Dirt Diggers Digest

Where are the rightwing crackpots denouncing “world government” when you need them? The New York Times reported over the holiday weekend that the Securities and Exchange Commission (SEC) is preparing a series of proposals that would weaken its own control over U.S. financial markets by, among other things, allowing American companies to opt for oversight by foreign regulatory bodies. The step would reportedly be presented as way to enhance the competitiveness of U.S. companies abroad and encourage more foreign investment here.

Critics worry, with some justification, that the move amounts to a transnational form of deregulation, given that securities oversight overseas is generally much less stringent than in the United States. The change could effectively abolish the Sarbanes-Oxley controls that were put in place by Congress after the collapse of Enron and other corporate scandals earlier this decade. The Times quotes Duke Law School securities expert James D. Cox as warning that the shift to international rules amounts to “outsourcing safety standards.” Picking up on the story today, the Washington Post suggested that a vote on the use of international standards could come in a few weeks.

Ceding control to foreign regulators is just one of the ways in which the SEC seems to be chipping away at its own authority. Yesterday, the agency announced it had reached agreement with the Federal Reserve to share information and cooperate more closely. That sounds reasonable, but it comes after the Fed shunted the commission aside and took control of the Bear Stearns crisis back in March. Since then there have been prominent articles, such as one on the front page of the Wall Street Journal, playing up the criticism of SEC Chairman Christopher Cox.

And then there’s the fact that in March Treasury Secretary Henry Paulson proposed an overhaul of the financial regulatory system that gave a diminished role to the SEC. Paulson’s plan has gone nowhere, but it added to the impression that the SEC’s star is waning.

The SEC is hardly a flawless agency, but the alternatives would probably be significantly worse in terms of investor protection and corporate accountability. As much as some of us harp on the limitations of SEC disclosure rules, for instance, there is a lot less transparency abroad. The only other country, to my knowledge, that requires companies to reveal a significant amount about their operations and their finances, and then makes those filings available at no cost on the web is Canada, with its SEDAR system. Allowing U.S. companies to follow foreign rules may or may not help their competitiveness, but it will in all likelihood allow them to operate with a lot less scrutiny.

Big business is talking more these days about the need to reduce greenhouse gas (GHG) emissions. Even long-time global warming denier Exxon Mobil feels the need to publicize what it is doing in this regard. Claims of reductions in GHG are not, however, meaningful unless those emissions are being estimated consistently to begin with.

A study issued yesterday by the Ethical Corporation Institute raises questions about how much we really know about the volume of GHG being generated by large corporations. According to a press release about the report (which is available only to those willing to fork over more than 1,000 euros), there are “staggering inconsistencies in how companies calculate and verify their greenhouse gas emissions.” The report found, for instance, that companies responding to the fifth annual Carbon Disclosure Project questionnaire used more than 30 different protocols or guidelines in preparing their emissions estimates. The report, it appears, surveys this potpourri of measurement techniques but does not attempt to resolve the differences.

The absence of consistency has not prevented the Carbon Disclosure Project from trying to use current reporting to understand the larger framework of GHG trends. In May, the Project issued the first results of its Supply Chain Leadership Collaboration, an initiative in which large companies such as Nestlé, Procter & Gamble and Unilever urge their suppliers to report on their own carbon footprint. It is unclear how much effort is made to ensure these results are reported in a uniform manner.

Along with the need for improved GHG reporting, there are growing calls for companies to disclose the liability risks (and opportunities, if any) associated with those emissions. Recently, a broad coalition of institutional investors and major environmental groups once again urged the U.S. Securities and Exchange Commission to clarify the obligations of publicly traded companies to assess and fully disclose the legal and financial consequences of climate change. The statement was aimed at reinforcing a petition filed with the SEC last year on climate-change disclosure.

Climate-change liability risks no longer exist just in the realm of the theoretical. Lawsuits have been filed against the major oil companies for conspiring to deceive the public about climate change—including one brought in the name of Eskimo villagers in Alaska who are being forced to relocate their homes because of flooding said to be caused by global warming.  Famed climate scientist James Hansen recently declared at a Capitol Hill event that oil and coal company executives could be guilty of “crimes against humanity.” If that isn’t a risk worth reporting, what is?

Securities and Exchange Commission Chairman Christopher Cox yesterday announced the launch of an effort to “examine fundamental questions about the way the SEC acquires information from public companies, mutual funds, brokers, and other regulated entities, and the way it makes that information available to investors and the markets.”

Surprisingly, the grandly named 21st Century Disclosure Initiative is to be headed by William D. Lutz, an emeritus professor of English at Rutgers University-Camden. True, Lutz has a law degree and is said to be familiar with securities law, but he is known mainly as a critic of corporate and bureaucratic doublespeak.

There is plenty of gobbledygook in SEC filings that could be made more intelligible, but the bigger disclosure problem is the failure to require companies to divulge more on certain aspects of their operations. For years, initiatives such as Corporate Sunshine Working Group have been pressing for fuller reporting on a corporation’s social and environmental impact. The group’s website contains a six-page expanded disclosure schedule, including items such as:

* lists of major customers and suppliers (beyond the current limited requirements);

* detailed information on violations of labor laws, anti- discrimination laws, etc.; and

* more detailed reporting on actual environmental violations and potential environmental liabilities.

There’s more that could be added to the list. For example, it would be very helpful to analysts of state corporate tax compliance to know how much a company paid in taxes in each state. Although the information may be available (with some difficulty) from other sources, it would also be useful to know how much a company has received in tax abatements, tax credits and other subsidies from each state and from the federal government.

Another type of data that can be found elsewhere (usually for a price) but should be in filings such as 10-K annual reports or proxies is a list of a company’s largest institutional shareholders with information on whether they or their money managers vote their shares. The names of a company’s major creditors can sometimes be found by looking at revolving credit agreements included as exhibits, but they should be presented clearly in the debt section of the financial statements.

In short, there is a lot of vital information about publicly traded companies that should be made readily available to investors and other stakeholders. Presenting that data in plain English would be even better.

John McCain’s suggestion yesterday that the federal government offer a $300 million prize for the development of a next-generation battery for plug-in hybrids or electric cars is being derided in some quarters as bringing a “game-show ethos to American politics.” It is also awkward that Daniel Yergin’s definitive account of the oil industry’s quest for domination was entitled The Prize.

The idea of offering a cash award for a technological innovation is hardly unprecedented. Such bounties, however, are usually offered by private entities such as the X Prize Foundation. What McCain is forgetting is that when a prize is offered by government—that is, when taxpayer money is the source of the reward—the public should get some direct benefit for its “investment.” A benefit, that is, beyond the fact that the new technology would be available for sale.

This is the principle behind the proposal put forth by people such as James Love of the Consumer Project on Technology to replace privately financed drug research with taxpayer-funded prizes. Pharmaceutical researchers would get substantial sums for the creation of new treatments that create demonstrable improvements in health conditions. This does not, however, create windfalls for the winners. Drugs that receive the prize—which was incorporated into a bill introduced last fall by Vermont Sen. Bernie Sanders—would not have patent protection and thus would be widely available at a cheap generic price.

There’s no indication that McCain has this trade-off in mind. He presumably would want the winners of the battery competition to be rewarded twice—with the prize as well as the patent.

Until prizes and other “carrot” approaches succeed in bringing about cleaner cars, some government “sticks” will remain necessary. One disclosure-based version of the latter is being introduced in California. The state’s Air Resources Board announced last week that, beginning next January, every new car put on sale in California will be required to carry a label informing potential buyers of the vehicle’s environmental impact. The label will rate the car based both on its emissions of greenhouse gases and its contribution to smog. The Board already has a website that provides data on the cleanest, most fuel efficient cars on the market.

Compared to his dismaying embrace of expanded offshore oil drilling last week, McCain’s clean-battery-prize idea is not completely foolhardy. But he shouldn’t forget that the role of government is to put a check on business shortcomings—if only through mandated disclosure—rather than fostering more winner-take-all “solutions.”

Company-specific compensation data is one of those rare areas in which more is known about people at the top of the social pyramid than those at the bottom. Publicly traded corporations are required to file proxy statements each year that disclose down to the last dollar what top executives are paid in salary, bonuses, long-term compensation, stock options and perks. We know what the big boss earns but generally not what the company pays its middle managers or hourly workers.

Glassdoor, a new website launched this week in beta form, starts to fill that information gap. The site was created by Rich Barton, the former Microsoft executive who founded Zillow, a popular website containing data on real estate values. Whereas Zillow is based at least in part on government data, Glassdoor relies on voluntary submissions by users who anonymously reveal their own salaries, along with information on vacation time, medical coverage and retirement benefits. Users are asked to specify their length of experience and geographic location, so that salary variations can be evaluated. Those who do not wish to name their employer can specify the size of the company and the industry sector.

As the site is just getting off the ground, Glassdoor’s data are far from comprehensive. But there are already, for instance, 60 salary reports covering computer networking giant Cisco Systems. The site also provides anonymous company evaluations by current and former employees, including one in which a former product manager at Cisco complained: “They will try to work you to death.”

While we wait for Glassdoor to grow into a richer source, it should be noted that there are some limited sources for company-specific wage and salary data on those who are not top executives. For example:

* A few states that disclose the economic development subsidies they give to companies ask those firms to report on the wages of the jobs they create. The best example is Illinois, which has a database of reports filed by companies with job creation statistics, including average salaries.

* Some jurisdictions that have enacted living wage laws require employers to file periodic reports that may become part of the public record either automatically or as the result of freedom-of-information requests.

* The U.S. Department of Labor has an online archive of collective bargaining agreements—which typically include wage rates and other conditions of employment—arranged by employer. (The Bureau of Labor Statistics has data by industry but not by specific company.)

* Companies in some regulated industries have to report payroll expenses. For example, airlines must disclose this and other operating and financial data on Form 41, which is submitted to the Bureau of Transportation Statistics. The BTS system is cumbersome to navigate, but the Airline Data Project at MIT has used it to compile handy summary tables of wage and salary rates by job category for each of the major carriers going back to 1995.

* And finally, you can always check want ads and job postings to look for salary figures offered by those companies that don’t hide behind the statement that the pay rate “depends on experience.”

Although he’s been busy with some other matters, Sen. Barack Obama found time this week to introduce legislation that would expand the amount of information made available to the public on federal procurement contracts. The measure was introduced with Sen. Tom Coburn (R-Okla.), who had joined Obama in a previous bipartisan initiative that resulted in the 2006 passage of legislation creating the USA Spending database. The original co-sponsors of the new bill (S.3077) are Senators John McCain (R-Ariz.) and Tom Carper (D-Del.).

S.3077 calls for an expansion of the data provided via USA Spending, the creation of which also needs to be credited to OMB Watch, which built its own contract database, FedSpending, on which the federal resource ended up being based.

As summarized by Obama’s office, the bill would add to USA Spending:

- A copy of each Federal contract in both PDF and searchable text format.

- Details about competitive bidding, the range of technically acceptable bids or proposals, and the profit incentives offered for each contract.

- The complete amount of money awarded, including any options to expand or extend under a contract.

- An indication if the Federal award is the result of an earmark.

- Information about government lease agreements and assignments in the same manner that information is reported for contracts, grants, and other assistance.

- An assessment of the quality of work performed on Federal awards.

- Information about Federal audit disputes and resolutions, terminations of Federal awards, suspensions and debarments, and administrative agreements involving Federal award recipients.

- Information about any civil, criminal, or administrative actions taken against Federal award recipients, including for violations related to the workplace, environmental protection, fraud, securities, and consumer protections.

- Information about Federal tax compliance by Federal award recipients.

- Information about parent company ownership that will be made accessible, along with other data on USASpending.GOV, through application programming interfaces.

- Links to publicly available Government reports.

Legislation covering the bullet point about disclosure of the legal track record of contractors—along the lines of the Project On Government Oversight’s Federal Contractor Misconduct Database—has already passed the House.

It is not clear whether the new Obama-Coburn bill would do anything to address a problem highlighted by Secrecy News—the fact that intelligence agencies such as the Defense Intelligence Agency and the National Geospatial-Intelligence Agency have been refusing to submit data on even their unclassified contracts to USA Spending. As noted in the last issue of the Digest, the intelligence agencies are outsourcing more and more of their work, so disclosure of those contracts becomes all the more important.

I’m writing this from beautiful Bigfork, Montana, where I’ve had the pleasure of attending a gathering of government transparency experts and activists convened by the National Institute on Money in State Politics. The message here is a mixed one. Speakers such as Charles Davis, head of the National Freedom of Information Coalition, told harrowing tales of how state governments try to block access to public records. Yet we are also being treated to reports on new advances in disclosure and new online tools to access the data. I’ll focus here on the latter.

Ed Bender, executive director of the Institute and our host, demonstrated new features recently added to the Institute’s already remarkable Follow the Money website as well as features that will soon be introduced. These include:

• Committee Analysis Tool (or CAT). Using continuously updated legislative rosters compiled by Project Vote Smart, a user of Follow the Money can now quickly see all the contributions going to members of a given committee.
•  Lobbyist Link. This feature, which is currently in beta form and is expected to launch in the next month or two, allows users to see the extent to which a large company or other institution is trying to influence policymaking throughout the country. For example, by searching Verizon, one will be able to see data on the giant phone company’s lobbying efforts in every state and the campaign contributions associated with those efforts. The Institute invites Digest readers to preview the tool, but recognize that work is still being done on matters such as variations in company names. Send comments to the Institute using the link on the beta page.

 Sheila Krumholz and Susan Alger of the Center for Responsive Politics provided a tour of their recently redesigned Open Secrets site, the leading source for data on federal campaign contributions and related issues such as lobbying, financial disclosure by public officials and the revolving door between the public and private sectors. The redesign makes it possible for registered users to display a personalized set of data on particular candidates or donors every time the site is opened. This was described as just the first in a series of planned personalization tools. The Center is also considering adding data on earmarks and federal contracts to the site.

Greg Elin of the Sunlight Foundation, whose new site Fortune 535 I wrote about recently, wowed even this sophisticated crowd with his description of a prototype tool called Influence Explorer, which will allow one to dump a body of text, such as a newspaper article, into a database that will automatically extract key names and assemble data on those individuals. The initial application is limited to members of Congress (the data thus include items such as campaign contributions), but it could be extended to other groups of people or institutions.

Among the other speakers were Cindi Canary of the Illinois Campaign for Political Reform, who told about the origins of Open Book, a site that combines data from campaign contributions and procurement contracts in Illinois (which I covered last year), and Mike Smith, chief technology officer of the Washington Public Disclosure Commission, who described plans for upgrading the state’s already excellent site on campaign finance, lobbying and financial disclosure.

Hearing these presentations and others was both exciting to me as a researcher looking for new tools and inspiring evidence that proponents of transparency are making major inroads against the forces of darkness.

After being in office for a while, many lawmakers cannot wait to go through the revolving door to the private sector so they can earn a lot more than the salary of $169,300 currently paid to members of Congress. However, a new tool created by the Sunlight Foundation suggests that some senators and representatives do quite well in building up their nest egg while still on the public payroll.

The Fortune 535 is a website that approximates changes over time in the net worth of members of Congress. First among these accumulators of wealth is Rep. Darrell Issa (R-Calif.), who is estimated to have grown richer by some $210 million since 2000. Two others are said to have boosted their net worth by more than $100 million: Rep. Jane Harman (D-Calif.) and Sen. John Kerry (D-Mass.).

Although the Fortune 535 is based on the personal financial disclosure forms filed by members of Congress and made available on the web by the Open Secrets website of the Center for Responsive Politics, its net worth numbers are not quite ironclad. That’s because legislators are allowed to report their assets and liabilities in exceedingly broad ranges. Fortune 535 combines the midpoints of the ranges for each asset and liability and compares the overall result for the earliest available disclosure form to the legislator’s most recent filing. The site does not attempt to explain the changes in the estimated net worth figures. By necessity, it is not the most rigorous data source, but it serves both to illustrate the flaws in the current financial disclosure system and to suggest that many members of Congress are not sharing the financial distress being experienced by their constituents.

Another new data source on Congress appears at first to contain more precise data. Legistorm has introduced the Foreign Gifts Database, which contains information on both tangible items and travel/lodging given by foreign governments to senators, representatives and their staff over the past decade. The database can be searched by recipient, country or description of the gift. Former Speaker Dennis Hastert, for example, reported receiving a ceremonial dagger from the government of Morocco worth $10,000. Hastert filed his reports on the dagger and other gifts only upon leaving office rather than within the specified 60 days after receiving the items.

Legistorm, which also provides databases of Congressional member and staff salaries and trips, also raises questions about the completeness of the reporting: Hastert’s filings are the only ones made by a member of the House in the past five years.

It’s rare these days for powerful business interests to be rebuffed by the U.S. Supreme Court, but that’s what happened when Chief Justice John Roberts denied an emergency request from the National Association of Manufacturers (NAM) last week having to do with disclosure. NAM has been waging a court battle against a new law (Section 207 of P.L. 110-81) that requires trade associations to list member companies that are extensively involved in developing the organization’s lobbying strategies or that contribute at least $5,000 toward those efforts. NAM believes its members should be able to lobby confidentially.

NAM was seeking a stay on enforcement of a portion of the Honest Leadership and Open Government Act that took effect on April 21. The DC Court of Appeals turned down the request, so NAM went to the Supreme Court, which also said no.

This week, NAM submitted an amended lobbying disclosure filing to the Clerk of the House and the Secretary of the Senate. Beginning on page 54 of the 71-page document, NAM responded to a question about additional affiliated organizations by including a link to a page on its website.

That page contains the names of 63 large corporations and two trade associations (American Petroleum Institute and the Edison Electric Institute) whose lobbying involvement, NAM decided, now has to be made public. Not surprisingly, the companies include giant industrials in sectors such as energy, pharmaceuticals, chemicals, heavy equipment, food processing and aerospace. In other words, companies that have a lot of interests that need to be fostered in Washington.

Here’s the complete list: Albemarle Corporation, American Electric Power, American Petroleum Institute, AREVA Group, AT&T, Bayer Corporation, BD, Boston Scientific Corporation, BP Corporation North America, Bristol-Myers Squibb Company, Campbell Soup Company, Caterpillar Inc., Chevron Corporation, CN, CONSOL Energy, Corning Incorporated, Deloitte & Touche LLP, Delphi Corporation, Dominion Resources Services, Dow Corning Corporation, Eastman Chemical Company, Edison Electric Institute, Entergy Corporation, Exxon Mobil Corporation, FirstEnergy Corp., FMC Technologies, General Electric, Goodrich Corporation, Illinois Tool Works, Ingersoll-Rand, JELD-WEN, Inc., Johnson Controls, Koch Industries, Loews Corporation, Marathon Oil, Mead Westvaco, Merck & Company, Northrop Grumman, Occidental Petroleum, Owens-Illinois, PPG Industries, PPL Corporation, Rockwell Automation, Rohm and Haas, SABIC Americas, Inc., Sanofi-Aventis, Shell Oil, Smurfit-Stone Container, Sony Electronics, Temple-Inland, Terra Industries, Textron, The Clorox Company, The Hershey Company, The Timken Company, Unilever United States, Union Pacific, United States Steel, USEC, Verizon, Volvo Group North America, W L Gore & Associates, W. R. Grace & Co., Weyerhaeuser Company, and Xerox Corporation.

It is no great surprise that companies such as these are deeply involved in trying to shape federal policies, but what’s important here is the principle: lobbying is not a process that companies can engage in surreptitiously by funneling their spending through business associations. NAM President John Engler (former Republican Governor of Michigan) warned that the new disclosure requirement might prompt companies “to curtail their memberships or restrict their involvement in trade associations.” That might sound like a problem to Engler, but less corporate involvement in manipulating public policy is music to my ears.

The effort to centralize information on federal contractors that have broken the law or violated regulations took an important step forward today when the House approved by voice vote H.R. 3033, the Contractor and Federal Spending Accountability Act. The issue now goes to the Senate, where Claire McCaskill (D-Mo.) today introduced a companion measure.

The bills would require the federal government to take over a function that until now has been unofficially handled by the Project On Government Oversight. POGO’s Federal Contract Misconduct Database has been an immensely valuable pilot effort covering the 50 companies doing the most business with Uncle Sam.

First on that list in terms of contract dollars is arms maker Lockheed Martin, for which POGO has found 42 instances of misconduct—resulting in $553 million in fines and settlement costs—since 1995. Number two contractor Boeing has 24 instances and $863 million in misconduct dollars, followed by Northrop Grumman with 23 instances and $450 million. While Lockheed leads in the number of misconduct instances (followed by General Electric and Exxon Mobil and Honeywell International before Boeing and Northrop), it ranks 9^th in misconduct dollars. The winners in that category are Exxon and BP Amoco. POGO defines “misconduct” as cases in which contractors “violate laws or regulations or are the subject of misconduct allegations in their dealings with the government, individuals, or private entities.”

H.R. 3033 would mandate the creation of a public database that would reveal whether any recipient of a federal contract or grant had, within the past five years: been involved in any civil, criminal or administrative proceeding resulting in a finding of fault of $5,000 or more; had a federal contract or grant terminated because of default; or been suspended or debarred from doing business with the federal government. This would enable federal agencies to weed out bad actors before awarding future contracts.

If it passes, the contractor database would represent the second instance in recent years in which a disclosure initiative pioneered by a non-profit became an official federal program. The recently launched USA Spending database of federal contracts and grants, mandated by bipartisan legislation sponsored by Sen. Barack Obama (D-Ill.) and Sen. Tom Coburn (R-Okla.), was directly modeled on the FedSpending database that had been created by OMB Watch.