Archive for May, 2008

Slapping the Corporate Wrist

Friday, May 30th, 2008

Deferred prosecution. Corporate monitors. These are the less-than-intimidating terms used to describe the manner in which the U.S. Department of Justice goes after corporate crime these days. Not exactly in keeping with attitude of “throwing the book at them” applied to blue-collar criminals or the “Gitmo” treatment given to those charged as terrorists.

The Bush Administration has let many corporate offenders off the hook through the use of deferred prosecution agreements, which are arrangements under which the Justice Department postpones the filing of criminal charges against companies that agree to pay fines and submit to third-party monitoring. If the monitor determines that the company has cleaned up its act, the charges effectively disappear. The corporation avoids a major stain on its record, and the Justice Department avoids the trouble of putting on a trial.

This dubious practice had been going on largely under the radar. Russell Mokhiber, editor of the Corporate Crime Reporter, carried on a one-man effort to publicize it. Reports earlier this year that former Attorney General John Ashcroft’s consulting firm had been given a $52 million contract to serve as a corporate monitor for a medical supply company briefly put deferred prosecution (and possible impropriety in the selection of monitors) in the spotlight. Then the New York Times “discovered” the practice in a front-page story on April 9.

Thanks to the efforts of the House Judiciary Committee and its Chairman John Conyers, more is becoming known about the Justice Department’s light-handed treatment of corporate malefactors. Last week, Conyers and several of his colleagues announced that Justice had turned over the texts of 85 deferred prosecution and non-prosecution agreements, which were promptly posted on the Committee’s website along with a letter from Justice that includes the names of 40 monitors, most of whom turn out to be former federal prosecutors and other government officials .

Among the companies involved in the Justice Department’s list of unprosecution agreements (which Conyers said was missing at least a dozen cases) are: America Online, Bank of New York, Blue Cross and Blue Shield of Rhode Island, Boeing, BP America, Bristol-Myers Squibb, Chevron, HealthSouth, lngersoll Rand, KPMG, Lucent, Merrill Lynch, Monsanto, Prudential Securities and Textron.

The Justice Department is apparently sensitive to charges that it is not aggressive in fighting corporate crime. In a March 7 memo to U.S. Attorneys, Acting Deputy Attorney General Craig S. Morford warned that “the criminal conviction of a corporation may have harmful collateral consequences for employees, pensioners, shareholders, creditors, consumers, and the general public.” What a relief! Now, every time I read that a corporation caught committing a crime is being let off with a slap on the wrist, I can take comfort in the knowledge that the leniency is actually for my benefit.

Fallen Crusaders Against Corporate Abuse

Thursday, May 29th, 2008

For more than 30 years, big business has whined about class-action lawsuits filed on behalf of consumers, workers and shareholders. The Republican Party made plaintiffs’ lawyers one of its favorite bogeymen and “tort reform” a centerpiece of its policy agenda. John McCain carries on this dubious tradition, suggesting for example that putting limits on medical malpractice suits is a key element of healthcare reform.

Whether or not there ever was a real plethora of frivolous lawsuits, one fact is now undeniable: the plaintiffs’ bar is in disarray. Part of the reason is that conservatives succeeded in getting numerous state legislatures to impose restrictions on class-action lawsuits and individual damage cases. Yet perhaps more dramatic has been the spectacular demise in recent months of the country’s leading trial lawyers through personal legal entanglements.

The conventional wisdom is that these super lawyers were victims of their own greed, while conspiracy theorists might wonder how these giant killers were brought down in such short order. In any event, there have certainly been sighs or relief—if not spasms of schadenfreude—in boardrooms across America.

The most recent crusader to fall was Melvyn Weiss, who built a career filing lawsuits charging that companies had defrauded investors. In March, Weiss agreed to plead guilty to federal criminal charges, acknowledging his role in making millions of dollars in secret side payments to plaintiffs in class actions filed by his firm Milberg Weiss. He consented to $10 million in fines and forfeiture, and last week prosecutors proposed that he spend up to 33 months in prison.

Weiss’s former partner, the even more flamboyant William S. Lerach, entered a guilty plea last fall on similar federal charges. In February he was sentenced to two years in prison and ordered to forfeit $7.75 million. That was a small fraction of the several hundred million dollars in fees Lerach and his partners earned from scores of cases involving many billion dollars in settlements and awards from the likes of Enron and WorldCom as well as many less venal corporations.

In March, another larger-than-life trial lawyer, Richard “Dickie” Scruggs, filed a guilty plea in the face of allegations that he and others bribed a judge in Mississippi who was hearing a case involving a dispute over $26 million in legal fees from a mass settlement of insurance claims brought by victims of Hurricane Katrina. Scruggs is best known for his role in winning a $200 billion settlement from the tobacco industry in the 1990s.

There was never any doubt that Weiss, Lerach and Scruggs were motivated by personal enrichment at least as much as their quest for justice. Yet in the absence of adequate government regulation of business, their lawsuits served as a countervailing force against the power of big business. Now that they have been neutralized, what corporate abuses will go unchallenged?

Unions Developing A Global Reach of Their Own

Wednesday, May 28th, 2008

Newspapers in both Britain and the United States have reported in recent days that two major labor organizations are preparing to announce the creation of the first trans-Atlantic union. The merger will bring together the United Steelworkers, the leading U.S. union in manufacturing and heavy industry, and Unite, the mega British union formed by the joining of Amicus and the Transport & General Workers Union last year.

The step does not come as a surprise, since the unions created a strategic alliance in 2005 and announced their intention to wed about a year ago. But the formal marriage of the organizations will, nonetheless, represent a milestone in labor history. For decades, large corporations have been operating across national borders and in recent years have increasingly formed international mergers and joint ventures. Unions have expanded their international solidarity efforts but have largely remained tied to single countries. The Steelworkers-Unite initiative will be a major step toward the globalization of labor organizing. In its report, Britain’s Telegraph said the combined entity could be named the United Global Workers’ Union, which sounds like something out of science fiction.

The current scope of the 850,000-member Steelworkers is illustrated by the fact that a global search of 10-K filings with the SEC reveals that more than 100 publicly traded companies report having North American workers represented by the union. These include industrial giants such as Dow Chemical, Alcoa, International Paper and Goodyear Tire & Rubber that all do a substantial amount of overseas business. Dow Chemical, for example, derives 66 percent of its revenue from outside the United States. Unite is also a highly diversified union that represents workers at the UK operations of global companies such as Airbus, BP, British Airways, Michelin, Shell and Unilever. Steelworkers President Leo Gerard told the Wall Street Journal that among the organizing targets of the combined union could be India’s Tata Steel Ltd., part of the Tata Group conglomerate.

It will be interesting to see how labor relations change once one union, at least, can start to match giant employers in its global reach.

Firm Headed by Major Republican Contributors Accused of Supplying Substandard Plane Parts

Friday, May 23rd, 2008

The Project On Government Oversight (POGO) and CBS News just revealed that Pentagon investigators have accused a California company of supplying substandard components for military and civilian aircraft for nearly a decade, charging that the firm committed fraud and bribery and exhibited “brazen disregard for the safety of soldiers and civilians as well as for the sanctity of laws, rules and regulations.” The company is privately held Airtech International Inc., which also goes by the name of Airtech Advanced Materials Group.

POGO and CBS obtained a September 2006 memo in which the allegations were made by a special agent of the U.S. Army’s Criminal Investigation Unit, who argued that Airtech should be debarred from doing business with the federal government. The investigator charged that Airtech, which makes light-weight composite materials, “knowingly supplied nonconforming products to DOD [Department of Defense] prime contractors.”

Airtech has not been debarred or formally charged in the matter. A company spokesperson told CBS “we are aware of no current ongoing investigation,” but CBS reports that a document dated earlier this month indicates that an “active investigation” is still being conducted by the Army. CBS also says the House Transportation Committee is looking into the matter.

One fact not mentioned by either POGO or CBS is that the two top executives of Airtech—CEO William Dahlgren and his son Jeffrey Dahlgren, who serves as President—have together made a total of $308,700 in federal campaign contributions since the early 1990s—all of it to the Republican Party or Republican candidates, according to the Open Secrets database. Among those candidates: John McCain, who received $1,000 from William Dahlgren in February 2007, and George W. Bush, who got $2,000 from William Dahlgren in May 2000. Most of the Dahlgren money—more than $250,000—went to the Republican National Committee.

Apart from seeking contracts, the Dahlgrens may also have been investing in politics to gain influence in regulatory matters. According to the inspections database of the Occupational Safety & Health Administration, Airtech was cited for a serious violation in September 2006. OSHA proposed a fine of $5,060 (which is on the high side for the agency) but later settled with the company for $2,700.

Another model corporate citizen supporting the Republicans.

The Democratic Convention: Brought to You By Your Friends in Corporate America

Wednesday, May 21st, 2008

Barack Obama and Hillary Clinton may be bashing big business (up to a point), but a number of major corporations are positioning themselves to win favors from a possible Democratic administration next year by signing up as sponsors of the party’s convention. Last week, Kevin Vaughan of the Rocky Mountain News reported that the August gathering in Denver has already lined up 56 corporate supporters.

Vaughan notes that these companies appear to be motivated by something other than civic responsibility: “Almost all of them have the same thing in common: They either have business with the federal government or they lobby on pending issues.”

Massie Ritsch of the Center for Responsive Politics told Vaughan: “Corporations aren’t allowed to contribute directly to political parties or candidates’ campaigns, but they can subsidize the gatherings that show off a party’s candidate to American voters and get the candidate officially nominated…Money from these corporate donors helps the party, it helps the candidate, and to call it anything other than a campaign contribution is to make a distinction without a difference.” Also on the list of sponsors is the Service Employees International Union.

The Center’s Capital Eye blog later reported that companies on the sponsorship list are also associated with actual campaign contributions—through their political action committees and individual giving by employees and their families. In this way, the Center says, 38 of the sponsoring companies have provided about $971,000 to Sen. Clinton and 48 have provided about $1.3 million to Sen. Obama.

Vaughan does a good job of cataloging the issues on which the corporate sponsors would likely seek help from the Democrats if they control the White House as well as Congress. For example, AT&T’s concern about liability in connection with its involvement in national security wiretapping; Merck’s opposition to low-cost drug importation; and Visa’s worries about new restrictions on credit card companies.

Other sponsors include leading weapons producer Lockheed Martin, the giant for-profit medical insurer UnitedHealth Group, and utility firm Southern Co., one of the largest producers of greenhouse gas emissions. Another of the sponsors, Molson Coors, may be a significant liability for the Democrats even during the convention. Jonathan Coors, nephew of company vice chairman Pete Coors, is leading an effort to put an anti-union right-to-work initiative on the ballot in Colorado.

Isn’t it wonderful that the Democrats display such diversity among those helping to make its historic convention possible.

Letting More Sunshine In

Monday, May 19th, 2008

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

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

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

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

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

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

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

Wal-Mart and the Chinese Earthquake: Cheap Help for A Cheap-Labor Country

Wednesday, May 14th, 2008

Wal-Mart Stores has put out a press release patting itself on the back for promising the equivalent of about $430,000 for disaster relief and reconstruction for the area of China hit by a massive earthquake this week. The gesture was laudable but the amount was less than impressive.

After all, the giant retailer would be nowhere today without the countless Chinese workers who toil in sweatshops so that American consumers can be offered the cheap goods that are at the core of the company’s business model. Last year those largely Chinese-made goods brought Wal-Mart profits of $12.7 billion, or about $1.4 million every hour of every day. The $430,000 contribution thus represents less than 20 minutes of profit.

Wal-Mart also profits from Chinese consumers. The company operates more than 200 stores in China (through joint ventures and minority-owned subsidiaries), several of which have been shut down because of the tremblor. Wal-Mart was so eager to operate stores in China that it agreed to let its employees there be represented by unions (though of the government-dominated variety).

Wal-Mart has a history of using relatively inexpensive amounts of disaster relief to boost its reputation. After Hurricane Katrina hit the U.S. Gulf Coast in 2005, Wal-Mart maneuvered to get maximum exposure for its prompt delivery of relief supplies. A fairly routine operation for a company possessing the most advanced logistics infrastructure was seen as nearly miraculous, given the ineptitude of federal and state public officials.

The company made an initial faux pas (quickly reversed) in announcing that employees at its stores shut down by the storm would be paid for only three days. It also started out offering a measly $2 million in relief but soon overcame its parsimonious instincts and upped the figure by $15 million, thereby winning wide praise. The wave of favorable coverage went on for several months, thanks at least in part to the efforts of its army of p.r. operatives from Edelman and a conservative blogger who was paid to tout Wal-Mart’s hurricane work in the blogosphere.

Wal-Mart may have to part with more than $430,000 to get a similar public relations bonanza from China’s suffering.

Living Large on Capitol Hill

Tuesday, May 13th, 2008

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

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

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

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

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

Social Responsibility for Sale

Monday, May 12th, 2008

A feature article by two academics in today’s Wall Street Journal provides further evidence that the concept of corporate ethics is an oxymoron—or at least is a far cry from human ethics. The piece, by Remi Trudel and June Cotte of the University of Western Ontario’s Ivey School of Business, is headlined: “Does Being Ethical Pay?”

The authors don’t seem to think there is anything odd about discussing behavioral norms exclusively in terms of the material payoff. They unself-consciously refer to corporate social responsibility as a “big business” and thus don’t have any problem analyzing it in the same terms used for any investment.

Trudel and Cotte start out asking the question: “How Much are Ethics Worth?” What this means in practical terms is: how much extra can companies charge for products that are advertised as having been produced in an ethical manner. They ignore the question of how much more such goods actually cost to produce and consider only how much consumers are willing to pay. Based on experiments with a random group of adults, they found that people are willing to pay significantly more for the ethical goods, which suggests that consumers are a lot more ethical than companies.

Amazingly, the authors then address the question: “How Ethical Do You Need to Be?” Here they found that consumers would, for example, pay a differential for a shirt advertised as 25 percent organic but not much more for one said to have a higher organic content. The lesson Trudel and Cotte seem to draw from this is that companies should make some effort to give their products an ethical patina but need not go too far, since there will not be a proportional return for the additional effort.

The analysis of Trudel and Cotte is at the same time appalling and refreshing. It cuts through the social responsibility hype that permeates so much large-company marketing these days and shows that corporations will do the right thing only if it somehow enhances their bottom line. Lenin famously said that capitalists would sell the rope with which they would be hanged. Today’s corporate executives are happy to sell us the appearance of social responsibility—and, if we are lucky, the real thing.

Will the Justice Department Prosecute Company Linked to Mine Deaths?

Friday, May 9th, 2008

Too many members of Congress behave as if they were corporate lobbyists who just happen to be on the public payroll. One outstanding exception to that tendency is Rep. George Miller (D-Calif.), who has been a consistent champion of the not-so-monied interests, especially workers. Yesterday, Miller, who serves as chairman of the House Committee on Education and Labor, announced that he has asked the Justice Department to initiate a criminal investigation of the general manager of the Crandall Canyon Mine near Huntington, Utah, where nine miners were killed in two accidents last August. (The official federal fatality reports are here and here.)

Miller based his request on the results of an investigation conducted by his committee, which found evidence that the mine manager, Laine W. Adair, had concealed the full story of a previous collapse of the mine involving the same technique—retreat mining—that was linked to last summer’s deaths. Had the Mine Safety and Health Administration been given a complete account of the earlier accident, Miller argued, the mine might have been barred from continuing to use the technique.

In Miller’s referral letter to the Attorney General, he notes that Adair has vowed to invoke the Fifth Amendment protection against self-incrimination if he is forced to testify before the committee, as have other officials of the mine’s corporate owner, Murray Energy, including CEO Robert Murray, who has “argued” that an earthquake caused the collapse at his mine.

It remains to be seen how the Justice Department responds to Miller’s request, which just happened to be announced the same week that the national hiatus on the death penalty came to an end with the execution of a convicted murderer in Georgia. When will this country exhibit the same blood lust for punishing corporate killers as it has for individual ones?