Archive for August, 2008

Trade Associations Squawk at New Pay Disclosure

Tuesday, August 26th, 2008

Whether they are paid lavishly or barely above the minimum wage, Americans usually prefer not to tell others how much they earn. Some people cannot keep their pay entirely private, because their position is subject to public disclosure requirements, such as those that apply to non-profits. The Internal Revenue Service recently issued the first revisions of the compensation disclosure rules for non-profits in 30 years, and that is upsetting some people — especially in trade associations such as the National Football League — whose pay stubs will be exposed to the world for the first time.

The controversy surrounds the Form 990, an annual document through which non-profits — as a condition of remaining tax-exempt — have to disclose extensive information about their finances, including top-level compensation. After being submitted to the IRS, the 990s are made available on the web through sites such as Guidestar and the Foundation Center. The transparency is meant to discourage excessive spending on internal expenses rather than the group’s stated mission.

Currently, non-profits must disclose the compensation of officers, board members and “key employees” (such as an executive director) as well as the pay of the five highest-paid employees who do not fit those categories and who earn above $50,000. The IRS, which oversees non-profits, now wants non-profits to reveal the names and salaries of up to 20 key employees (more broadly defined) earning more than $150,000 as well as the five-highest paid other employees earning above $100,000.

Trade associations — previously not subject to the disclosure rule relating to highly compensated non-key employees — are doing most of the grousing about the new guidelines. The National Football League, which now reveals the salary of only one employee: its Commissioner, is leading the charge against the new IRS rules, saying the added disclosure is not appropriate for organizations that don’t take tax-deductible contributions from the public.

While you’d expect that a professional sports organization might be trying to conceal bloated pay levels, Joe Browne, the NFL’s executive vice president for communications and public affairs, recently strained to suggest to the New York Times that the problem was the opposite: “I finally get to the point where I’m making 150 grand, and they want to put my name and address on the form so the lawyer next door who makes a million dollars a year can laugh at me.”

Working with the American Society of Association Executives, the NFL has begun lobbying Congress for legislation that would allow trade associations to redact the additional salary information from the public version of the 990 (the way charities are allowed to remove information on their largest contributors).

While it is true that trade associations don’t receive donations from the public, they are still tax-exempt, which means that they should give up the financial privacy enjoyed by other private entities. Besides, even the new rules would require that trade associations disclose a lot less salary information than another non-charity type of non-profit: labor unions.

Under the Labor-Management Reporting and Disclosure Act of 1959, unions must file annual forms called LM-2s that, among other things, list the salaries not only of officers but all employees. The U.S. Department of Labor makes the forms available on the web and also provides a search engine that allows you to enter the name of any individual and easily find his or her compensation. How would trade associations feel about that level of mandatory transparency?

The SEC’s Risky New IDEA

Thursday, August 21st, 2008

When you go to the Securities and Exchange Commission website these days, the first thing you see is an animation that looks like something out of The Matrix films or the TV show Numb3rs. It seems the agency’s accountants and lawyers are trying to look cool as they move toward the creation of a new system for distributing public-company financial information on the web.

This week SEC Chairman Christopher Cox (photo) unveiled Interactive Data Electronic Applications (IDEA, for short), the successor to the EDGAR system that corporate researchers have relied on since the mid-1990s for easy access to 10-Ks, proxy statements and the like. The big selling point of IDEA is tagging. Companies (and mutual funds) will be required to prepare their filings so that key pieces of information are electronically labeled—using a system called XBRL—and thus can be easily retrieved and compared to corresponding data from other companies. The first interactive filings are expected to be available through IDEA late this year. EDGAR will stick around indefinitely as an archive for pre-interactive filings.

“With IDEA,” the SEC press release gushes, “investors will be able to instantly collate information from thousands of companies and forms, and create reports and analysis on the fly, in any way they choose.”

I just finished watching the webcast of Cox’s press conference earlier this week and came away with mixed feelings about IDEA. In one respect, it will be great to be able to readily extract specific nuggets of information. My concern is the emphasis being placed on disclosure as simply a collection of pieces of data. This may serve the needs of financial analysts and investors, but as a corporate researcher, I find that some of the most valuable portions of SEC filings are narratives rather than numbers—for example, the descriptions of a company’s operations, its competitive position and its legal problems that appear in 10-Ks.

As Cox finally mentioned about an hour into the press conference, tagging can be applied to text as well as numbers. Yet I can’t help worry that the direction the SEC is going in will tend to reduce narratives to bite-size portions that serve to diminish the full scope of disclosure. It was not comforting to hear William Lutz, the outside academic who is advising the SEC on a complete overhaul of its entire disclosure system, suggest during the press conference that the forms (10-K, 10-Q, etc.) companies are currently required to file will be phased out. Perhaps it was unintentional, but the impression Lutz and Cox gave is that future disclosure will be mainly quantitative.

This shift in focus from text to numbers would, I believe, increase the risk that company reporting on social and environmental matters, already inadequate, will be scaled back. That may not mean much for short-sighted investors, but it would be a major setback for corporate accountability.

Sweatshops on Trial in North Carolina

Tuesday, August 19th, 2008

In April, I wrote about the efforts of my son Thomas and other students at the University of North Carolina to get UNC’s administration to endorse the Designated Suppliers Program (DSP), an initiative that seeks to improve the abysmal working conditions of employees at companies that produce university logo apparel—a big business for schools such as Carolina.

After pressing the matter for many months without getting a response, UNC student activists launched a sit-in this spring at the building containing the office of Chancellor James Moeser. The hope was that Moeser, who was planning to leave UNC, would resolve the DSP issue before departing. The administration tolerated the occupation (with certain ground rules) but dragged its feet on the supplier issue.  Finally, on May 2, after the sit-in had continued for 16 days, Moeser announced he would not act on the DSP. This prompted students to occupy his personal office. After police arrived and arrested one activist, most of the protesters left. Those who remained, including Thomas, were eventually arrested and charged with “failure to disperse.” Salma Mirza, the only one who went limp when taken into custody, was also charged with resisting arrest.

Yesterday, the five anti-sweatshop activists had their day in court in Chapel Hill. The charges, all misdemeanors, were heard in Orange County District Court right across from campus on Franklin Street, the main student shopping strip and the place where UNC fans celebrate major basketball victories. District Court normally deals with mundane matters such as traffic violations, so it caused a stir when the five defendants, all wearing blue t-shirts emblazoned with the slogan “Justice for All Workers,” showed up with their pro bono legal team—led by veteran civil rights lawyer Al McSurely—and supporters who filled the gallery.

The defendants’ plea of not guilty was followed by a three-hour trial presided over by Judge Pat Devine without a jury. The prosecution’s case consisted of the testimony of four police officers and a video of the arrests. As his first defense witness, McSurely called on Mirza, who started to give a detailed description of the sweatshop problem and the campaign to get universities to sign on to the DSP (around 45 have done so). When the prosecution objected, Judge Devine refused to rule the background testimony irrelevant but said that no more than five minutes could be devoted to it. In doing so, the judge made it clear she was taking it for granted that the students were justified in arguing that supplier factories were abusive and that the UNC administration was complicit. The administration, though not a party to the case and not represented at the trial, was in effect being found guilty of enabling worker exploitation.

McSurely’s other objective was to have the charges against the five students dismissed. He sought to do this in several ways: he argued that the exact charge of “failure to disperse” was inappropriate in the circumstances; he elicited testimony from the students that they had never heard a final warning that they would be subject to arrest if they did not leave the chancellor’s office; he had Linda Gomaa, the first to be arrested, testify that she was taken into custody before any kind of warning was given; and he argued that Mirza’s behavior did not constitute resisting arrest.

McSurely also presented a necessity defense, arguing that even if the students technically broke the law, they should be found not guilty because their actions were in pursuit of a higher good. This was buttressed, for example, by the testimony of defendant Tim Stallmann that the university had previously improved the working conditions of the campus housekeeping staff after students staged protests and engaged in civil disobedience.

Judge Devine did not accept any of those arguments. She concluded that the defendants knew they were crossing a line when they moved the sit-in to the the chancellor’s office; that the police adequately warned the students they would be arrested if they didn’t leave the premises; and that Mirza’s behavior constituted resisting arrest. She also rejected the necessity defense, agreeing with the prosecutor that there was insufficient “nexus” between the actions of the students and the ending of worker exploitation.

The judge, however, made it clear she had enormous respect for the five students, each of whom had been called by McSurely to testify about their commitment to social and economic justice. Sarah Hirsch, for example, described her work with Witness for Peace, and Thomas mentioned that he had just completed a ten-week program with a non-profit called Bike and Build, during which he and others cycled across the country and worked on Habit for Humanity-type housing projects along the way.

After the prosecutor indicated the state was not seeking harsh penalties, Judge Devine in effect imposed no sentences at all. Instead, she entered  a “prayer for judgment continued,” a procedure—unique to North and South Carolina, it seems—in which there is a finding of guilt but no formal conviction is entered on the defendant’s record.

All parties got what they wanted. The prosecutor got a finding of guilt, the police were vindicated in their actions, and the students got an opportunity to highlight the sweatshop issue in court and ended up with the mildest possible adverse ruling. The only real loser was the UNC administration, whose intransigence on the DSP issue emerged from the trial looking even more unreasonable.

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.

Is Starbucks Beyond Reproach?

Tuesday, August 12th, 2008

There has been a spate of books celebrating the remarkable rise of Starbucks, but the latest, by Kim Fellner, stands out from the pack. Unlike the others, which are mainly addressed to appreciative shareholders, consumers and business analysts, Wrestling with Starbucks is an appeal to critics of the coffeehouse chain.

Fellner, an long-time friend and colleague of mine, places the origins of the book in late 1999, when she was in Seattle for the protests against the World Trade Organization and was surprised to see Starbucks attacked both figuratively and literally (when the front window of one of its outlets was shattered by demonstrators). Because she had a favorable impression of the chain, whose stores she frequented for her caffeine fix, Fellner wondered, she writes, “how had a coffee company with a liberal reputation come to symbolize the ills of globalization?”

Fellner spent much of the following eight years trying to answer that question. Her journey took her deep into the world of coffee – from the hillsides of Costa Rica to the Starbucks roasting plant in Kent, Washington to the various company outlets she visited in her travels at home and abroad. Fellner provides a wealth of anecdotes, but she keeps coming back to the issue of whether Starbucks should be viewed as a force for good or evil in the world.

Defying the tendencies of the labor and social justice circles in which she dwells, Fellner finds much to praise in the behavior of the coffee behemoth: good conditions, including health benefits, for its part-time baristas; strict environmental standards and fair prices for its third-world suppliers; high-quality products and appealing ambiance for its customers that have helped expand the demand for upscale java to such an extent that independent coffeehouses benefited as well.

Fellner is not blind to the company’s faults. She acknowledges the company’s strong anti-union animus; the fact that most of its workers (which it refers to as “partners”) don’t work enough hours to qualify for medical insurance; the inferior working conditions at the large number (more than one-third) of its outlets that are run by licensees at places such as airports and turnpike rest stops; the fact that it had to be pressured by groups such as Global Exchange before it began to purchase significant quantities of fair trade beans; and the clumsy way it responded to Ethiopian coffee growers unhappy that the company was asserting trademark claims over traditional names for their products.

The reason I (and I suspect many other corporate critics) part company with Fellner is that she is surprisingly tolerant of these shortcomings. She is convinced Starbucks–and especially its charismatic head Howard Schultz–is either trying hard to rectify the problems or has a sincere alternative view, such as the company’s insistence that what it considers its enlightened personnel policies are better for employees than union representation.

Fellner is uncomfortable with the latter stance–which prompted Schultz to encourage a decertification drive that removed the unions that existed at Starbucks before he took over the company in 1987–but she does not seem outraged. Schultz’s attitudes on unions, Fellner says in an oddly mild turn of phrase, “chafe me like an itchy sweater.”

Fellner seems to have a more seriously negative reaction to the unions that have tried to organize Starbucks outlets, especially the anarchist-inspired modern incarnation of the Industrial Workers of the World. She digresses into a discussion of alternatives to traditional labor organizing but ultimately concludes that unions fail to address the “psychic need” of today’s workers for “recognition and approval.” She lauds Starbucks for addressing that need through practices such as giving out “appreciation cards” to its “partners” when they do a good job.

Just when I thought that Fellner had gone over to the dark side, her book switches its focus from Starbucks to the broader issue of corporate social responsibility (CSR), which is so much the rage in business circles these days. Here her discussion is more nuanced. She acknowledges that CSR is often bogus and affirms that there are malevolent corporations–Wal-Mart, Big Oil, Big Pharma, etc.–that should be targeted. It turns out her real problem is not with anti-corporate campaigns in general, but rather with the frequent decision of campaigners to go after high-profile companies (like Starbucks) rather than the worst offenders in an industry. She worries that if “good” companies are continuously slammed for not doing better, they as well as their less diligent competitors will have little motivation to improve.

This is a legitimate issue, but the problem, as I see it, is that it’s not always clear who the good guys are. Fellner clearly believes Starbucks is one of them and Wal-Mart is not. Yet in the past couple of years, the giant retailer has made a mighty effort to boost its CSR credentials, especially in the environmental realm. It has made modest improvements in working conditions but remains vehemently anti-union. Does Wal-Mart now qualify to be exempt from vilification?

I would say emphatically no, but then again I don’t think any company should be given a total pass by labor unions and social justice organizations. Fellner is right to question whether corporations with better track records should be our primary targets, but that’s not to say they should never be challenged. Even companies like Starbucks–whose relatively enlightened policies may falter now that its financial condition is weakening–sometimes need to be pushed to do the right thing.

The Ugly Chinese?

Thursday, August 7th, 2008

When we hear about poor third world workers being exploited by a rapacious foreign corporation, we tend to assume the company is based in the United States, Europe or Japan. An article in the new issue of Bloomberg Markets magazine is the latest indication that we probably need to add China to that mental list.

Young Workers, Deadly Mines is a remarkable exposé by Simon Clark, Michael Smith and Franz Wild about child workers in the Democratic Republic of Congo (DRC) in central Africa. The DRC, formerly Zaire, is a mineral-rich country that suffered for more than a quarter-century under the kleptocratic Mobutu regime and then endured years of civil war that involved several neighboring countries. Some foreign companies enabled the violence by continuing to purchase gold and diamonds from militia groups.

Clark, Smith and Wild show that foreign business interests are once again profiting from the misery of the people of the DRC. The problem is concentrated in the Katanga region, which contains large deposits of copper and cobalt, two substance very much in demand on the international market. There, “freelance” miners, including young children, work crude, hand-dug mines to extract ore that is sold to middlemen, who in turn sell to nearby smelters run by Chinese companies such as Zhejiang Huayou Cobalt Nickel Materials Co. (logo). The cobalt is shipped to China and is ultimately sold to companies such as Sony and Samsung for use in making cellphone batteries. The child workers, toiling in hazardous and unsanitary conditions, earn the equivalent of about $3 a day.

The article reports that more than 60 of Katanga’s 75 mineral processing plants are owned by Chinese companies and some 90 percent of the region’s mineral output is sent to China, whose fast-growing economy has an insatiable appetite for raw materials. The Bloomberg Markets article notes that Chinese extractive companies are operating in a number of other African countries aside from the DRC, such as Zambia, Niger, Sudan, Ethiopia and Zimbabwe.

The latest Fortune Global 500 list contains 29 corporations based in China, including three with revenues in excess of $100 billion. We need to know a lot more about companies such as these and how they are behaving abroad as well as at home.

Wal-Mart Exercises Its Political Rights—Employees Be Damned

Tuesday, August 5th, 2008

After the Wall Street Journal reported on Friday that Wal-Mart has been holding meetings with its supervisors warning of the terrible consequences that would follow a Democratic victory in November—specifically, a law that would make it easier for unions to organize—the labor and progressive communities have, justifiably, been up in arms. Groups such as American Rights At Work are calling on the Federal Election Commission to investigate whether the giant retailer broke the law in its implicit electioneering.

Whether or not the company violated election laws, it is unfortunately clear that Wal-Mart’s actions were not contrary to employment law. As Bruce Barry details in his book Speechless, the Bill of Rights does not apply inside the factory gate. With the exception of public employees, who retain their First Amendment rights while on the job, Americans generally do not have political freedom in the workplace.

What this means is, first, that workers have no recourse if they are disciplined or fired for expressing their political views. This became clear in 2004, when an Alabama woman sporting a Kerry/Edwards bumper sticker on her car was terminated by her employer, an ardent Bush supporter.

It also means that a company can, as Wal-Mart is apparently doing, seek to impose its political views on its employees by forcing them to attend meetings on company time during which those views are emphatically expressed. These sessions are analogous to the captive anti-union meetings that employers use during organizing drives—a practice that the legislation Wal-Mart dreads, the Employee Free Choice Act, would greatly neutralize.

Wal-Mart’s workplace electioneering came to light shortly after Ronald Meisburg, General Counsel of the National Labor Relations Board, issued a memorandum clarifying, among other things, that employers can discipline workers for engaging in political advocacy that does not have “a direct nexus to employee working conditions,” even when it occurs away from the workplace. Meisburg noted, for instance, that nurses who informed state agencies about inadequate staffing levels were protected but those who complained about inadequate patient care were not.

The main problem with Wal-Mart’s anti-Democratic meetings is not that they broke the law, but rather that they make it clear what is wrong with the law: the denial of the rights of private-sector workers to express themselves politically or to organize unions without intimidation. The Employee Free Choice Act would immediately address the organizing issue and ultimately would help with political rights as well, since a union contract would make it much more difficult for an employer to get rid of a worker for ideological reasons. These are the real consequences that Wal-Mart so desperately wants to prevent.

Giant Mining Firm’s Social Responsibility Claims: Rhetoric or Reality?

Friday, August 1st, 2008

The recent decision by the U.S. Supreme Court to slash the damage award in the Exxon Valdez oil spill case and the indictment of Sen. Ted Stevens on corruption charges are not the only controversies roiling Alaska these days. The Last Frontier is also witnessing a dispute over a proposal to open a giant copper and gold mine by Bristol Bay, the headwaters of the world’s largest wild sockeye salmon fishery. Given the popularity of salmon among the health-conscious , even non-Alaskans may want to pay attention to the issue.

The Pebble mine project has been developed by Vancouver-based Northern Dynasty Ltd., but the real work would be carried out by its joint venture partner Anglo American PLC, one of the world’s largest mining companies. Concerned about the project and unfamiliar with Anglo American, two Alaska organizations—the Renewable Resources Coalition and Nunamta Aulukestai (Caretakers of the Land)—commissioned a background report on the company, which has just been released and is available for download on a website called Eye on Pebble Mine (or at this direct PDF link). I wrote the report as a freelance project.

Anglo American—which is best known as the company that long dominated gold mining in apartheid South Africa as well as diamond mining/marketing through its affiliate DeBeers—has assured Alaskans it will take care to protect the environment and otherwise act responsibly in the course of constructing and operating the Pebble mine. The purpose of the report is to put that promise in the context of the company’s track record in mining operations elsewhere in the world.

The report concludes that Alaskans have reason to be concerned about Anglo American. Reviewing the company’s own worldwide operations and those of its spinoff AngloGold in the sectors most relevant to the Pebble project—gold, base metals and platinum—the report find a troubling series of problems in three areas: adverse environmental impacts, allegations of human rights abuses and a high level of workplace accidents and fatalities.

The environmental problems include numerous spills and accidental discharges at Anglo American’s platinum operations in South Africa and AngloGold’s mines in Ghana. Waterway degradation occurred at Anglo American’s Lisheen lead and zinc mine in Ireland, while children living near the company’s Black Mountain zinc/lead/copper mine in South Africa were found to be struggling in school because of elevated levels of lead in their blood.

The main human rights controversies have taken place in Ghana, where subsistence farmers have been displaced by AngloGold’s operations and have not been given new land, and in the Limpopo area of South Africa, where villagers were similarly displaced by Anglo American’s platinum operations.

High levels of fatalities in the mines of Anglo American and AngloGold—more than 200 in the last five years—have become a major scandal in South Africa, where miners staged a national strike over the issue late last year.

Overall, the report finds that Anglo American’s claims of social responsibility appear to be more rhetoric than reality.  Salmon eaters beware.