Archive for the ‘Disclosure’ Category

Corporate Virtue and Corporate Subsidies

Thursday, January 30th, 2014

corporate_flag2-1For a speech that was supposed to focus on the plight of low-wage workers, President Obama’s State of the Union contained a surprising number of favorable references to specific large corporations. I counted seven plugs — for Apple, Costco, Ford, Google, Microsoft, Sprint and Verizon. The Ford mention, which alluded to “the best-selling truck in America,” sounded like a high-level product placement.

Most of these companies were cited for their supposed acts of corporate virtue, such as the role of the telecoms in helping to bring high-speed broadband to schools. There’s something else these firms have in common: they’ve all been recipients of substantial economic development subsidies from state and local governments.

My colleagues and I at Good Jobs First issued two reports this week that take a critical stance toward these types of financial aid to business. In one of the reports, Putting State Pension Costs in Context, we look at how the revenue loss from subsidies and corporate tax breaks and loopholes compare to the cost of public employee pensions in ten states where those retirement benefits have been under attack.

We find that in every one of the states the corporate giveaways far outweigh the current costs of providing pensions to state workers. In the case of Louisiana, for example, the giveaways are more than five times the retirement costs.

State legislators and governors have a tendency these days to get frantic about pension costs. Our research suggest that they should be more concerned about the larger revenue losses stemming from what are often ineffective “incentives” given to business.

The other report, Show Us the Subsidized Jobs, is the latest in our series of surveys on the performance of state governments in disclosing online which companies are getting financial assistance and what they are doing with it, especially in relation to job creation. There are two main messages that emerge from the study.

First is the fact that there is now at least some online recipient disclosure in all but a handful of states. The number has doubled since we did the first of these surveys in 2007. That’s the good news.

The other message is not so encouraging: There are vast discrepancies in the depth and the quality of the disclosure. Some states such as Michigan and North Carolina provide reasonably good disclosure for all their major programs, while others such as Nevada and South Carolina provide bare-bones disclosure — meaning company names only — for only one key program. In many cases no information is reported on the number of jobs subsidized companies are creating or the wages being paid.

To enable detailed comparisons of programs, we rate them on a scale of 0 to 100. Points are given for providing details on subsidy amounts, on job and wage outcomes, and on the inclusion of key information about subsidized projects and companies. We also rate programs on how easy it is to find and use the data.

Based on this system, the states with the best average scores for their key programs are Illinois, Michigan and North Carolina. Being best in relative terms does not mean that the absolute scores are very impressive. Top-ranking Illinois has an average of only 65 and Michigan comes in at 58. Every other state has an average below 50 percent. The average program score is only 21 (or 39 if you leave out those with no disclosure at all). Only seven programs score 75 or above.

These scores are so low mainly because so many programs fail to provide good reporting on outcomes, which account for a large portion of the points in our scoring system. Fewer than half of the 246 programs we examine include any reporting on jobs or wages in subsidized companies. And many of those that do provide only projections rather than the actual amounts. Less than one-tenth of the programs provide actual amounts for both jobs and wages.

In the report we emphasize that transparency does not equal effectiveness or complete accountability. A program can disclose all the essential details but still be a waste of taxpayer money. Transparency is what allows the public to determine when that is the case.

Our interest in disclosure is not only for abstract reasons of accountability. If states put more information online, there were will more for us to capture for our Subsidy Tracker database, a national search engine covering more than 500 programs.

Next month we will introduce Subsidy Tracker 2.0. Along with the raw data, we will add information on the parent company of the recipient firms. This will make it possible to see at a glance how much large companies such as the seven cited above have received across the country. The Dirt Diggers Digest will provide wall-to-wall coverage.

Contractor Entitlement Reform

Thursday, December 12th, 2013

nn_thomp_refineryfire_050324.300wThe fiscal austerity crowd is preoccupied with the size of government, but what they rarely acknowledge is that more than $500 billion in annual federal outlays take the form of purchases of goods and services from the private sector. Uncle Sam’s role as the country’s biggest consumer means that federal agencies are in a good position to expect the highest standards of conduct from contractors.

A new report by the majority staff of the Senate Health, Education, Labor and Pensions Committee shows that the federal government is not doing a good job of enforcing such standards when it comes to working conditions at contractor companies. In fact, the report shows that violations of occupational safety and health regulations as well as wage and hour laws are rampant among the contractors.

Some key findings of the report:

  • Eighteen federal contractors were among those companies receiving the 100 largest penalties issued by the Occupational Safety and Health Administration between 2007 and 2012. Contractors accounted for 48 percent of the dollar value of those penalties.
  • Thirty-two federal contractors were among the companies receiving the large back-wage assessments ordered by the Wage and Hour Division (WHD) of the Department of Labor between 2007 and 2012.
  • The 49 federal contractors in these categories were found to have been cited for 1,776 separate violations and paid $196 million in penalties and assessments. In fiscal year 2012, these same companies were awarded $81 billion in federal contracts.

Misconduct by contractors is an old story, but legislation passed in 2008 was supposed to make it easier for federal agencies to identify bad actors and disqualify them from contract awards. The law provided for the development of an official database along the lines of the Federal Contractor Misconduct Database created by the Project On Government Oversight.

That database did come into being and is known as the Federal Awardee Performance and Integrity Information System, or FAPIIS. In its current state, FAPIIS is a big disappointment. The Senate report points out that of the 49 contractors on the lists of largest labor violations only one has such instances of misconduct included in its FAPIIS entry. As the report states with understandable outrage:

In perhaps the most astonishing example of the failures of FAPIIS, BP, despite the deaths, injuries, and massive environmental damage, as well as the billion dollar settlements resulting from the Deep Water Horizon incident, and despite the deaths, injuries and fines resulting from the Texas City refinery explosion [photo], and despite holding $2 billion in contracts in 2012, has no misconduct entries in FAPIIS.

The Senate report does not just point out the limitations of FAPIIS but also demonstrates how more aggressive information-gathering on companies can be done. Its authors delved into the enforcement databases of both OSHA and the WHD to identify which contractors were serial violators. The results are presented both in summary tables in the report and in a 448-page appendix with key data on several dozen of the worst offenders.

In the occupational safety and health category, it is no surprise that the company at the top of the list of violators is BP, which is a rare example of a large company that was actually debarred (albeit temporarily) from doing business with the federal government because of its misconduct.

On the wage and hour side, it is also not surprising that the company appearing most often in the list of the biggest back pay assessments is Wal-Mart, though the company does a miniscule amount of business with the federal government. Also on high up on the list are companies focused on government contracting, such as private prison operator Management & Training Corporation and Pentagon outsourcer IAP Worldwide Services (owned by the private equity company Cerberus Capital Management).

While the Senate report calls on the General Services Administration, which oversees FAPIIS, to clean up the database, it also urges the Department of Labor to do more to publicize the names of contractors that were found to be violators of federal labor laws.

But why stop with DOL? Shouldn’t every regulatory agency take pains to highlight bad actors and make sure federal procurement officials know who they are?

There is much talk of entitlement reform with regard to safety net programs. What we need instead is more attention on corporations that think they are entitled to receive contracts from the federal government even when they show little regard for federal regulations.

Subsidy Megadeals for Megacorporations

Thursday, June 20th, 2013

moneybagsThe Miami Herald recently published a story with the headline “Amazon Doesn’t Need Tax Incentives, But Localities Offer Millions in Tax Breaks.” Throwing large sums of money at large corporations in a desperate attempt to create jobs is an affliction not limited to public officials in Florida. It is a wasteful and self-defeating public policy that can be found throughout the United States.

An indication of just how pervasive the practice has become can be found in a new report my colleagues and I at Good Jobs First have just issued. The title is Megadeals, and it is a look back at the largest state and local subsidy packages of the past three decades.

In the course of five months of painstaking research, we identified 240 of those packages with a total value of at least $75 million each; the aggregate cost is more than $64 billion. Many of them reach into nine and even ten figures. There are eleven deals costing $1 billion or more in public money.

Most astounding are the costs per job. The average for our 240 megadeals is $456,000 and there are 18 for which the cost per job is $1 million or more.

Megadeals have been awarded to many of the largest and best known companies based in the United States as well as foreign ones doing business here, including: General Motors, Ford, Nissan, Toyota and just about every other large automaker; oil giants such as Exxon Mobil and Royal Dutch Shell; aerospace leaders Boeing and Airbus; banks such as Citigroup and Goldman Sachs; media companies such as Walt Disney and its subsidiary ESPN; retailers such as Sears and Cabela’s; old-line industrials such as General Electric and Dow Chemical; and tech stars such as Amazon.com, Apple, Intel and Samsung.

Sixteen of the Fortune 50 are represented. Not included is the company atop of the Fortune list: Wal-Mart. That’s not because Wal-Mart doesn’t receive subsidies—Good Jobs First has separately documented more than $1.2 billion in such taxpayer assistance in our Wal-Mart Subsidy Watch website—but its deals have been worth less than $75 million each and thus don’t qualify for our list.

The most expensive single listing is a 30-year discounted-electricity deal worth an estimated $5.6 billion given to aluminum producer Alcoa by the New York Power Authority. Taking all of a company’s megadeals into account, Alcoa is at the top with its single $5.6 billion deal, followed by Boeing (four deals worth a total of $4.4 billion), Intel (six deals worth $3.6 billion), General Motors (11 deals worth $2.7 billion), Ford Motor (9 deals worth $2.1 billion), Nike (1 deal worth $2 billion) and Nissan (four deals worth $1.8 billion).

The overall costs of megadeals have risen over the past three decades (in current dollars). The megadeals from the 1980s averaged $157 million. The average rose to $175 million in the 1990s and $325 million in the 2000s. It then declined to $260 million in the 2010s. The average for the list as a whole is $269 million.

Some of the deals involve little if any new-job creation; indeed, one in ten of the deals involves the mere relocation of an existing facility, usually within the same state and often a short distance. Some of these retention deals were granted in so-called job blackmail episodes in which a company threatened to move jobs out of state unless it got new tax breaks or other subsidies.

The megadeals list is a new enhancement of Good Jobs First’s Subsidy Tracker database, the first compilation of company-specific data on economic development deals from around the country.

Until now, the content of Subsidy Tracker has consisted exclusively of official disclosure data provided by state and local governments. The information has been obtained from government websites and from direct requests to agencies.  Given the limitations of the disclosure practices among state and local governments—and often from program to program within jurisdictions—the exclusive reliance on official data meant that Subsidy Tracker was missing information on many large deals that had been reported in the media. Either those deals were missing entirely if there was no official disclosure for the programs involved, or else Tracker had incomplete data if some but not all of the programs used in the package were disclosed.

To rectify this problem, we went back and collected information on large deals using a variety of sources, including press releases, newspaper articles and reports on specific projects as well as the official data we already had. The results went into the creation of the megadeals list and have been incorporated into Subsidy Tracker.

Note: The page containing the Megadeals report also has a link to a spreadsheet with full details on all 240 of the deals.

Corporate Privacy is Alive and Well

Thursday, June 13th, 2013

we-the-corporations02-e1294670618870Recent revelations about the electronic surveillance programs of the federal government, which are being carried out with the cooperation of large telecommunications and internet companies, show that personal privacy rights are in serious peril.

Much is being said and written about the discrepancy between the seemingly invincible status of the Second Amendment and the disintegrating Fourth Amendment. Yet the more significant contrast may be between individuals and corporations with regard to privacy and protection from government intrusion.

Despite all the complaints from business groups about the supposedly overbearing Obama Administration, large corporations have it pretty good. This is especially the case in the matter of taxes.

Although the finances of publicly traded companies are supposed to be an open book, firms are not required to make public their tax returns. This allows them to conceal the inconsistencies between what they disclose to shareholders and what they report to Uncle Sam. The recent report by the Senate Permanent Subcommittee on Investigations about tax dodging by Apple showed there was a $4.4 billion discrepancy between the FY2011 tax liability presented in the company’s 10-K annual report and what it listed in its corporate tax return (which the committee had to subpoena).

Revelations about Apple and other tax dodging companies has not resulted in any action by Congress. The European Union, by contrast, is moving ahead with a transparency initiative that will thwart tax avoidance and illegal financial flows.

Anti-corruption and pro-transparency groups in the Financial Accountability and Corporate Transparency (FACT) Coalition have been pressing the Obama Administration to support a plan, backed by British Prime Minister David Cameron, to require the registration of owners of shell companies—a move that would make illicit financial transfers more difficult. The idea will be discussed at the upcoming G8 summit, but there is little indication that Obama, much less the U.S. Congress, is prepared to sign on to Cameron’s “transparency revolution.”

Large corporations enjoy a great deal of privacy with regard to state as well as federal tax liabilities. Publicly traded companies are required only to disclose aggregate figures on the taxes they are paying (or not paying) to the states overall, making it impossible to get a clue on how much dodging is going on in individual states. Although there have been efforts at times to compel publicly traded companies to make public their state tax returns, those documents remain as private as their federal returns.

Corporate financial statements are also usually devoid of any information on the billions of dollars companies receive each year in economic development subsidies from state and local governments. There has, however, been progress in piercing the corporate privacy veil in this arena, but it is mixed.

At the state level, disclosure is better than it has ever been, but there is a great deal of inconsistency from state to state and from program to program within states. Much of the transparency progress relates to grant and low-cost loans, while the tax breaks—which are often the big-ticket items—lag. Fewer than half the states post a significant amount of information online about corporate tax credits.

And as my colleagues and I at Good Jobs First showed in a recent report, disclosure is even more primitive among most large cities and counties. All the disclosed data is collected in our Subsidy Tracker search engine.

Taxes and subsidies are not the only areas in which corporate privacy remains strong. There are also serious limitations, for example, in what companies have to reveal about their labor practices. Even publicly traded companies are providing less and less in their 10-K annual reports about collective bargaining. Reading the 10-K of Wal-Mart, for instance, you would never know that it has fought tooth-and-nail against unions and is now facing a non-traditional organizing campaign. Whether they are sympathetic or not to the goals of the campaign, shouldn’t shareholders at least be told that it exists and what the company is doing in response?

As poor as the transparency rules are for publicly traded companies, they shine in connection with the absence of significant requirements with regard to privately held firms. The secrecy afforded to family-controlled mega-corporations such as Koch Industries and Cargill is a serious public policy problem.

While companies such as Facebook and Google claim to be sympathetic to the concerns of their customers about government surveillance, they continue to enjoy a higher level of privacy. Corporations have been aggressive in asserting First Amendment rights equivalent to those of natural persons, but when it comes to the Fourth Amendment, they seem to be ahead of us humans.

A Tale of Two States and Subsidy Transparency

Thursday, March 14th, 2013

florida sunshineFlorida and Mississippi may come close to sharing a border, but they are worlds apart in their current approach to the disclosure of economic development subsidies.

Florida has just launched an Economic Development Incentives Portal that makes it easy to discover which companies have benefited from programs such as the Quick Action Closing Fund, the Qualified Target Industry Tax Refund and the High Impact Performance Incentive.

Online subsidy disclosure is not completely new to Florida. An agency called the Governor’s Office of Tourism, Trade and Economic Development used to post a PDF list of recipients for various programs. After Rick Scott took office as governor in 2011, that agency was put under the auspices of the new Department of Economic Opportunity, and the old disclosure site disappeared. DEO promised to restore transparency and has now made good on that promise.

The new portal, produced by DEO in partnership with Enterprise Florida, covers a dozen programs with a total of about 1,250 entries, including “every non-confidential incentive project with an executed contract since 1996 that received or is on schedule to receive payments from the state of Florida.” DEO promises to add listings for confidential projects as their exemptions from disclosure requirements expire.

Searches can be targeted according to business name, county or date range. The results show company name, industry, subsidy value, county, approval date and project status. They also include both committed and actual numbers for jobs and investment, though in many cases the performance figures are listed as not available. The portal also includes projects that are inactive or have been terminated.

Florida’s portal is an important advance for subsidy transparency. The site would be even more useful if it included street addresses for the subsidized facilities (to facilitate mapping) and allowed downloading of search results in spreadsheet form.  At my request, DEO sent such a spreadsheet for the entire database, which I used both to prepare this piece and to upload the information to Subsidy Tracker.

Mississippi, on the other hand, is resisting online disclosure. The state legislature recently killed a bill that would have required the Mississippi Development Authority to publish an annual report on the tax credits, loans and grants it provides to companies in the name of economic development.

It turns out that the agency produced such a report for internal purposes but did not make it public. A group called the Bigger Pie Forum learned about the document—the 2012 Mississippi Incentives Report—and filed a successful freedom of information act request. Bigger Pie was only able to get a hard copy, but it scanned the report and has posted it online here. The info in that report has also been added to Subsidy Tracker.

Despite the reluctance of state legislators, online subsidy disclosure has come to Mississippi. Perhaps the Magnolia State will realize the futility of resisting official transparency and join the Sunshine State, among about 45 others, in making subsidy information directly available to the public via the web.

Note: The latest addition to CORPORATE RAP SHEETS is a dossier on the Royal Bank of Scotland, including its nine-figure settlements of charges relating to violations of U.S. economic sanctions and manipulation of the LIBOR interest rate index.  Speaking of subsidies, the rap sheet mentions that a U.S. subsidiary of RBS extracted a $100 million subsidy from the state of Connecticut to move its offices from New York to Stamford. Read the rap sheet here.

Summing Subsidies

Thursday, December 6th, 2012

My colleagues and I at Good Jobs First were excited at the publication of the New York Times series on the “United States of Subsidies,” since it brings a great deal of attention to a problem—corporate abuse of economic development assistance—that we have been working on for more than a decade.

We were also pleased to see the online database that the Times posted to go along with the articles. We had provided a copy of the master spreadsheet for our Subsidy Tracker database to Louise Story, the author of the series, and she made extensive use of it. Although the Times obtained some information from other sources, it appears that about 98 percent of their company-specific listings come from Subsidy Tracker. (SEE UPDATE BELOW.)

Now that we have had a few days to examine the Times database, we see that there are some flaws in the way the paper used our data.

First, a few words on Subsidy Tracker. In recent years, a growing number of states began to put company-specific information on at least some of their economic development awards—grants, tax credits, tax abatements, etc.—online. This was often in response to the subsidy accountability movement that we and our allies have built.

The problem was that these disclosures usually happened via hard-to-find reports and web pages that were often difficult to search even when you did locate them. Good Jobs First decided to collect all these disclosures and combine them into one national search tool. We introduced Subsidy Tracker in December 2010 with 43,000 listings from 124 subsidy programs in 27 states.

Over the following two years, we have expanded that to the current total of 247,000 listings from 409 programs in all 50 states and the District of Columbia. That expansion was not due entirely to wider official online transparency. Using open records requests, we also obtained unpublished data on scores of additional programs (the total is currently 89). By posting this information to Subsidy Tracker, we became, in effect, the original online disclosure source for these programs.

In recent months we’ve begun applying this approach to city and county subsidy programs, which are far behind their state counterparts in terms of online disclosure.

Despite all this effort, we recognized that we still could not claim to have captured anywhere near all the subsidy awards that have been made across the country. Not only did we still lack many programs, we also have irregular numbers of years of data among programs.  That’s why we have not yet built into Subsidy Tracker a feature that enables instant aggregation of all the awards going to a particular company.

Along with the remaining gaps in the data, there is much that needs to be done with regard to the listings we do have to allow accurate aggregation. This includes the standardization of the variations in company names in our source materials, linking of parent and subsidiary companies, and accounting for mergers and acquisitions. There’s also the problem that some states report subsidy amounts for single years and others for multiple ones. These challenges are all part of our future work plan.

After getting our raw data, the Times did not consult with us on exactly how it would be used. We thus had no opportunity to warn the paper against the perils of aggregation. Specifically, we were not aware of the paper’s plans to create what it calls its $100 Million Club.

It is with this listing that the pitfalls in the Times approach become most apparent. The companies that receive the largest subsidies often get them in the form of packages negotiated with state and local officials. These packages usually consist of awards from various programs and may also involve project-specific awards outside established programs. Some of these pieces of packages are not included in state disclosure channels. It is part of our plan to research packages through other means and add them to Subsidy Tracker as a separate category. We’ve already begun the process in the Key Deals section of the state pages of the Accountable USA section of the Good Jobs First website.

The Times supplemented the roughly 154,000 entries it took from Subsidy Tracker with about 2,000 listings the paper obtained on its own or from an expensive subscription service produced by a company called Investment Consulting Associates. This enabled the inclusion of entries that were gleaned from press releases but had not yet been reported in the official program lists we rely on for Subsidy Tracker.

Yet the $100 Million Club still ends up with numerous instances in which the totals understate the true amount the big subsidy grabbers have received.

For example, the Times lists a total of $338 million for Boeing, including $218 from South Carolina. Yet it has been estimated that the package Boeing got by locating a new Dreamliner assembly line in the Charleston area could be worth some $900 million.

Apple is said to have received a total of $119 million, yet the Times fails to include more than $60 million in subsidies the company got for a data center in North Carolina.

The Times $100 Million Club also misses some major recipients entirely, including Volkswagen, which got more than $500 million in connection with an assembly plant in Tennessee, and ThyssenKrupp, which got more than $1 billion in subsidies for a steel mill in Alabama.

And these only include deals dating back to 2007, which is the period the Times used in compiling its $100 Million Club. The larger Times database seriously understates the size of major deals that took place earlier. For example, it lists only $19.3 million for GlobalFoundries in New York State, even though the company took over a $1.2 billion deal originally offered to Advanced Micro Devices (which isn’t listed at all).

We applaud the Times for the great reporting that went into its United States of Subsidies articles, but the paper fell short when it came to the compilations featured in its database. Good Jobs First will continue to build our Subsidy Tracker tool and in the future will create what we hope will be a more accurate and complete version of a $100 Million Club.

UPDATE

After this blog was posted, Louise Story contacted us with some concerns. She confirmed that 98 percent of the entries (a total of 152,729) in the Times database came from Subsidy Tracker, but she says the number of entries that came from other sources was actually 3,844 rather than the 2,000 we estimated. She added that in dollar terms, a subject we did not address in the blog, Tracker entries account for 67.3 percent of the total in the Times database. However, we cannot verify that number because the Times has not given us its underlying spreadsheet.

Story also believes that the blog should have mentioned the fact that she contacted me several weeks ago to say that the articles and database would be published soon and in effect told me about her aggregation plans. She did indeed contact me but gave the impression that her work was completed, meaning that an effort to suggest any changes in methodology would have been moot at that point.

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New in CORPORATE RAP SHEETS: A dossier on Swiss drug giant Novartis and its history of selling unsafe drugs, price-gouging, toxic dumping and gender discrimination.

Extraction and Disclosure

Thursday, August 23rd, 2012

The U.S. Securities and Exchange Commission often behaves like a watchdog with no teeth, but it has just stood up to intense pressure from big business and finally approved two rules that will shine a light on dealings between some of the world’s largest corporations and the poor countries from which they extract vast amounts of natural resources.

One of the final rules will require companies engaged in resource extraction to report on all payments to foreign governments, such as taxes, royalties, fees and presumably bribes. The other will require companies to disclose their use of certain resources originating in the Democratic Republic of Congo, where warring groups that have committed frequent human rights violations finance themselves through the sale of what are known as conflict minerals, which can end up being used in the production of goods ranging from jewelry to iPhones.

These rules derive from some of the lesser known provisions of the 2010 Dodd-Frank financial reform legislation, which the corporate world has been seeking to undermine in the rulemaking process after losing in Congress. Business lobbyists have fought the same kind of rear-guard action against the disclosure requirements that they have mounted in opposition to the central portions of Dodd-Frank.

Comments submitted to the SEC by companies and trade associations were filled with the usual kneejerk criticisms of regulation and far-fetched claims about potential harm. The American Petroleum Institute warned that public disclosure of “unnecessarily detailed information” on foreign payments would place companies at a competitive disadvantage and “jeopardize the safety and security of our member companies’ operations and employees.”

Exxon Mobil seconded API’s positions but also threw in the preposterous argument that the disclosure rule could be harmful by “inundating and confusing investors with large volumes of data.” Chevron argued that the information should be submitted to the SEC on a confidential basis, and the agency would then make public only aggregate amounts by country. It also urged the SEC to limit reporting to payments of a “material” amount, which would have meant that only huge ones would be revealed.

It takes a lot of chutzpah on the part of Chevron and Exxon Mobil to resist greater transparency, given that predecessor companies of theirs were at the center of the scandals that first brought the issue of questionable foreign payments to national attention in the 1970s.

Congressional investigations of the Nixon Administration’s Watergate crimes also brought to light widespread corruption by major corporations in the form of illegal campaign contributions and payoffs to foreign government officials. Under pressure from the SEC, these companies investigated themselves and disclosed what they found.

Exxon (prior to its merger with Mobil) admitted to making more than $50 million in foreign payments that were illegal, secret or both. Gulf Oil (which later merged into what is now Chevron) admitted to more than $4 million in such payments, including $100,000 used to purchase a helicopter for one of the leaders of a military coup in Bolivia. Smaller oil companies also spread around the cash. Ashland Oil, for example, paid $150,000 to the president of Gabon to retain extraction rights.

Foreign payoffs were not unique to the oil industry. Aerospace giant Lockheed disclosed more than $200 million in questionable payments, while its competitor Northrop admitted to $30 million. The revelations extended to numerous other sectors as well.

These revelations seriously tarnished the image of big business and paved the way to the enactment of the Foreign Corrupt Practices Act. They were also a big part of the impetus for the modern corporate accountability movement, which has put expanded disclosure at the center of its reform agenda.

It is thus no surprise that corporate accountability and human rights groups—many of which participate in the Publish What You Pay coalition—promoted the inclusion of the disclosure provisions in Dodd-Frank and welcomed the SEC’s vote to move ahead with the rules. Yet there is frustration that on several points the agency caved in to industry pressure. Global Witness, for instance, said it was “extremely disappointed” that the final rule concerning conflict minerals gives larger companies two years and smaller ones four years to determine the origin of the minerals they use.

The SEC also acceded to the demands of giant retailers such as Wal-Mart and Target that they be exempt from conflict minerals reporting requirements relating to products sold as store brands but produced by outside contractors not operating under the retailer’s direct control.

Efforts by large companies to weaken the disclosure rules are yet another sign of how they resist serious regulation in favor of less onerous industry initiatives. Many of those arguing against the proposed SEC rules said they were unnecessary given the existence of the Extractive Industries Transparency Initiative. The EITI is laudable, but it is voluntary and less than fully rigorous.

Business never gives up on its effort to make us think that, despite the prevalence of corporate crime, it can police itself. It has never done so effectively and never will.

Through A Corporate Glass, Darkly

Thursday, July 19th, 2012

Conventional wisdom has it that we live in an age of hyper-transparency. That’s true if you look at what people are willing to reveal about themselves to Facebook, but it’s another story for large corporations and the 1%.

The Republican filibuster of the DISCLOSE Act and Mitt Romney’s reluctance to release more of his income tax returns are strong reminders of how those at the top of the economic pyramid seek to hide the ways they accumulate their wealth and influence public policy.

The current preoccupation with disclosure issues makes this a good time to step back and review the state of corporate transparency. Do we know enough about the workings of the huge private institutions that dominate so much of modern life?

Of course, the answer is no. Yet the quantity and quality of disclosure vary greatly depending on the structure of a given company and the aspect of its operations one chooses to examine. Depending on which piece of the business elephant we touch, corporations may seen somewhat translucent or completely opaque.

It’s also worth remembering that there are two main forms of disclosure: information that companies, especially those whose stock is publicly traded, are compelled to reveal and the data that government agencies collect about firms and release to the public. What corporations release on their own initiative is, given its selective nature, self-serving spin rather than disclosure.

Most of what U.S. companies are required to disclose is contained in the financial filings required by the Securities and Exchange Commission. It’s great that the SEC makes these documents readily available via its EDGAR online system, but the information required from companies is meant to serve the needs of investors rather than those of us concerned with corporate accountability. There is thus an abundance of data on financial results and a meager amount on a company’s social impacts. Here’s a rundown and critique of disclosure practices regarding the latter.

LEGAL PROCEEDINGS. Each company filing a 10-K annual report has to include a section summarizing significant litigation and other legal proceedings in which it is involved. For some companies, these sections can go on for pages, which says a lot about the corporate tendency to run afoul of the law. Even so, these sections are often incomplete, since companies are given discretion in deciding which cases are “material,” meaning that fines and other penalties could have a significant impact on earnings.  To get a fuller picture of corporate legal entanglements, you need to search the dockets on the PACER subscription service, which for large companies will be voluminous, or use the free summaries on the Justia website.

EXECUTIVE COMPENSATION. The annual proxy statements filed by publicly traded companies provide exhaustive details on the salaries, bonuses and other compensation received by top executives (and directors).  Designated in the EDGAR system as Form DEF14A, these documents seem to try to drown the reader in details to downplay the impact of lavish pay packages. Note that what is called the Summary Compensation Table does not include essential information such as the amount (shown elsewhere) that an executive realized from the exercise of stock options.

EMPLOYMENT ISSUES. Companies are required to disclose their total number of employees but do not have to provide a geographical breakdown. Some do so voluntarily, but many others can hide the tendency to create many more jobs in foreign cheap-labor havens than at home. Because the penalties are usually small, companies tend not to disclose violations of federal rules regarding overtime pay, the minimum wage and other Fair Labor Standards Act issues.  Fortunately, the Department of Labor has included wage and hour compliance information in its new enforcement website.

OCCUPATIONAL SAFETY AND HEALTH. Companies also rarely mention violations of occupational safety and health, for which penalties are also meager. The U.S. Occupational Safety and Health Administration, to its credit, makes available a database of all workplace inspection results going back to the creation of the agency; the DOL enforcement website provides access to this as well. Unfortunately, there are no summaries of the compliance records of large companies across their various establishments.

LABOR RELATIONS. Companies are required to report on labor relations issues only if there is a likelihood of a work stoppage that could affect corporate profits. With the decline of unions in the U.S. private sector, many companies do not bother to mention labor relations at all. Disputes that result in a formal ruling by the National Labor Relations Board will show up on that agency’s website.

ENVIRONMENTAL COMPLIANCE. Companies frequently discuss environmental regulation in the 10-K filings and will mention major enforcement actions. Yet these accounts are usually incomplete.  The Environmental Protection Agency fills in the gaps with its Enforcement and Compliance History Online (ECHO) database.

TAXES. Buried in the notes to the company’s financial statements is a section with details on how much it paid (or in many cases did not pay) in the way of taxes. This information is presented with a high degree of obfuscation, so it is fortunate that Citizens for Tax Justice publishes reports that summarize the extent to which large U.S. companies engage in flagrant tax avoidance.

SUBSIDIES. Corporate filings usually say little or nothing about the subsidies received from government, and it is often impossible to learn from other sources what those amounts may be when it comes to subsidies that take the form of federal tax breaks. There is much more company-specific data available on subsidies from state governments. In my capacity as research director of Good Jobs First, I have collected that data and assembled it in the Subsidy Tracker database.

GOVERNMENT CONTRACTS. Companies will report on government contracts only if they make up a substantial portion of their total revenue. Thanks to the work of OMB Watch in creating the FedSpending database, which the federal government adapted for its USASpending tool, it is possible to learn a great deal about how much business a given firm is doing with Uncle Sam. Data on contracts with state governments can often, though not always, be found via state procurement websites.

LOBBYING AND POLITICAL SPENDING. Corporations are not eager to disclose their efforts to shape public policy, and the SEC does not require them to do so. The Center for Political Accountability, on the other hand, was created to put pressure on companies to be more open about their political spending. The group has succeeded in getting about 100 corporations to adopt political disclosure. The inadequate information that gets disclosed at the behest of the Federal Election Commission can be found on websites such as Open Secrets, while state-level electoral data is summarized on the Follow the Money site. Both also provide access to the available data on lobbying.

Inadequate political disclosure by corporations is not limited to the United States. A recent study by Transparency International on 105 of the world’s large companies found that only 26 engaged in satisfactory reporting of political contributions. That was just one component of an analysis that looks at a variety of transparency measures that relate broadly to anti-corruption initiatives. Some of the worst results concern the simple matter of whether firms provide full country-by-country data on their operations and financial results.

The latter shows how disclosure issues of concern to investors and financial analysts can intersect with those relating to corporate accountability. When a company is allowed to use excessive forms of aggregation in its reporting, it may be hiding either poor management or corporate misconduct or both.

Note: The information sources discussed above as well as many others are discussed in my guide to online corporate research.

Con JOBS

Thursday, March 22nd, 2012

Bipartisanship in Washington is back from the dead, at least for the moment, but its reappearance illustrates what happens when the two major parties find common ground: Corporate skullduggery gets a boost under the guise of helping workers.

That’s the story of the bill with the deliberately misleading acronym — the JOBS Act — which emerged from the cauldrons of the financial deregulation crowd and has now been embraced not only by Republicans but also by the Obama Administration and many Congressional Democrats. An effort by Senate Democrats to mitigate the riskiest features of the bill has failed, and now the legislation seems headed for final passage.

More formally known as the Jumpstart Our Business Startups Act, the bill is based on the dubious premise that newer companies are having difficulty raising capital and that weakening Securities and Exchange Commission rules—including those contained in the Sarbanes-Oxley law enacted in the wake of the Enron and other accounting scandals of the early 2000s—would allow more start-ups to go public, expand their business and create jobs. The outbreaks of financial fraud in recent years have apparently done nothing to shake the belief that less regulated markets can work miracles.

For many, that notion may be more of a fig leaf than an article of faith. One clear sign that the JOBS Act is trying to pull a fast one is that the “emerging growth companies” targeted for regulatory relief are defined in the bill as those with up to $1 billion in annual revenue. This is just the latest example of an effort purportedly designed to help small business that really serves much larger corporate entities. (What proponents on the JOBS Act don’t mention is that the SEC already has exemptions from some of its rules for companies that can somewhat more legitimately be called small—those with less than $75 million in sales.)

Critics ranging from the AARP to state securities regulators have focused on provisions of the JOBS bill that would allow start-up companies to solicit investors on the web, warning that this will pave the way for more scams.

I want to zero in on another issue, which is central to the mission of the Dirt Diggers Digest: disclosure. In the name of streamlining the rules for the so-called emerging growth companies, the JOBS Act would erode some of the key transparency provisions of the securities laws.

This is fitting, given that the original sponsor of the bill, Rep. Stephen Fincher of Tennessee (photo), has been embroiled in scandals involving gaps in his personal financial disclosure and last year was named  one of the “most corrupt” members of Congress by the watchdog group CREW.

The first problem with the JOBS bill is that it would allow firms planning initial stock offerings to issue informal marketing documents and distribute potentially biased analyst reports well before they have to issue formal prospectuses with thorough and candid descriptions of their financial and operating condition. In other words, the bill would postpone real disclosure until after the company has used a bogus form of disclosure to generate a quite possibly misleading image of itself.

When the company does have to file with the SEC, it would have to provide only two years of audited financial statements rather than three and would be exempt from reporting requirements such as the disclosure of data on the ratio of CEO compensation to worker compensation mandated by the Dodd-Frank Act. It would also be exempt from having to give shareholders an opportunity to vote on executive pay practices.

What’s worse, the JOBS bill also seems to opening the door to a broader erosion of disclosure provisions for all publicly traded companies. The bill would order the SEC to conduct a review of the Commission’s Regulation S-K to determine how it might be streamlined for “emerging growth” companies.

Yet it also calls for the SEC to “comprehensively analyze the current registration requirements” of the regulation, which could mean a weakening of the rules for all companies, no matter what their size. Regulation S-K is the broad set of rules determining what public companies have to include in their public filings on issues ranging from financial results to executive compensation and legal proceedings.

It is bad enough that the JOBS bill exploits the country’s desperate need for relief from unemployment to push changes that might mainly benefit stock scam artists. The idea that it could also allow unscrupulous corporations to conceal their misdeeds is truly infuriating. We just finished celebrating Sunshine Week; now Congress is hard at work promoting darkness.

Subsidies and Sunshine

Wednesday, March 14th, 2012

This being Sunshine Week, there’s a lot of discussion going on about open government. One of the things government should be open about is the dubious practice of giving subsidies to companies in the name of economic development.

Each year, state and local governments in the United States award tens of billions of dollars in tax breaks, cash grants and other financial assistance to business, with the lion’s share going to large corporations ranging from Google and Facebook to Wal-Mart and Boeing. Much of the money goes to companies that don’t need it and often provide little return to taxpayers in terms of creating quality jobs.

The good news is that it is easier than ever to discover which companies are getting the giveaways. A decade ago, only a handful of states disclosed the names of subsidy recipients. That number is now up to 43 states and the District of Columbia. Data from those 44 jurisdictions—along with previously unpublished data from five other states—can be found on Subsidy Tracker, the database created by my colleagues and me at Good Jobs First. The only states with no data currently available are Mississippi and Nevada, but we’re seeking unpublished info from them as well.

A glance at the inventory of data sources that have been fed into Subsidy Tracker makes it clear that there is a great deal of variation in the depth of available information from state to state. We have entries for two dozen programs in Washington and Wisconsin, yet only one each for Alabama, California, Idaho, Massachusetts and Tennessee.

There are also significant differences in the types of subsidies for which recipient information is available. A major dividing line is between those states that have disclosure relating to corporate tax credits (or other business tax breaks) and those that keep that information secret even while revealing data on other categories such as grants. According to our latest tally, 31 states plus DC provide online disclosure of corporate tax break recipients. The ones with the most extensive tax subsidy reporting include Missouri, North Carolina and Rhode Island.

Among the states that are aggressive promoters of corporate tax breaks but which decline to reveal which companies are benefiting from that largesse are Alabama, Georgia, Kansas, Mississippi, New Mexico and Tennessee. A few states—including Maryland and South Carolina—disclose the names of companies but not the value of the credits they are receiving.

Subsidy disclosure is an issue addressed in Following the Money 2012, a new report by USPIRG, the third in its series of report-card studies on state spending transparency. USPIRG provides a thorough assessment of the Google-government portals that have proliferated in recent years. The report does a good job when it comes to general state spending, but we at Good Jobs First have a friendly disagreement about its treatment of subsidies. (I am graciously cited in the acknowledgements for having reviewed drafts of the report, but the disagreements I expressed to USPIRG are not mentioned).

Despite the fact that company-specific reporting on subsidies is missing from the core content of nearly all state transparency portals, USPIRG gives many of those portals high grades for subsidy transparency. Quite a few of the sites have links to other webpages with the subsidy data, and we have no objection if USPIRG wants to awards points for that practice.

The problem is that USPIRG’s scoring category on subsidies also covers grants, some of which are economic development subsidies but many of which are not. The distinction is not made clear, and in numerous cases it appears that the data treated by USPIRG as subsidy disclosure is actually information relating to other kinds of grants to non-governmental entities. For example, the Massachusetts transparency portal (which is given 8 of 10 points in the subsidy category) lists grants to non-profit organizations for providing social services, but it does not cover the state’s job creation programs. The latter include tax credits that will soon be disclosed, thanks to the efforts of groups such as PIRG’s Massachusetts affiliate.

It is understandable that USPIRG, in its effort to promote the march of government openness, would want to take a flexible position about what constitutes transparency. But the fact of the matter is that most online subsidy disclosure is still fragmented, occurring through far-flung webpages and obscure PDF reports. That’s precisely why we at Good Jobs First created Subsidy Tracker, which brings all those disparate sources (plus unpublished data) together in one national search engine.

Centralized state transparency portals are certainly a welcome development, and we salute USPIRG for promoting them, but they are not yet an effective means of educating the public on big giveaways of tax dollars.