Conventional wisdom has it that we live in an age of hyper-transparency. That’s true if you look at what people are willing to reveal about themselves to Facebook, but it’s another story for large corporations and the 1%.
The Republican filibuster of the DISCLOSE Act and Mitt Romney’s reluctance to release more of his income tax returns are strong reminders of how those at the top of the economic pyramid seek to hide the ways they accumulate their wealth and influence public policy.
The current preoccupation with disclosure issues makes this a good time to step back and review the state of corporate transparency. Do we know enough about the workings of the huge private institutions that dominate so much of modern life?
Of course, the answer is no. Yet the quantity and quality of disclosure vary greatly depending on the structure of a given company and the aspect of its operations one chooses to examine. Depending on which piece of the business elephant we touch, corporations may seen somewhat translucent or completely opaque.
It’s also worth remembering that there are two main forms of disclosure: information that companies, especially those whose stock is publicly traded, are compelled to reveal and the data that government agencies collect about firms and release to the public. What corporations release on their own initiative is, given its selective nature, self-serving spin rather than disclosure.
Most of what U.S. companies are required to disclose is contained in the financial filings required by the Securities and Exchange Commission. It’s great that the SEC makes these documents readily available via its EDGAR online system, but the information required from companies is meant to serve the needs of investors rather than those of us concerned with corporate accountability. There is thus an abundance of data on financial results and a meager amount on a company’s social impacts. Here’s a rundown and critique of disclosure practices regarding the latter.
LEGAL PROCEEDINGS. Each company filing a 10-K annual report has to include a section summarizing significant litigation and other legal proceedings in which it is involved. For some companies, these sections can go on for pages, which says a lot about the corporate tendency to run afoul of the law. Even so, these sections are often incomplete, since companies are given discretion in deciding which cases are “material,” meaning that fines and other penalties could have a significant impact on earnings. To get a fuller picture of corporate legal entanglements, you need to search the dockets on the PACER subscription service, which for large companies will be voluminous, or use the free summaries on the Justia website.
EXECUTIVE COMPENSATION. The annual proxy statements filed by publicly traded companies provide exhaustive details on the salaries, bonuses and other compensation received by top executives (and directors). Designated in the EDGAR system as Form DEF14A, these documents seem to try to drown the reader in details to downplay the impact of lavish pay packages. Note that what is called the Summary Compensation Table does not include essential information such as the amount (shown elsewhere) that an executive realized from the exercise of stock options.
EMPLOYMENT ISSUES. Companies are required to disclose their total number of employees but do not have to provide a geographical breakdown. Some do so voluntarily, but many others can hide the tendency to create many more jobs in foreign cheap-labor havens than at home. Because the penalties are usually small, companies tend not to disclose violations of federal rules regarding overtime pay, the minimum wage and other Fair Labor Standards Act issues. Fortunately, the Department of Labor has included wage and hour compliance information in its new enforcement website.
OCCUPATIONAL SAFETY AND HEALTH. Companies also rarely mention violations of occupational safety and health, for which penalties are also meager. The U.S. Occupational Safety and Health Administration, to its credit, makes available a database of all workplace inspection results going back to the creation of the agency; the DOL enforcement website provides access to this as well. Unfortunately, there are no summaries of the compliance records of large companies across their various establishments.
LABOR RELATIONS. Companies are required to report on labor relations issues only if there is a likelihood of a work stoppage that could affect corporate profits. With the decline of unions in the U.S. private sector, many companies do not bother to mention labor relations at all. Disputes that result in a formal ruling by the National Labor Relations Board will show up on that agency’s website.
ENVIRONMENTAL COMPLIANCE. Companies frequently discuss environmental regulation in the 10-K filings and will mention major enforcement actions. Yet these accounts are usually incomplete. The Environmental Protection Agency fills in the gaps with its Enforcement and Compliance History Online (ECHO) database.
TAXES. Buried in the notes to the company’s financial statements is a section with details on how much it paid (or in many cases did not pay) in the way of taxes. This information is presented with a high degree of obfuscation, so it is fortunate that Citizens for Tax Justice publishes reports that summarize the extent to which large U.S. companies engage in flagrant tax avoidance.
SUBSIDIES. Corporate filings usually say little or nothing about the subsidies received from government, and it is often impossible to learn from other sources what those amounts may be when it comes to subsidies that take the form of federal tax breaks. There is much more company-specific data available on subsidies from state governments. In my capacity as research director of Good Jobs First, I have collected that data and assembled it in the Subsidy Tracker database.
GOVERNMENT CONTRACTS. Companies will report on government contracts only if they make up a substantial portion of their total revenue. Thanks to the work of OMB Watch in creating the FedSpending database, which the federal government adapted for its USASpending tool, it is possible to learn a great deal about how much business a given firm is doing with Uncle Sam. Data on contracts with state governments can often, though not always, be found via state procurement websites.
LOBBYING AND POLITICAL SPENDING. Corporations are not eager to disclose their efforts to shape public policy, and the SEC does not require them to do so. The Center for Political Accountability, on the other hand, was created to put pressure on companies to be more open about their political spending. The group has succeeded in getting about 100 corporations to adopt political disclosure. The inadequate information that gets disclosed at the behest of the Federal Election Commission can be found on websites such as Open Secrets, while state-level electoral data is summarized on the Follow the Money site. Both also provide access to the available data on lobbying.
Inadequate political disclosure by corporations is not limited to the United States. A recent study by Transparency International on 105 of the world’s large companies found that only 26 engaged in satisfactory reporting of political contributions. That was just one component of an analysis that looks at a variety of transparency measures that relate broadly to anti-corruption initiatives. Some of the worst results concern the simple matter of whether firms provide full country-by-country data on their operations and financial results.
The latter shows how disclosure issues of concern to investors and financial analysts can intersect with those relating to corporate accountability. When a company is allowed to use excessive forms of aggregation in its reporting, it may be hiding either poor management or corporate misconduct or both.
Note: The information sources discussed above as well as many others are discussed in my guide to online corporate research.