Archive for the ‘Product Safety’ Category

Real Abuses, Sham Reforms

Thursday, July 17th, 2014

bosses_900It is now a full century since the Progressive Era ended some of the worst abuses of concentrated economic power. This year is the 100th anniversary of the Clayton Act and the Federal Trade Commission Act.   It is 103 years since the dissolution of the Standard Oil trust, 108 years since the passage of the Pure Food and Drug Act.

Yet even a casual reading of the business news these days suggests that we live in an economy disturbingly similar to the age of the robber barons.

Back then, the trusts shifted their incorporation to states such as New Jersey and Delaware that were willing to rewrite their business laws to accommodate the needs of oligopolies. Today large corporations are reincorporating themselves in foreign tax havens to dodge taxes. The practice is reaching epidemic proportions in the pharmaceutical industry.

Back then, unscrupulous drug companies and meatpackers sold adulterated products that could sicken or even kill their customers. Today General Motors is caught in a growing scandal about ignition switch defects that resulted in at least 13 deaths. The news about the automaker’s recklessness grows worse by the day, with the New York Times now reporting that company withheld information from federal regulators about the cause of fatal accidents.

Back then, wheeler-dealers such as James Fisk peddled dubious securities in companies that later collapsed, impoverishing investors. Today we’re still trying to get over the impact of the toxic mortgage-backed securities that the big banks packaged and sold during the housing bubble. Just the other day, Citigroup became the latest of those banks to settle charges brought by the Justice Department. Yet the $7 billion extracted from Citi, like the amounts obtained from the other banks, will cause little pain for the mammoth institution and will thus do little to deter future misconduct. The provision in the settlement for “consumer relief” is too little, too late.

And, of course, back then, the trusts got to be trusts by eliminating their competition. Today concentration is alive and well. Recently, the second largest U.S. tobacco company, Reynolds American, proposed a takeover of Lorillard, the number three in the industry. If this deal goes through, it won’t be long before Reynolds tries to marry Altria/Philip Morris, putting virtually the entire carcinogenic industry in the hands of one player, the way it was a century ago during the reign of the American Tobacco Company, aka the Tobacco Trust.

The movement toward a Media Trust just accelerated with the revelation that Rupert Murdoch’s 21st Century Fox, already huge, is seeking to take over Time Warner. The deal would put a mind-boggling array of entertainment properties under one roof. Murdoch offered to sell off Time Warner’s CNN – a meaningless concession given that the news network has struggled to survive against Murdoch’s despicable Fox News. Murdoch’s move comes as another media octopus, Comcast, is awaiting approval for its deal to take over Time Warner’s previously spun off cable business.

While we have all too many indications of a new Gilded Age, still scarce are signs of an effective response. We’ve got a good amount of muckraking journalism and a fair number of people (and even a few elected officials) who calls themselves progressives. Yet somehow this does not add up to a movement that can take a real bite out of corporate crime.

Part of the problem is that many of those in power professing progressive values are not serious about challenging corporate power. Some historians argue that the original Progressives were, like the New Dealers who came later, mainly concerned with saving capitalism from itself rather than changing the system. Yet they still managed to impose significant restrictions on big business through antitrust and other forms of regulation.

Today’s progressive officials often seem to want nothing more than to give the appearance of reform. That’s the story at the Justice Department, which has raised settlement levels and extracted some token guilty pleas but still allows corporations to buy their way out of serious legal jeopardy. Meanwhile, antitrust enforcement is tepid, and as the GM case increasingly shows, regulation is often a joke.

A resurgence of robber-baron behavior requires real, not sham reform.

Still Unsafe At Any Speed

Thursday, March 20th, 2014

unsafeIn a resounding affirmation of the principle that the cover-up is worse than the crime, federal prosecutors emphasized Toyota’s deceptive practices in announcing that the carmaker will pay $1.2 billion to settle a criminal charge relating to the sudden acceleration controversy. The Justice Department press release uses just about every synonym for dishonesty in describing Toyota’s misdeeds.

“The company admits that it misled U.S. consumers by concealing and making deceptive statements,” the release states, adding that the company “gave inaccurate facts to Members of Congress.” Later it says that Toyota “was hiding” critical information from federal regulators and that it made public a “false timeline.” U.S. Attorney Preet Bharara alleges that the company “cared more about savings than safety and more about its own brand and bottom line than the truth.”

Such strong talk is gratifying, but Toyota, like so many other corporate miscreants, was offered a deferred prosecution agreement in place of an outright conviction. This was made somewhat more palatable by the provision in the agreement that bars the company from deducting the penalty amount from its taxes.

Prosecutors used the announcement to convey a thinly veiled warning to General Motors that it too will have to pay a substantial amount to resolve its own legal entanglements on safety issues. Bharara declared: “Companies that make inherently dangerous products must be maximally transparent, not two-faced. That is why we have undertaken this landmark enforcement action. And the entire auto industry should take notice.”

GM’s announcement several weeks ago that it was recalling hundreds of thousands of its small cars because of an ignition switch problem mushroomed into a major scandal as information came to light suggesting that the company had dragged its feet in dealing with the issue, even though it was linked to 13 deaths. Federal regulators, which had received several hundred complaints relating to the problem, were also criticized for being slow to act. Both Congress and the Justice Department have launched investigations of the matter.

In recent days, GM has tried to spin the situation to its advantage, with CEO Mary Barra putting herself out front and making extravagant promises that such a safety lapse would never happen again. Living up to such a commitment will be even more difficult for GM than it was for Toyota, which used similar p.r. stratagems during earlier phases of its controversy and ultimately failed.

After all, the history of GM is filled with examples of irresponsibility on safety issues. It is now 50 years since Ralph Nader exposed the defects of GM’s Corvair, prompting the company to spy on him and thus inadvertently give a boost to the nascent corporate accountability movement.

Later, GM failed to act when presented with reports that poorly sealed panels on some of its cars could cause dangerous levels of carbon monoxide to leak into the passenger compartment. After some deaths were attributed to the problem in the late 1960s, the company finally recalled 2.5 million cars to repair the defect.

During the 1970s and 1980s the company was frequently criticized by environmentalists and consumer advocates for its efforts to weaken federal rules on emissions and for its resistance to regulations requiring passive restraints such as airbags in all automobiles. In 1990 GM finally agreed to put air bags in all of its U.S. cars starting in 1995.

In 1992 the New York Times published an investigation concluding that GM had recognized as early as 1983 that its pickup trucks with side-mounted gas tanks were highly dangerous but took no action until 1988, even then saying the change was for design rather than safety reasons. During that period, more than 300 people were killed in collisions in which the tanks exploded.

GM resisted recalling trucks with the side-mounted tanks even after the federal government asked it to do so. Instead, it launched a campaign against safety advocates and plaintiffs’ lawyers. In 1994 the company reached a settlement with the U.S. Transportation Department under which the federal government gave up on its effort to get GM to recall the trucks in exchange for which the company agreed to contribute $51 million to auto safety programs. GM still faced a series of personal injury lawsuits in connection with the exploding gas tanks, including one in which a Los Angeles jury awarded victims $4.9 billion in damages. GM appealed, and the case was later settled out of court for an undisclosed amount.

It remains to be seen how much GM has to pay in fines and settlements for its current ignition switch scandal, but it will take a lot of punishment to get a company with such a long history of safety lapses to change its ways for good.

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New in CORPORATE RAP SHEETS: a profile of Yum Brands and its controversies relating to wage & hour violations, sanitation lapses and animal cruelty.

The 2013 Corporate Rap Sheet

Thursday, December 19th, 2013

Monopoly_Go_Directly_To_Jail-T-linkThe ongoing corporate crime wave showed no signs of abating in 2013. Large companies continued to break the law, violate regulations and otherwise misbehave at a high rate. Whatever lip service the business world gives to corporate social responsibility tends to be overwhelmed by bad acts.

Continuing the trend of recent years, 2013 saw an escalation of the amounts that companies have to pay, especially in the United States, to get themselves out of their legal entanglements. In November JPMorgan Chase set a record with its $13 billion settlement with the U.S. Department of Justice and other state and local agencies on charges relating to the sale of toxic mortgage-backed securities. JPMorgan’s legal problems are not over. There have recently been reports that it may face criminal charges and pay $2 billion in penalties in connection with charges that it turned a blind eye to the Ponzi scheme being run by Bernard Madoff while it was serving as his primary bank.

Other banks have also been shelling out large sums to resolve disputes over the sale of toxic securities in the run-up to the financial crisis. Much of the money has gone to settlements with mortgage agencies Fannie Mae and Freddie Mac. Bank of America alone agreed to pay out $10.3 billion ($3.6 billion in cash and $6.75 billion in mortgage repurchases) to Fannie.

Here are some of the year’s other highlights (or lowlights):

FORECLOSURE ABUSES. In January, ten mortgage servicing companies–including Bank of America, Citibank and JPMorgan Chase–agreed to an $8.5 billion settlement to resolve allegations by federal regulators relating to foreclosure abuses.

LIBOR MANIPULATION. In February, U.S. and UK regulators announced that the Royal Bank of Scotland would pay a total of $612 million to resolve allegations relating to rigging of the LIBOR interest rate index. In December, the European Union fined RBS and five other banks a total of $2.3 billion in connection with LIBOR manipulation.

ILLEGAL MARKETING. In November, the Justice Department announced that Johnson & Johnson would pay more than $2.2 billion to settle criminal and civil allegations that it improperly marketed the anti-psychotic drug Risperdal for unapproved use by older adults, children and people with development disabilities.

SALE OF DEFECTIVE MEDICAL IMPLANTS. Also in November, Johnson & Johnson agreed to pay more than $2 billion to settle thousands of lawsuits charging that the company sold defective hip implants, causing many individuals to suffer severe pain and injury from metallic debris generated by the faulty devices.

INSIDER TRADING. In March, the SEC announced that an affiliate of hedge fund giant SAC Capital Advisors had agreed to pay $602 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies. At the same time, a second SAC affiliate agreed to pay $14 million to settle another insider trading case. Later, SAC agreed to pay $1.2 billion to settle related criminal and civil insider trading charges.

PRICE-FIXING. In July, German officials fined steelmaker ThyssenKrupp the equivalent of about $115 million for its role in a price-fixing cartel. In September, the U.S. Justice Department announced that nine Japanese automotive suppliers had agreed to plead guilty to price-fixing conspiracy charges and pay more than $740 million in criminal fines, with the largest amount ($195 million) to be paid by Hitachi Automotive Systems.

MANIPULATION OF ENERGY PRICES. In July, the Federal Energy Regulatory Commission ordered Barclays and four of its traders to pay $453 million in civil penalties for manipulating electricity prices in California and other western U.S. markets during a two-year period beginning in late 2006.

BRIBERY. In May, the Justice Department announced that the French oil company Total had agreed to pay $398 million to settle charges that it violated the Foreign Corrupt Practices Act by paying bribes to officials in Iran.

VIOLATION OF DRUG SAFETY RULES. In May, DOJ announced that generic drug maker Ranbaxy USA Inc., a subsidiary of the Indian company Ranbaxy Laboratories, had pleaded guilty to felony charges relating to the manufacture and distribution of adulterated drugs and would pay $500 million in fines.

VIOLATION OF RULES ON THE SALE OF NARCOTICS. In June, the U.S. Drug Enforcement Administration announced that the giant Walgreen pharmacy chain would pay a record $80 million in civil penalties to resolve charges that it failed to properly control the sales of narcotic painkillers at some of its stores.

DEALINGS WITH ENTITIES SUBJECT TO SANCTIONS. In June, New York officials announced that Bank of Tokyo Mitsubishi-UFJ had agreed to pay $250 million to settle allegations that it violated state banking laws by engaging in transactions with entities from countries such as Iran subject to sanctions.

LABOR LAW VIOLATIONS. In November, the National Labor Relations Board found that Wal-Mart had illegally disciplined and fired workers involved in protests over the company’s labor practices. A Wal-Mart spokesperson was found to have unlawfully threatened employees who were considering taking part in the actions.

CLEAN WATER ACT VIOLATIONS. In May, the Environmental Protection Agency announced that Wal-Mart had pleaded guilty to charges that it illegally disposed of hazardous materials at its stores across the country. The company had to pay $81.6 million in civil and criminal fines.

HEALTH AND SAFETY CODE VIOLATIONS. In August, Chevron pleaded no contest and agreed to pay $2 million to settle charges that it violated state health and safety regulations in connection with a fire at its refinery in Richmond, California that sent thousands of people to hospital for treatment of respiratory problems.

DELAYS IN RECALLING UNSAFE VEHICLES. In August, Ford Motor was fined $17.4 million by the National Highway Traffic Safety Administration for taking too long to recall unsafe sport utility vehicles.

PRIVACY VIOLATIONS. In November, Google agreed to pay $17 million to 37 states and the District of Columbia to settle allegations that the company violated privacy laws by tracking online activity of individuals without their knowledge.

Note: For fuller dossiers on many of the companies listed here, see my Corporate Rap Sheets.

Auto Safety Lapses Evoke the Bad Old Days

Thursday, August 22nd, 2013

Ford_pays__17_4_million_to_settle_recall_801160000_20130801222604_640_480The Big Three carmakers, once considered the epitome of corporate irresponsibility, have been viewed in a more favorable light in recent years.

After their near-death experience of a few years back—during which two of them, General Motors and Chrysler, went bankrupt and had to be rescued by the federal government—the consensus seems to be that they have cleaned up their act. They are also being rewarded in the marketplace, where Detroit’s sales have been booming.

It is true that the Big Three are no longer exclusively focused on gas-guzzling SUVs or death traps such as the Pinto. GM is promoting its electric Volt rather than dodging Michael Moore. Yet there have been some indications recently that the giant automakers may be slipping back into old habits.

Recently, the National Highway Traffic Safety Administration fined Ford Motor $17.35 million for taking too long to recall more than 400,000 SUVs that were susceptible to sudden acceleration, a problem that was linked to at least one death and nine injuries in crashes.

If you hadn’t heard about this case, it may have been because NHTSA decided not to issue a press release about the penalty. Word got out and the matter received modest coverage in a few newspapers. It was only the Corporate Crime Reporter that gave the story the prominence it deserved: front-page treatment.

The Ford penalty came a couple of months after Chrysler took the unusual step of refusing to acquiesce to NHTSA’s request that it recall 2.7 million Jeeps the agency contends are defective and prone to fires in the event of rear-impact collisions. Chrysler, now controlled by Italy’s Fiat, later relented but applied the recall to only 1.6 million vehicles. Moreover, its fix for the problem—installing trailer hitches on the vehicles—was dismissed as inadequate by the watchdog Center for Auto Safety, had been responsible for bringing the defect to light.

One would think that Ford, in particular, would be more diligent on safety issues, given the hard lessons of its past. This was the company, after all, that produced those ill-fated Pintos, whose unshielded fuel tanks near the back of the fragile compacts caused horrific explosions in rear-end collisions. Evidence later emerged that Ford was aware of the vulnerability of the gas tank, but went ahead with production of the car. In one civil case a jury awarded $125 million in damages (reduced by the judge to $3.5 million).

Ford was also embarrassed by reports that many of its cars with automatic transmissions produced during the 1970s had a tendency to slip from park into reverse. In 1981 federal regulators forced the company to send warning notices to purchasers of some 23 million vehicles about the problem. Ford may not have been happy about this, but it was a lot less onerous than the massive recall of the cars that had been urged by public interest groups.

In 1996 Ford gave in to public pressure and agreed to pay for replacing ignition switches on more than 8 million cars and trucks that were prone to short circuits that could cause fires. In 1998 State Farm, the largest auto insurer in the United States, sued Ford, charging that the company withheld information about the potential fire hazard from federal regulators and the public.

In 1999 NHTSA hit Ford with a $425,000 fine in the matter. An investigation later revealed evidence that Ford knew about ignition defects, which also sometimes caused vehicles to stall out while making turns, but remained silent. A California judge then ordered the recall of an additional two million vehicles—the first time a U.S. court had ever taken such an action against automaker.

In 2000 Bridgestone/Firestone announced a massive recall of tires, most of which had been installed on Ford sport-utility vehicles and light trucks. Ford alleged that the tire company had known of the defects for several years. Information later came out suggesting that Ford, as well as Bridgestone/Firestone, had known of the tire defects long before the recalls were announced.

An  investigation by the New York Times found that in the 1980s Ford had taken a number of design shortcuts that raised the risk of rollover accidents in what would become its wildly popular Explorer SUV.

What a track record. Let’s hope we are not returning to those bad old days of automaker recklessness.

 

Note: The latest addition to my CORPORATE RAP SHEETS is a dossier on Monsanto, the bully of agricultural biotechnology. Read it here.

Does the Debt Deal Make You Sick?

Thursday, August 4th, 2011

Sinking stock markets are not the only sign that the eleventh-hour debt ceiling deal was the wrong solution to the wrong problem.

The announcement by Cargill that it is recalling an astounding 36 million pounds of salmonella-tainted ground turkey products is a perfect symbol of the hazards of shrinking government.

During the debt ceiling debate, Democrats frequently portrayed themselves as defenders of social insurance programs such as Medicare and Social Security. That’s all well and good, but their willingness to go along with substantial cuts to the budgets of federal agencies can also have serious consequences.

Among those agencies are the Food and Drug Administration, and the Food Safety and Inspection Service (FSIS) of the Department of Agriculture. FSIS is responsible for protecting the public from illness caused by tainted meat, poultry and egg products. FDA oversees safety issues for other food groups.

These agencies should be sacred cows, so to speak, but many of the anti-government yahoos now in Congress seem to view food safety regulations as an encroachment on the free market and personal liberty. Even before the new debt deal, this function was being targeted.

Last year, in the wake of incidents involving widespread contamination of eggs, peanut butter and spinach, Congress tightened food safety regulation and gave more authority to the FDA. The agency was finally given the power to issue mandatory recalls rather than depending on producers to withdraw dangerous products voluntarily. As soon as the law passed, rightwingers were moving to undermine it.

In December, Rep. Jack Kingston of Georgia, then the ranking member and now the chair of the appropriations committee overseeing the FDA, said that the number of food-borne illnesses in the country did not justify the cost of the new law. Kingston, whose website bio brags that he has “fought to lower taxes, balance the budget, and reduce government interference in our lives,” criticized the legislation as “overreach” and vowed to cut food safety spending to make it difficult to implement the new rules.

Kingston and his colleagues made good on that threat in June, when the Republican majority in the House voted to cut $87 million from the FDA budget and $35 million from FSIS.

The rightwing effort to eviscerate federal food regulation is justified with the assumption that corporate food producers are willing and able to monitor themselves. This assumption perseveres despite the dismal track record of the industry.

Take Cargill. Its current turkey problem is far from an anomaly for the company. Over the past decade or so, it has been involved in a series of recalls in its meat and poultry operations such as the following:

  • August 2010: recalled 8,500 pounds of ground beef after an outbreak of a rare strain of E.coli bacteria was traced to a company plant in Pennsylvania.
  • December 2009: subsidiary Beef Packers Inc. recalled 22,000 pounds of ground beef after an investigation of salmonella was traced to a company distribution center in Arizona.
  • October 2009: recalled 5,500 pounds of beef tongues because the tonsils may not have been completely removed, leaving in tissue that raises the risk of “mad cow” disease.
  • November 2007: recalled more than 1 million pounds of ground beef suspected of being tainted with E.coli.
  • April 2004: subsidiary Excel recalled 45,000 pounds of ground beef suspected of being tainted with E.coli.
  • October 2002: recalled 2.8 million pounds of ground beef suspected of being tainted with E.coli.
  • December 2000: recalled more than 16 million pounds of packaged poultry linked to an outbreak of listeria.

And this is the dismal record of an industry leader with more than $100 billion in annual revenues, not a fly-by-night operator without the resources to maintain decent standards in its operations.

Rep. Kingston likes to declare that the U.S. food supply is “99.99 percent safe.” That apparently fabricated figure does not change the fact that, according to the Centers for Disease Control, 48 million Americans are sickened by tainted food each year, of whom 128,000 are hospitalized and 3,000 die.

Debates over the proper levels of federal spending and regulation are typically framed in abstractions, but they can become a matter of survival. When Patrick Henry said “give me liberty or give me death,” I doubt he meant he would give his life for the right of a giant corporation to sell contaminated food without government interference.

Full Graphic Disclosure

Friday, November 12th, 2010

Forget Joe Camel and the Marlboro Man. Federal regulators want people to think of disease, birth defects and death when they pick up a package of cigarettes. The Food and Drug Administration, implementing legislation passed by Congress last year, has just released three dozen proposed enhanced warning labels that manufacturers would have to print on each pack of cancer sticks.

In the place of the plain text warnings that have appeared on tobacco packaging for years, these labels would be much larger and much more visually striking. The proposals include, for example, photos of a smoker in an open coffin, a mother blowing cigarette smoke at her infant child, and a sickly cancer victim.

The main objective of the warnings is to encourage existing smokers to quit and the dissuade children from picking up the dangerous habit. But apart from consumer behavior modification, the labels can be seen as a form of disclosure—disclosure of the harmful effects of a product.

The need for bold messages about deleterious aspects of the things we buy is not limited to cigarettes. It might make sense to apply the FDA’s approach to a whole range of goods and services. For example:

  • SUV models shown to be prone to rollovers should come not just with a plain-text sticker showing miles per gallon, but also full-color photos of mangled vehicles with bleeding drivers and passengers.
  • Electric bills sent by utilities relying on coal-fired power plants should be required to include photographs of floods, droughts and other effects of catastrophic climate change.
  • The pumps at gas stations should be adorned with photographs of oil spills and refinery disasters.
  • A variety of products sold by Wal-Mart should have packaging containing images of the oppressive Chinese sweatshops in which they were produced.
  • Stores selling gold jewelry should display photographs showing the despoiled land around the cyanide-leaching facilities in which the precious metal is mined.
  • Producers of dangerous pharmaceuticals should be required not just to mention possible injurious side effects, which most people have tuned out, but to show images of actual victims.
  • Health insurance providers should have to send out pictures of policyholders who died because an expensive treatment was rejected by the company.
  • Perhaps manufacturers of the worst junk food should be required to air commercials with actors who are morbidly obese.
  • And, of course, gun sellers should have to hand out gory photos of victims of accidental discharges.

Given the exalted status of commercial free speech in this country, these ideas could never come to pass. Yet there is still a serious issue to address: How do we turn dry data about corporate harms into messages people pay attention to?

The objective, however, is not just to change consumer behavior but also that of producers. All disclosure is meant to highlight an activity that is subject to abuse and hopefully curb those abuses. The Environmental Protection Agency’s Toxics Release Inventory is designed to get manufacturers to clean up their production processes – and has had a positive impact. Campaign contribution disclosure is meant discourage the big-money takeover of elections (there’s obviously been a lot less progress on that front, especially now that much corporate electoral spending can take place anonymously). Disclosure of executive compensation is supposed to check the relentless march toward lavish CEO salaries, bonuses and stock options (another less than rousing success).

The fact that disclosure does not immediately cure the problem it is meant to highlight does not undermine the case for transparency. It may simply mean that the form of the disclosure is not compelling enough. That’s the beauty of the FDA approach to cigarettes.

In replacing the misleading feel-good images that marketers have long sought to associate with even the most noxious products, the aggressive warning labels begin to force corporations to be honest about what they sell and consumers to come to grips with the true nature of much of what they consume. This form of anti-advertising may begin to liberate us from the illusions of our manufactured desires.

The People’s Regulator

Friday, April 16th, 2010

Government regulation of business is looking pretty lame these days. After 29 workers were killed in an explosion at a Massey Energy mine in West Virginia, it came to light that the facility had accumulated more than 1,300 safety violations over the past five years but was not shut down by the Mine Safety and Health Administration – an agency labeled a “meek watchdog” in a recent New York Times headline.

It has also been revealed that Toyota managed to keep critical information about faulty gas pedals from federal regulators in an ultimately unsuccessful effort to avoid a massive recall of its vehicles. A pair of recent reports show that regulatory oversight of Citigroup was deficient both before and after the banking giant had to be bailed out by taxpayers. Again and again, it’s the same old story: aggressive corporations riding roughshod over feckless regulators.

Compare this to what recently happened when Consumer Reports issued a “don’t buy recommendation” for a Lexus sport-utility vehicle because its testing had shown a risk of rollovers. Within hours after the warning was issued, Toyota, the parent company of Lexus, announced that it would suspend sales of the GX 460. A company official stated: “We are taking the situation with the GX 460 very seriously and are determined to identify and correct the issue Consumer Reports identified.”

Toyota’s quick response was undoubtedly part of its effort to control the damage to its reputation from the sudden-acceleration controversy, but it also demonstrates the power of Consumer Reports. More than a magazine, it is a bulwark against shoddy manufacturing and dishonest practices that threaten the physical and financial well-being of the public. It is the people’s regulator.

The potency of Consumer Reports stems from its rock-solid integrity and its complete independence from the companies it is monitoring. While the magazine is often taken for granted these days, CR and its non-profit parent Consumers Union have not always been revered during their 70-plus years of existence.

The challenges Consumers Union (CU) faced in its early decades are documented in the work of Norman Silber, who wrote a dissertation on the subject in 1978 (available via the Dissertations & Theses database) which became the 1983 book Test and Protest.

CU was established in 1936 by a group of engineers, researchers, writers and editors who were unabashedly leftwing and saw their work as complementary to the growing labor movement. The organization’s mission was, Silber notes, threatening not only to manufacturers but also to the commercial media, which saw its independent product ratings as “an unfair and subversive attack upon legitimate advertising.” Many major magazines and newspapers refused to let CU advertise Consumer Reports in their pages.

CU was also an early target of the House Un-American Activities Committee, though the scrupulously non-partisan content of Consumer Reports saved the organization from serious persecution. During the anti-communist hysteria of the 1950s, Silber recounts, CU suspended its reporting on labor conditions in the industries whose products it rated. Its own staff remained unionized, though it switched from the leftist Book and Magazine Guild to the more mainstream Newspaper Guild.

CU did nothing to dilute its assessment of business practices. During the late 1950s it was especially critical of the tobacco industry for engaging in misleading advertising and for selling a dangerous product. CU also took on the dairy industry over the issue of milk contamination caused by radioactive fallout. And it began arguing for improved auto safety starting well before Ralph Nader appeared on the scene. In the 1970s CU successfully pressured federal regulators to improve standards for microwave ovens to address radiation leakage.

CU also did not flinch when the recipients of poor product ratings decided to take the organization to court. It fought companies such as Bose audio and Suzuki Motor up to the Supreme Court to protect its right to offer candid assessments.

This is not to say that CU is completely above reproach. Critics have charged over the years that the organization’s preoccupation with product testing comes at the expense of broader consumer advocacy (this is what Nader said when he quit CU’s board in 1975). And in 2007 the organization suffered a black eye when it botched its testing of infant car seats and had to issue an unprecedented apology. Nonetheless, its overall track record, up through its reprimand of Lexus, is pretty impressive.

A private organization without formal enforcement powers is no substitute for government regulatory agencies, but CU does have something to teach those agencies – above all, that a watchdog can be truly effective only when it is completely uninfluenced by the companies it is monitoring.

It also helps to be able to issue definitive pronouncements about corporate misbehavior. CU’s statement about the dangers of the GX 460 was not tentative and was not subject to time-consuming appeals.

Once official regulators show as much spunk as the likes of Consumers Union, corporations may finally start to clean up their act.

Toyota Totals Its Corporate Social Responsibility Creds

Friday, February 5th, 2010

It would not surprise me if the people who do public relations for Toyota are flipping through their old scrapbooks to cheer themselves up amid the worst crisis in the company’s history.

They might be looking longingly at the 2003 Business Week cover story headlined: “Can Anything Stop Toyota: An Inside Look at How It’s Reinventing the Auto Industry.” Or the 2006 New York Times paean entitled “Toyota Shows Big Three How It’s Done.” Perhaps they are going back even further to the 1997 love letter from Fortune: “How Toyota Defies Gravity.”

These days Toyota is instead experiencing the unbearable heaviness of being exposed as just another unscrupulous automaker that, whether through incompetence or greed, puts many of its customers behind the wheel of a deathtrap.

New revelations that the company knew about the defective gas pedals for years before taking action are all the more scandalous because Toyota had a longstanding reputation not only for business prowess but also for social responsibility.

The company, of course, fostered this image. Its website proclaims: “Toyota has sought harmony between people, society, and the global environment, as well as the sustainable development of society, through manufacturing. Since its foundation, Toyota has continuously worked to contribute to the sustainable development of society through provision of innovative and high-quality products and services that lead the times.”

All big corporations make similar declarations, but Toyota managed to convince outside observers of its pure heart. Last year the Ethisphere Institute included the automaker on its list of “the World’s Most Ethical Companies.” Toyota is ranked 14th on the “Global 100 Most Sustainable Corporations in the World.” And it received the highest score among automakers in a 2006 CERES assessment of corporate governance changes adopted by large corporations to deal with climate change.

Toyota’s environmental reputation is not completely unblemished. In 2007 the company incurred the wrath of green groups for its opposition to an effort to toughen fuel economy standards in the United States (a stance it modified in response to the pressure). In 2003 Toyota agreed to pay $34 million to settle U.S. Environmental Protection Agency charges that it violated the Clean Air Act by selling 2.2 million vehicles with defective smog-control computers.

Overall, however, Toyota was regarded as a much more environmentally enlightened company than Detroit’s Big Three. In fact, its successful efforts to bring hybrids into the auto industry mainstream made it something of a corporate hero in green circles. Michael Brune, who was recently named the new executive director of the Sierra Club, brags that he and his wife have been driving a Prius since 2004.

Toyota’s more laudable stances on sustainability issues did not prevent it from being completely retrograde when it came to respecting the collective bargaining rights of its U.S. employees. It has successfully kept unions out of its heavily-subsidized American plants and has taken advantage of contingent workers to keep down costs in those operations.

Just as good environmental policies do not automatically lead to good labor practices, the current safety scandal shows that a company can be green and totally irresponsible at the same time.  Despite Toyota’s claim about promoting “harmony between people, society, and the global environment,” it appears the company put its business interests ahead of the safety of its customers and others with whom they share the road.

The automaker’s safety scandal is another indication that voluntary corporate social responsibility policies go only so far. It is only through rigorous government regulation, backed by aggressive environmental and other public interest activism, that major corporations can be kept honest.

The Corporate Crime Fighting Budget

Friday, February 27th, 2009

The call to boost taxes on the wealthy to start paying for healthcare reform is not the only refreshing thing about the budget outline just released by the Obama Administration. There is also a marked shift toward tighter regulation of business. Here are some features of what might be called the Corporate Crime Fighting Budget:

Cracking down on corporate polluters. The Environmental Protection Agency—a joke during the Bush Administration—is slated for a 34 percent increase in funding. This would result in a hike in the budget for core functions such as enforcement to $3.9 billion, an all-time high for the agency.

Cracking down on abusive employers. Obama wants the Department of Labor—another agency enervated by the Bush crowd—to get a smaller increase than EPA, but the additional funds are intended to rebuild DOL’s responsibilities in workplace monitoring. The budget document proposes to “increase funding for the Occupational Safety and Health Administration, enabling it to vigorously enforce workplace safety laws and whistleblower protections, and ensure the safety and health of American workers; increase enforcement resources for the Wage and Hour Division to ensure that workers are paid the wages that are due them; and boost funding for the Office of Federal Contract Compliance Programs, which is charged with pursuing equal employment opportunity and a fair and diverse Federal contract workforce.”

Prosecuting white-collar crooks. The section on the Justice Department in the budget document says that the Administration will seek [not yet quantified] “resources for additional FBI agents to investigate mortgage fraud and white collar crime and for additional Federal prosecutors, civil litigators and bankruptcy attorneys to protect investors, the market, the Federal Government’s investment of resources in the financial crisis, and the American public.”

Thwarting purveyors of tainted food. The Administration plans to “take steps to improve the safety of the Nation’s supply of meat, poultry and processed egg products and to ensure that these products are wholesome, and accurately labeled and packaged.” The proposed budget for the Agriculture Department “provides additional resources to improve food safety inspection and assessment and the ability to determine food safety risks. This will lead to a reduction in foodborne illness and improve public health and safety.” The Food and Drug Administration, which is under the auspices of the Department of Health and Human Services, would also get a hike in funding.

Restricting plunderers of national resources. The section of the budget document on the Interior Department outlines the Administration’s intention to rein in the windfalls long enjoyed by extraction companies with leases to drill and mine on public lands. The plan includes “a new excise tax on offshore oil and gas production in the Gulf of Mexico to close loopholes that have given oil companies excessive royalty relief” as well as the imposition of user fees and more realistic royalties for oil and gas drilling on federal lands.

Controlling drug and healthcare price gouging. The general framework for healthcare reform released by the Administration as part of the budget document contains plans to slow down the growth in Medicare costs. This includes a proposal to force providers of privatized coverage under the name of Medicare Advantage to participate in competitive bidding. Medicare drug costs would be reined in by tightening oversight of Part D spending and by preventing brand-name pharmaceutical companies from paying generic drug producers to keep their low-cost products off the market.

To these should be added tax proposals that would put an end to various boondoggles that have enriched oil companies, hedge funds and other anti-social elements. Some of Obama’s proposals (especially regarding healthcare) do not go nearly far enough, but the budget as a whole represents a major break from the priorities of the Bush Administration. Though you would hardly know that from the geeky, matter-of-fact way it is being promoted by Budget Dirtector Peter Orszag (photo).

Budget documents are, of course, merely wish lists conveyed by the executive to the legislative branch. In the short term, the main impact of Obama’s blueprint will be to launch a massive wave of business lobbying. Now it is up to Congress to resist the entreaties of those paid persuaders and make it clear that the days of unchecked corporate giveaways have come to an end.

Toxic Exports — from the USA

Thursday, August 14th, 2008

While catching up on my magazine reading, I came across an interesting piece by Russell Carollo in the May-June issue of The IRE Journal, which is published by Investigative Reporters and Editors. IRE, by the way, is a great organization for researchers (as well as journalists) to join to get print and online access to the Journal and other valuable data resources.

Carollo, a special projects reporter at the Sacramento Bee, offers a unique perspective amid a package of articles put together by IRE on toxic imports from countries such as China. Reacting to the self-righteous statements of the federal government’s Consumer Products Safety Commission about its commitment to consumer protection, Carollo points out that for many years the CPSC has allowed many U.S. manufacturers to export products deemed too hazardous to sell in their home market.

It turns out the CPSC has a database of “non-approved products” that companies have sought permission to sell abroad. Using the Freedom of Information Act, Carollo obtained a copy of the database. It shows, he writes, that in the period from October 1993 to September 2006, the CPSC received 1,031 requests to export products banned in the USA. The Commission approved 96 percent of those requests.

Some of the small number of rejected requests involved proposed exports to Canada and Mexico, which the CPSC apparently worried might make their way back into the United States. Carollo mentions the case of Indianapolis-based Great Lakes Products, which in 2005 sought approval to export room odorants containing isobutyl nitrite — a substance used in inhalers known as “poppers” to enhance sexual arousal before being banned in the U.S. in 1988 — to Canada and the Czech Republic. The CPSC blocked the sale to Canada but allowed the shipment to the Czechs.

Apparently, the commercial interests of domestic companies trumped the health and safety of foreign consumers. Congress finally took action to end this state of affairs. It recently passed legislation that would bar the CPSC from allowing the export of the most hazardous products. The bill is awaiting the signature of President Bush. [UPDATE: Bush has signed the measure, which is part of a larger bill on consumer product safety.]

Note: The CPSC database does not appear to be available online, but Carollo’s original Bee article with more details about it can be found here. Speaking of product safety, a good source for tracking goods that have been withdrawn from sale in the U.S. is the federal government’s Recalls.gov site.