcement Challenges: The rapid globalization of business has outpaced the ability of national and regional regulators to enforce coherent tax policies. Multinational companies can design complex tax schemes that take years to investigate, often leading to delayed enforcement and retroactive penalties, as seen in the Apple case.
3. Erosion of Public Trust and Economic Fairness: As corporations sidestep national tax laws, public trust in both the business sector and government institutions erodes. This contributes to economic inequality, as smaller businesses and individuals must bear a disproportionate share of the tax burden.

Recommended Approach: To begin addressing this root problem, more international coordination is key:

• Initiatives like the OECD's global minimum corporate tax framework, which aims to establish a baseline tax rate across countries, can help close loopholes and ensure more equitable taxation.
• Multinational cooperation between governments, along with transparency initiatives requiring companies to report where they earn revenue and pay taxes, will help create a more balanced global tax system.

At the same time, political will must grow to prioritize long-term structural reform over short-term political gains.

Good points, but isn't the root of the problem about mindset & motivations?

The mental framework for a 21st-century business leadership team must evolve beyond a narrow focus on maximizing short-term profits and instead take a holistic, long-term view that integrates key social, environmental, and economic factors.

This mindset should reflect the following principles:

1. Sustainability as a Core Business Imperative: Leaders must see sustainability not as a cost but as an investment in the future. The health of the planet directly impacts long-term business viability, and consumers increasingly prefer companies that prioritize environmental stewardship. By adopting circular economy models, reducing carbon footprints, and supporting renewable energy, leadership teams can align profit motives with global sustainability goals.
2. Financial Equity and Fair Play: Companies must ensure that their business models contribute fairly to the communities where they operate. This includes adopting transparent tax practices and ensuring that their financial success does not come at the expense of societal fairness. Embracing equitable value-sharing within the ecosystem—across employees, customers, and communities—builds trust and resilience in the business model.
3. Nurturing Customer and Community Well-being: The focus on profit should be intertwined with supporting the health, wellness, and long-term success of customers and communities. Thriving customers drive sustainable growth, as their loyalty and purchasing power increase when their lives are enriched by the products and services they use. Companies that invest in their customers' ability to thrive, whether through wellness initiatives, education, or ethical business practices, create lasting value.

By adopting this framework, leadership teams can position their companies for sustainable growth, maintain relevance in a rapidly changing world, and build stronger relationships with customers, employees, and society at large. This approach allows companies to thrive while ensuring the long-term well-being of all stakeholders.

Beyond ESG: Bees vs Termites

The updated framework for business leadership must go beyond traditional ESG rhetoric, which is often seen as virtue signaling without strategic depth.

We must acknowledge a fundamental truth: businesses, communities, and customers are intertwined in ways that can't be ignored or exploited indefinitely. The notion that corporations can thrive while their customers and communities suffer is not just unsustainable; it has become increasingly unviable as the global consequences force more rigorous scrutiny and accountability mechanisms.

Companies need to learn how to create symbiotic strategies where the success of one stakeholder naturally fuels the success of the others. This strategy is like the relationship between bees and flowers—both thrive together, and in doing so, they sustain a greater ecosystem, including the food supply. A company should aim to cultivate customers and communities in a way that enhances their well-being, which in turn drives long-term growth and profitability for the company. Contrast this with the exploitative relationships many businesses have historically relied on, akin to termites eating away at the very structure that supports them until it collapses.

By focusing on symbiotic strategies, businesses can unlock new sources of innovation, loyalty, and resilience. They are no longer playing zero-sum games but are actively participating in value creation that benefits all parties involved.

A symbiotic strategy is not about "doing good" as a separate initiative; it is a business imperative that recognizes the long-term viability of the company is directly tied to the health and vitality of its customers and communities. As markets and regulatory environments become less forgiving of exploitative practices, this symbiotic strategies offer a proactive paths to sustained, meaningful growth.