Archive for July, 2009

Toyota to California: Drop Dead

Friday, July 31st, 2009

nummiThe U.S. market, especially in states such as California, has played a major role in Toyota’s ascent to the top of the global automobile industry. Now the company is showing its appreciation by announcing plans to put nearly 5,000 people out of work in the San Francisco Bay Area by closing its New United Motor Manufacturing Inc. (NUMMI) operation. The move came shortly after the new federally subsidized General Motors decided to exit what had been a 25-year joint venture between the two companies.

If Toyota ignores the pleas of California public officials and proceeds with the shutdown, the closing would represent a sharp break with the company’s paternalistic traditions. “It’s as if a long-held doctrine at Toyota – that it doesn’t shut down factories and it doesn’t fire workers – has crumbled,” a Japanese auto analyst told the New York Times. “Some would say this is a new era for Toyota.”

To be accurate, Toyota’s paternalism has not extended to the contingent workers it has employed at home and in the United States, and earlier this year it used voluntary buyouts to thin the ranks of regular workers at various U.S. plants.

Conditions are admittedly tough for Toyota. It posted its first annual loss in half a century for the fiscal year ending in March amid the sharp economic downturn. Yet it cannot be an accident that the only one of the company’s ten U.S. manufacturing plants to be put on the chopping block is the one where the workers are unionized.

Toyota, like other foreign automakers, has made sure to keep its U.S. operations non-union. NUMMI was a special case. It was created at a time when GM thought it needed to learn the secrets of Japanese auto production, Toyota was looking for ways to increase its U.S. market share without inflaming anti-import sentiments, and the United Auto Workers union was willing to experiment with new work rules that raised productivity amid rising industry layoffs.

The UAW took a lot of grief for its “jointness” arrangement at NUMMI, where the intensified pace of production was denounced by critics as “management by stress.” The contracts negotiated by the UAW have forced workers to earn a portion of their pay in the form of production bonuses. Earlier this year, the U.S. Labor Department ordered NUMMI to pay its workers an additional $862,000 because the company had miscalculated the bonuses for 2008 (Labor Relations Week, 6/25/09).

Despite the extent to which the UAW and NUMMI workers bowed to Toyota’s way of doing business, the company did not hesitate to shut down the operation once GM was out of the picture. Toyota has apparently given little thought to the impact of the closing on California’s economy amid the recession and the state’s fiscal crisis, which was resolved only by enacting cruel cuts in education and other public services. Instead, it is complaining about labor costs at NUMMI compared to its non-union plants in places such as Kentucky.

Not long ago Bloomberg reported that Toyota was considering using the NUMMI plant to produce its popular Prius. That would be appropriate, given the hybrid’s popularity in California. But the company quickly quashed that rumor and insisted that instead it would add Prius capacity at its planned plant in Mississippi once the market begins to recover. The Mississippi facility is slated to receive some $300 million in state economic development subsidies and, of course, will be run without a union.

Despite all that California has done for Toyota, the company’s message to the Golden State is: drop dead.

Wal-Mart’s (Un)sustainability Index

Friday, July 24th, 2009

Del95400Wal-Mart has taken the latest in a long series of steps to make itself look good by imposing burdens on its suppliers. The mammoth retailer, which is thriving amid the recession, recently announced plans to require its more than 100,000 suppliers to provide information about their operations that would form the basis of a product sustainability index.

Rating products is a good idea. It’s already being done by various non-profit organizations that bring independence and legitimacy to the process. Wal-Mart, by contrast, brings a lot of negative baggage. In recent years, Wal-Mart has used a purported commitment to environmental responsibility to draw attention away from its abysmal record with regard to labor relations, wage and hour regulations, and employment discrimination laws. It also wants us to forget its scandalous tax avoidance policies and its disastrous impact on small competitors. The idea that a company with a business model based on automobile-dependent customers and exploitative supplier factories on the other side of the globe can be considered sustainable should be dismissed out of hand. Yet Wal-Mart is skilled at greenwashing and is, alas, being taken seriously by many observers who should know better.

On close examination, Wal-Mart’s latest plan is, like many of its previous social responsibility initiatives, rather thin. All the company is doing at first is to ask suppliers to answer 15 questions. Ten of these involve environmental issues such as greenhouse gas emissions, water use, waste generation and raw materials sourcing. The final five questions are listed under the heading of “People and Community: Ensuring Responsible and Ethical Production.”

Two of them involve “social compliance.” It is an amazing act of chutzpah for Wal-Mart, which probably keeps more sweatshops in business than any other company, to claim moral authority to ask suppliers about the treatment of workers in their supply chain.

The questions in this category seem to assume that suppliers don’t do their own manufacturing. This is a tacit acknowledgement of how Wal-Mart has forced U.S. manufacturers to shift production offshore, and often to outside contractors. Now Wal-Mart has to ask those companies to be sure they know the location of all the plants making their products and the quality of their output.

The point about quality was one that CEO Mike Duke (photo) emphasized when announcing the rating system. This is also highly disingenuous. For years, Wal-Mart was notorious for pressing suppliers to reduce the quality of their goods to keep down prices. Now the behemoth of Bentonville is suddenly a proponent of products that “are more efficient, that last longer and perform better.” Will Wal-Mart pay its suppliers higher prices to cover the costs of improving quality?

goodguideI can’t bring myself to jump on Wal-Mart’s bandwagon. If I want product ratings I will turn not to Mike Duke but rather to someone like Dara O’Rourke, who founded a website called Good Guide that rates consumer products and their producers using independently collected data from social investing firms such as KLD Research and non-profits such as the Environmental Working Group. It uses criteria such as labor rights, cancer risks and reproductive health hazards that are unlikely to ever find their way into the Wal-Mart index.

Good Guide also rates companies, including Wal-Mart, which receives a mediocre score of 5.3 (out of 10), and it reaches that level thanks to its marks on p.r.-related measures such as charitable contributions and some but not all environmental measures. In the category of Consumers it gets a 4.1, Corporate Ethics 3.9, and for Labor and Human Rights 4.1 (which is generous).

Maybe Wal-Mart should focus on improving its own scores before presuming to rate everyone else.

CIT: R.I.P.?

Thursday, July 16th, 2009

cit1When CIT Group realized it was in really big trouble, the commercial finance company apparently thought it could count on Uncle Sam to come to the rescue. About a week ago, it leaked the news that it was considering bankruptcy and waited for the Treasury Department to respond to dire warnings about the consequences for the small and medium businesses that make up most of the company’s customer base.

After all, CIT had already received $2.3 billion in TARP money last year after converting itself to a bank holding company. Other struggling TARP recipients, like Citigroup, had been able to come back for additional infusions as Tim Geithner showed himself to be a soft touch for large financial institutions.

To the surprise of CIT, it got rebuffed by the Obama Administration and will now have to file for Chapter 11 unless some deep-pocketed investors step in. CIT, with assets of about $75 billion, is a large but not a giant institution. It thus does not seem to meet the Geithner standard: it is not too big to fail.

While it is possible to understand CIT’s frustration, the company does not deserve too much sympathy. Putting size aside, there are reasons why CIT was not exactly a worthy candidate for a taxpayer handout. This is a case in which perhaps the right question to ask was whether the company in need was  too flawed to save.

For decades, CIT played a useful function in the business system with services such as commercial lending, factoring and equipment leasing. But in 1980 it developed an identity crisis as it was acquired by RCA in the first of what would be a long series of ownership changes. Two decades later it came under the control of Tyco International, the shady conglomerate headed by Dennis Kozlowski, who would later be convicted of misappropriation of corporate funds and become infamous for the extravagant lifestyle–including a $6,000 shower curtain–he enjoyed with those funds.

CIT split from Tyco in 2002 and sought to make a new name for itself. Unfortunately, the way it did that was to get into two very sleazy businesses. In 2005 it entered the student loan market. Within two years, CIT’s Student Loan Xpress was being investigated by New York Attorney General Andrew Cuomo for paying kickbacks to university officials who steered students into predatory loans. Faced with a scandal, CIT agreed in May 2007 to sign a code of ethical conduct drawn up by Cuomo. It then booted out the president of Student Loan Xpress and later exited the business.

The other new endeavor was subprime home mortgages. For a while this dubious business boosted CIT’s earnings, but when the subprime market turned sour, the company took a big hit. In 2007–shortly after telling Investment Dealers Digest that “our subprime profile is strong”–it started posting losses and was forced to write down the value of its subprime portfolio by $765 million. It ended up leaving this field as well. CIT lost some $633 million in 2008.

CIT’s reputation was also tarnished in 2005, when it and two other leasing companies agreed to a $24 million settlement of charges brought in two dozen states about their links to the crooked telecom services company NorVergence.

In recent years, CIT has promoted itself using an advertising campaign based on the tag line Capital Redefined. Apparently, the new definition of capital is to engage in unethical business practices and then expect the federal government to come to your assistance when market conditions turn against you. Large or small, that kind of company is not worth saving.

Corporate Cookie Monsters

Friday, July 10th, 2009

hartongThe Pyrrhic victory achieved by the Stella D’Oro workers in the Bronx — they won an eleven-month strike but are slated to lose their jobs anyway — says a lot about what is wrong with American capitalism.

One lesson is obvious: there is no fairness in a collective bargaining system in which employers can make unreasonable demands (which in this case included a 20 percent pay cut and elimination of paid vacation and sick days), pretend to bargain until an impasse is reached and then bring in strikebreakers when the workers are compelled to walk off the job.

The Stella D’Oro situation was unusual in that a National Labor Relations Board administrative law judge finally ordered the reinstatement of the strikers, but that was only because he found that management failed to provide the union, Local 50 of the Bakery Workers, an audited financial statement to substantiate company claims of financial distress.

Whatever satisfaction the workers, who exhibited amazing solidarity during the strike, took in the NLRB ruling was dampened by the company’s subsequent announcement that it plans to shut down the plant, which has been in operation for more than half a century. The company abided by its WARN Act notice obligation, but in the current economic climate it will be difficult for workers to find other employment within 90 days.

Much has been made of the fact that Stella D’Oro is now owned by Brynwood Partners, one of those bloodsucking private equity firms. Brynwood — headed by Hendrik Hartong Jr. (photo) — certainly deserves plenty of scorn for its treatment of the workers. This is a firm, after all, that did not hesitate to accept taxpayer funds in the form of a 2008 Manufacturing Assistance Grant of $175,000 from the Empire State Development Corporation. It has also received property tax abatements from New York City.

Apparently Brynwood, whose website brags that its investments have earned a 28.8 percent overall rate of return, thought it was under no obligation to give back to the community and to its workers. It is unfortunate that among the investors in Brynwood are public pension funds such as the Pennsylvania State Employees Retirement System.

While the Stella D’Oro dispute is certainly a case of private equity behaving badly, it should be admitted that the cookie company was not always a model employer under its previous owner, publicly traded Kraft Foods, which in 2006 sold the business to Brynwood. In 2002 and 2003 Teamsters Local 550, which represented the company’s delivery drivers, clashed with Stella D’Oro management during negotiations on a new contract. The Teamsters struck the company in February 2003 to block what the union said was a plan to replace union drivers with non-union ones, and soon the walkout spread to other Kraft facilities in the New York metropolitan area. It appears the union got crushed.

The behavior of the Cookie Monsters who have run Stella D’Oro shows that removing barriers to union organizing is not the only urgent task for labor law reform. The system also needs to be changed to prevent unscrupulous employers from undermining unions already in place.

An Independent Corporate Front Group?

Thursday, July 2nd, 2009

sheilsWould a consulting company owned by Exxon be considered an impartial source of analysis on global warming, or would such a firm owned by Xe (formerly Blackwater) be regarded as a good judge of federal policy on the use of mercenaries? Probably not; in fact, they would, in all likelihood, be seen as front groups for the interests of their corporate parents.

Then how is it that one of the most influential consulting firms on healthcare policy is the Lewin Group, which is owned by a subsidiary of UnitedHealth Group, the largest of the for-profit medical insurance corporations and thus a very interested party when it comes to the current deliberations in Congress on major healthcare reform?

Lewin claims to be “objective” and “impartial,” but some of its analysis is repeatedly being used in very partisan ways by Republican members of Congress (such as John Boehner and Orin Hatch) and conservative commentators (the Heritage Foundation and Rich Lowry of National Review) to attack the idea of a public option in legislation that would seek to provide coverage to the uninsured. They typically do not mention Lewin’s relationship to UnitedHealth, which will benefit greatly if the public option is eliminated.

Those seeking to shield for-profit insurers from a competing federal plan are trumpeting Lewin research purporting to show that the existence of at least some versions of a public option would result in a mass exodus from employer-provided plans with higher premiums. Lewin claims that some 119 million of the 171 million people covered by employer plans could migrate to Uncle Sam’s offering. Given the assumption that taxpayers will be subsidizing participants in the public plan, such a shift is seen as creating a fiscal disaster for the federal government and the collapse of private plans. The rabidly pro-corporate group Conservatives for Patients’ Rights uses the Lewin research in a TV ad that depicts a public plan as a bulldozer that could “crush all your other choices, driving them out of existence.”

Lewin insists that it has “editorial independence,” but it is difficult to believe that its judgments are not influenced by the identity of its corporate parents. Its immediate parent, by the way, is Ingenix, a major player in healthcare information technology, especially billing systems. Ingenix, of course, also has a vested interest in protecting the for-profit medical bureaucracy.  Ingenix and its parent UnitedHealth have paid out hundreds of millions of dollars to settle class-action lawsuits stemming from investigations spearheaded by New York Attorney General Andrew Cuomo charging that Ingenix promoted a database product that allowed insurers to underpay their members when reimbursing for out-of-network expenses.

Lewin was in existence for three decades when Ingenix and UnitedHealth acquired it in 2007. It’s interesting that before that deal Lewin was often in the news in connection with reports it produced for states such as California, Hawaii and Vermont showing the potential benefits of state single-payer systems. The firm released one such report (for Colorado) after being acquired by Ingenix, but these days Lewin seems to focus more on the hazards of expanded government involvement in healthcare. Lewin Senior Vice President John Sheils (photo) told the Associated Press that “the private insurance industry might just fizzle out altogether” if a public option were enacted.

Sheils insists he is impartial, but he has been aggressive in spreading the word about the potential drawbacks of the public option. He confronted President Obama directly on the issue last week as one of the questioners in an ABC News special whose host, Charles Gibson, seemed determined to bash government involvement in health insurance.

The Lewin Group acquisition added an insignificant amount to UnitedHealth’s annual revenues but it turned out to be a valuable investment for the $80 billion insurance giant. While playing the role of a neutral analyst, the consulting firm is in reality defending the interests of its corporate parents and the rest of the for-profit health insurance business. The most effective business front group is one that believes it is independent.