The Protean Business Enterprise: A Model for Business Tax Efficiency

More and more businesses struggle with the ever-increasing complexity and volume of government regulation and taxation.  It is therefore heartening to see whenever someone comes up with a breakaway idea that revolutionizes business practices and helps give profitable companies a leg up on regulation.

In The Future Arrived Yesterday:  The Rise of the Protean Corporation and What It Means for You (Crown Business 2009), author Michael Malone, a journalist based in the Silicon Valley, takes a hard look at the increasing virtualization of workspaces and the technologies enabling that trend. Malone concludes that businesses using a “protean” corporate model can better leverage the services of virtualized employees and synthetic offices.  A protean business can thus evolve much more rapidly to changes in customer demand and other market forces.

One example of the evolutionary capability of a protean business model concerns ObamaCare.  In the 29 January 2013 edition of the Wall Street Journal, editorial columnist Paul Christiansen offers that businesses with over 50 employees can avoid the worst of ObamaCare’s health insurance mandates by reducing the direct employee headcount. However, instead of just terminating employees (as many companies currently seek to do in order to counter the impact of the ObamaCare mandates), Christiansen proposes that businesses should seek to employ those same staff members through their own employee-owned companies, much as independent contracting firms and outside service providers are engaged.

We do not raise Christiansen’s article or Malone’s book for the purpose of discussing ObamaCare mandates for business.  Rather, we point to Christiansen’s thoughtful analysis of Malone’s protean business model for how profitable businesses can outsource high-profit activities to low-tax jurisdictions:

“Going protean” offers a better strategy for many businesses. Owners of protean companies create a core of strategic employees who manage the big-picture elements of the enterprise—the culture, business model, product mix, vision, strategy, etc. This core then outsources the business tasks to other corporations.


Non-core tasks could include things like accounting, marketing, product development, manufacturing, IT, PR, legal, finance, etc. There is almost nothing that cannot be outsourced—including even the CEO function (which can already happen, e.g., when a company is in turnaround.)


To most business owners, “outsourcing” means shipping jobs overseas. But in the protean sense, it means having tasks performed in the context of a contractual relationship as opposed to an employment relationship. It’s not about replacing employees with contractors, but about replacing employees with corporations.

It used to be that only manufacturing companies could take advantage of outsourcing:  A U.S. auto factory might consider shifting parts production to a plant in Mexico or Canada. With the rise in office virtualization technologies, now just about any business built on intellectual capital can outsource as easily as a manufacturer.

A protean business enterprise can outsource tasks that are critical and profitable, but which are not necessarily tied to a particular high-tax jurisdiction, to a low-tax jurisdiction. With careful planning, profits may accumulate in the low-tax jurisdiction and be repatriated when the circumstances best suit the owners of the business.

Lighthouse is pleased to offer outsourcing services to intellectual capital-intensive businesses.  With offices and service partners in key low-tax and non-tax jurisdictions, Lighthouse can provide support and staffing for many important business functions.  For more information, please have your qualified tax advisor contact Lighthouse.