Phil Mattera

Reducing Exploitation in the Gig Economy

On October 10 the San Diego City Attorney announced that the grocery delivery service Instacart had agreed to pay $46.5 million to settle a lawsuit alleging that it violated California’s labor code by misclassifying some 308,000 of its workers over a five-year period.

The following day, the U.S. Department of Labor announced a proposed new rule for determining when gig workers should be classified as employees rather than independent contractors.

These events represent two fronts in the widening war between regulators seeking to bring traditional workplace protections to the gig economy and companies such as Instacart that have come to rely on low-cost flexible labor.

In the middle are the workers themselves, who do not line up neatly on either side. Some of those doing gig work value flexibility over things such as overtime pay and may view the DOL proposal and the stricter rules adopted by states such as California as threats to their livelihood.

Yet there are also large numbers of people toiling for the likes of Instacart and Uber who struggle to make a decent living and feel exploited. Many of them would welcome the benefits that come with employee status, even if it means more rigidity in their working arrangement.

The proposed DOL rule seeks to better identify who belongs in which category by replacing the narrow criteria adopted during the Trump Administration with a multi-factor test that it takes the department 184 pages to detail. For example, the DOL would look at whether the worker had the ability to set prices for the services provided.

These additional tests would likely make it more difficult for companies to classify workers as independent contractors. Yet even if the new rule is implemented in some form, the gig giants will resist changing their ways. In all likelihood, they will go on treating workers as independent contractors and wait to be challenged. That’s the approach they have taken under current law

As shown in Violation Tracker, four of the largest ride-sharing and delivery services have together paid over $88 million in class-action wage and hour lawsuits. Uber leads the pack with $49 million in such settlements, followed by Lyft with $28 million. Instacart and DoorDash have each paid about $5 million.

That is on top of what they have paid to state and local agencies in misclassification cases such as the one brought in San Diego. Uber, for example, recently paid $100 million to New Jersey.

If the rules are changed, these settlements will become even larger and more frequent. The gig companies will go on paying them in the hope of staving off something they see as much worse.

Once gig workers become employees, it will be a lot easier for them to seek the additional protections that come with collective bargaining. Employee status is an important stepping stone to unionization, which would mean an end to the worst forms of exploitation.

It is possible to imagine an economy that combines labor flexibility with strong worker protections, but it would require the gig employers to cede some of the one-sided control they now exercise.

Non-Profit Hospitals Need to Heal Themselves

Providence, a gigantic non-profit health system with more than 50 hospitals in five Western states, describes itself as “steadfast in serving all, especially those who are poor and vulnerable.” According to a recent New York Times investigation, Providence has also preyed on those populations by using aggressive techniques to get payments from patients who should have been given free care. Those techniques, dubbed Rev-Up, were developed with the help of the consulting firm McKinsey, which the Times said was paid more than $45 million for its advice.

Now Providence is trying to repair the damage to its image. The Times reports that the health system is providing refunds to more than 700 low-income patients who were hounded into making payments for their care. Providence is not disclosing how much its is refunding, but the amount is likely to be a small fraction of what ruthless efforts such as Rev-Up brought in. A lawsuit filed by the Washington State Attorney General accuses Providence of improperly siccing debt collectors on more than 50,000 patients.

Failing to live up to its obligation to provide free care is just one of the ways in which Providence has acted as something less than a model non-profit institution. As documented in Violation Tracker, the health system has paid out more than $380 million in regulatory fines and class action settlements. These include cases involving issues such as wage theft, workplace safety and privacy. It has paid out over $28 million in False Claims Act cases, which involve submitting fraudulent bills to federal programs such as Medicare. Providence’s biggest payouts have involved cases in which it was accused of mismanaging employee retirement plans.

Providence is just one of dozens of large non-profit health systems that show up in Violation Tracker with large penalty totals from multiple cases. The system that tops the list is California-based Sutter Health, which has racked up $749 million in penalties from 46 cases. The largest of these was a $575 million settlement with the California Attorney General and other parties, which accused Sutter of engaging in anti-competitive practices that drove up healthcare costs. Sutter has also paid $170 million in False Claims Act cases.

Apart from Providence and Sutter, about 20 other non-profit health systems have paid out at least $50 million in penalties. These include Trinity Health ($328 million), RWJBarnabas Health ($277 million) and Northwell Health ($208 million). About 120 others have paid at least $1 million.

Many of these penalties result from a preoccupation with the bottom line, which leads the health systems to cut corners on compliance, shortchange their employees and cheat the government. The non-profit hospital systems may not have shareholders, but they seek to generate ever-larger surpluses that can be used for building new facilities and buying up competitors. Expansion seems to be the ultimate goal.

Their behavior makes them increasingly indistinguishable from the giant for-profit health chains HCA and Tenet, each of which has well over $1 billion in penalties. The difference, of course, is that the public is subsidizing the non-profits by relieving them of the obligation to pay taxes. The time has come to force the giant hospital systems such as Providence to focus less on empire-building and more on their social obligations.

The Price of Not Heeding the WARN Act

In 2020 a furniture company called Flexsteel Industries laid off about 300 workers at its plants in Dubuque, Iowa and Starkville, Mississippi. According to a class action lawsuit filed on behalf of the employees, Flexsteel violated federal law by failing to provide either severance pay or 60 days’ notice.

The law in question is the Worker Adjustment and Retraining Notification Act of 1988, better known as the WARN Act. Oddly, the law does not provide for enforcement by the U.S. Department of Labor. Instead, workers must usually take a non-compliant employer to court. They have done so many times and have often won substantial settlements.

WARN Act class action lawsuits are the latest category of private litigation to be added to Violation Tracker. The newly posted update to the database includes more than 100 WARN settlements totaling over $225 million over the past two decades. About half of the settlements were for $1 million or more. That includes the $1.3 million won by the Flexsteel workers.

Overall, the settlements range from $100,000 to $35 million, with the highest amount coming in a 2011 case involving the now-defunct semiconductor company Qimonda. The second largest was $15 million, in a case involving Taylor, Bean & Whitaker Mortgage Corp.

These settlements, like about three-quarters of the cases collected, came while the company was in bankruptcy proceedings. Many employers mistakenly thought that a bankruptcy filing exempted them from complying with the provisions of the WARN Act.

Although bankruptcy cases can drag on for years, victims of WARN Act non-compliance are often able to receive more timely relief by filing what are known as adversary proceedings. These are the equivalent of civil lawsuits brought in federal district courts and can get resolved much sooner than other bankruptcy matters.

While most WARN Act cases are brought against direct employers, some of the settlements involve private equity firms that controlled the company. For example, in 2019 Apollo Global Management and a human resources service paid $3 million to resolve a case brought by about 1,000 workers laid off from Apollo’s portfolio company Classic Party Rentals.

Additional WARN Act cases are making their way through the courts. Tesla is the target of one of those suits, filed earlier this year on behalf of those terminated as part of the company’s practice of periodically weeding out workers considered to have performance issues. Tesla is arguing that the workers should not be able to bring a class action, given that they signed employment agreements providing for the use of arbitration to resolve disputes.

Some employers have tried to argue that layoffs that took place during the pandemic should not be covered by the WARN Act, given that the law has an exception for natural disasters. A federal appeals court, however, ruled in June that Covid should not be lumped together with events such as earthquakes and floods mentioned in the legislation.

If the U.S. economy continues to move in the direction of a downturn, layoffs will become more common and the protections of the WARN Act—and WARN class actions—will help workers deal with the slump

Note: The Violation Tracker update also includes the addition of 10,000 wage and hour cases brought by the California Labor Commissioner’s Office over the past two decades.

DOJ’s Not-So-Hard Line on Corporate Crime

Last year, Deputy Attorney General Lisa Monaco gave a speech promising a crackdown on corporate criminals, especially repeat offenders. That gave rise to hopes that the Justice Department, after having gone soft on corporate prosecutions during the Trump years, would return to a more aggressive stance.

After months of consultation with various parties, Monaco has just given another speech to signal what is coming next. The new approach, explained in more detail in a memo to federal prosecutors, has some laudable features, but it does not go far enough in bringing down the hammer on rogue companies and their executives.

For example, Monaco’s 2021 statement included a vow to take into account a company’s past behavior when deciding on a prosecution strategy. As someone who spends his time documenting corporate non-compliance, I was eager to see DOJ take a harder line on companies that break the law over and over again.

That commitment remains in the new policy, but there are hedges. Monaco writes: “Not all instances of prior misconduct, however, are equally relevant or probative. To that end, prosecutors should consider the form of prior resolution and the associated sanctions or penalties, as well as the elapsed time between the instant misconduct, the prior resolution, and the conduct underlying the prior resolution.”

Monaco specifies that criminal offenses that occurred more than ten years ago or civil offenses more than five years old can be given less weight. But then she acknowledges that “depending on the facts of the particular case, even if it falls outside these time periods, repeated misconduct may be indicative of a corporation that operates without an appropriate compliance culture or institutional safeguards.”

This “on the one hand, on the other hand” language sends a mixed message. It would have been preferable to tell prosecutors to give serious consideration to previous bad acts and leave it at that.

Then there’s the issue of individual accountability. Now, as last year, Monaco encouraged prosecutors to bring cases against culpable corporate executives and to expedite the handling of those cases. That sounds fine, but the main way Monaco wants to accomplish this is by giving corporations incentives to cooperate more thoroughly with investigations.

Getting companies to turn in wrongdoers is a good idea, but Monaco’s approach could come at too high a cost. She states that, “absent the presence of aggravating factors, the Department will not seek a guilty plea where a corporation has voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated the criminal conduct.” Her memo also states that the imposition of an independent compliance monitor need not occur when a cooperating company “demonstrates that it has implemented and tested an effective compliance program.”

Keep in mind that the kind of cases involved here are mainly ones in which an unscrupulous executive was taking actions that benefited the company and that should have been prevented by internal controls. Such corporations need to be held fully accountable and put under close supervision.

They also should not be allowed to go on receiving special deals such as non-prosecution and deferred prosecution agreements—sometimes more than once. Rather than calling for an end to these practices, Monaco weakly states that multiple deals are “generally disfavored” and goes on to dilute that position even more by suggesting that everything should be done to incentivize voluntary disclosure.

On the plus side, Monaco’s policy would pressure corporations to claw back compensation paid to executives who engage in misconduct. In too many cases, these corrupt individuals have been allowed to keep lavish pay and benefit packages—and often the company would pay their legal expenses.

Overall, Monaco puts too much emphasis on the carrot and not enough on the stick. Corrupt corporations have been treated leniently for too long. Now is the time for a tougher approach.

The Muddled Attack on ESG

Ever on the lookout for threats to the American way of life, the Right has begun pointing its finger at a surprising set of adversaries: BlackRock, Vanguard Group, State Street Corporation and other leading asset managers.

According to a chorus that includes former Vice President Mike Pence and Florida Governor Ron DeSantis, the three firms are part of a “woke Left” that is seeking to impose a radical environmental, social and governance agenda on big business. The allegations are part of an effort to make ESG into a bogeyman for investors similar to the way critical race theory, or CRT, has been used to scare parents of school-age children.

To some extent, the attack on ESG is simply another way to attack Democrats. One of its proponents, Vivek Ramaswamy, published an op-ed in the Wall Street Journal, the favorite soapbox of the movement, headlined “Biden’s ESG Tax on Your Retirement Fund.” The target of the piece was a proposal by the Labor Department to allow pension funds to consider climate-change-related financial risks in making investment decisions.

Ramaswamy has a vested interest in the anti-ESG effort. He wrote a book titled Woke Inc. that is regarded as the bible of the campaign, and he created an investment management firm called Strive to cash in on the backlash to ethical investing. Strive has a fund called DRLL that enthusiastically invests in fossil fuel companies and urges firms of all kinds to resist ESG pressures.

The problem for the rightwingers is that their issue is far from new. There has been a debate going on for decades over the proper role of large corporations when it comes to environmental and social issues. Ramaswamy and his ilk are parroting the arguments made half a century ago by economist Milton Friedman, one of the leading proponents of free market fundamentalism. His 1970 article entitled “The Social Responsibility of Business is to Increase its Profits” is the most famous expression of the idea that corporations should concern themselves with nothing other than making money for their shareholders.

That notion has remained popular in some circles, but most of big business has come to realize that it is simply not practical. Some companies such as Patagonia have made environmental and social engagement part of their brand. Some such as Exxon Mobil resisted change for many years but eventually began to make concessions. And some such as Koch Industries are engaged, but with a rightwing slant.

Modern-day ESG is largely a response by large companies to various external pressures, especially those coming from environmental groups and other corporate accountability activists. These days they also need to deal with the fact that many consumers are unwilling to do business with firms seen as contributing to the destruction of the planet.

Far from being radical, ESG often serves as a form of greenwashing, allowing companies to give the impression they are taking bold steps when their actions are actually quite limited. Much of the purported progress toward ESG goals is based on company self-reporting with limited verification.

The anti-ESG crowd is particularly upset at the role asset managers are playing in encouraging companies to set goals for net-zero greenhouse gas emissions. Yet many companies are planning to meet those goals through the purchase of dubious carbon offsets rather than major changes in their own operations.

When ESG initiatives lead to real changes in corporate practices, that is usually a reflection of changes in market dynamics. Companies such as General Motors are not putting more emphasis on electric vehicles as part of some secret leftist agenda, but rather because that is what its customers are demanding.

Oddly, the rightwing critics seem to pay little attention to the fact that several major ESG investment managers, including Goldman Sachs, are reported to be under investigation by the SEC, which is also seeking to adopt tighter rules on which firms can use the ESG label. Inquiries into whether ESG investment advisers engage in deceptive practices are also underway in Germany, where the offices of Deutsche Bank’s ESG arm were raided by investigators earlier this year.

Instead, the Right’s anti-ESG crusaders are promoting the moves by red-state attorneys general to do their own investigations, focusing on the influence of giants such as BlackRock. Those investigations, however, start out with exaggerated assumptions about the power of ESG, while the SEC seems to be concerned that those impacts are actually less significant than the advisors are leading investors to believe.

In an editorial celebrating the anti-ESG backlash, the Wall Street Journal warned that the changes being promoted by BlackRock could lead to new regulations. This betrays a fundamental misunderstanding of ESG. One of its primary aims is to use voluntary corporate initiatives to make the case that government mandates are unnecessary.

Although they go about it in very different ways, ESG proponents and rightwing critics are both seeking to limit the role of government in overseeing corporate behavior. That is where both groups fall short.

Whether large corporations are claiming to save the world or are simply maximizing profits, they cannot be left to their own devices. The same goes for the big investment managers.

Take the example of State Street Corporation, one of the big firms the Right is trying to make into a major ESG villain. Last year, State Street paid a $115 million criminal penalty to resolve federal charges that it engaged in a scheme to defraud a number of the bank’s clients by secretly overcharging for expenses related to the bank’s custody of client assets.

The problem with State Street and many other large companies is not that they are too focused on promoting virtue but rather that they may be lacking in virtue themselves.

Note: My colleagues and I are seeking a research analyst to work on Violation Tracker. Details are here.

Malignant Marketing

Large corporations are fond of saying that they are all about giving customers what they want. But what happens when the product, though legal, is harmful or addictive? Should companies be allowed to satisfy consumer demand, no matter what the consequences?

Some high-profile settlements announced in recent weeks show that, as far as state attorneys general are concerned, there should be much stricter controls on the marketing of dangerous products and that corporations should be heavily penalized for abuses.

The most recent case involves JUUL Labs, which just agreed to pay $438 million to resolve multistate litigation accusing it of improperly marketing vaping products to minors. The announcement of the settlement, reach with a bipartisan group of 34 states and territories, alleged that JUUL “relentlessly marketed to underage users with launch parties, advertisements using young and trendy-looking models, social media posts and free samples. It marketed a technology-focused, sleek design that could be easily concealed and sold its product in flavors known to be attractive to underage users. JUUL also manipulated the chemical composition of its product to make the vapor less harsh on the throats of the young and inexperienced users. To preserve its young customer base, JUUL relied on age verification techniques that it knew were ineffective.”

Earlier this summer, groups of state AGs announced several massive settlements with companies involved in the production and marketing of opioids. Teva Pharmaceuticals agreed to pay up to $4.25 billion to state and localities to settle allegations that it promoted two powerful fentanyl products designed for cancer patients to others while downplaying the risks of addiction. According to the AGs’ press release, Teva’s actions included “encouraging the myth that signs of addiction are actually ‘pseudoaddiction’ treated by prescribing more opioids.”

Several days later, Allergan agreed to pay up to $2.4 billion to settle a similar multistate case alleging the company had “deceptively marketed opioids by downplaying the risk of addiction, overstating their benefits, and encouraging doctors to treat patients showing signs of addiction by prescribing them more opioids.” Allergan was also accused of failing to maintain effective controls to prevent the diversion of opioids into improper channels.

And a couple of weeks after that, Endo International agreed to pay $450 million in yet another multistate lawsuit stemming from accusations of deceptive marketing. In Endo’s case, this involved allegations that it “falsely peddled its opioids as abuse-deterrent with deadly consequences.” Under the weight of this and other litigation, Endo has filed for bankruptcy.

The theme running through all these cases is the tendency of corporations, obsessed with the desire to increase sales, to engage in shockingly unethical behavior. Both the slick techniques of JUUL to lure young vapers and the seemingly scientific claims of the opioid producers to reassure pain patients demonstrate an apparent willingness to use deceit and manipulation to push dangerous products on vulnerable populations. The monetary penalties, however large, and promises to end the abuses hardly seem a sufficient penalty for the harm caused by this behavior.

Blowing the Whistle on Twitter

There has never been much doubt that the tech giants do not take government regulation seriously, but it is helpful to get confirmation of that from inside the corporations. This is the import of a whistleblower complaint from the former security head of Twitter that has just become public.

Peiter Zatko submitted a document to the SEC, the Justice Department and the Federal Trade Commission accusing top company executives of violating the terms of a 2011 settlement with the FTC concerning the failure to safeguard the personal information of users. The agency had alleged that “serious lapses in the company’s data security allowed hackers to obtain unauthorized administrative control of Twitter, including both access to non-public user information and tweets that consumers had designated as private, and the ability to send out phony tweets from any account.”

Zatko’s complaint, which will play into the company’s ongoing legal battle with Elon Musk over his aborted takeover bid, alleges that Twitter did not try very hard to comply with the FTC settlement and that it prioritized user growth over reducing the number of bogus accounts.

These accusations are far from surprising. In fact, three months ago Twitter agreed to pay $150 million to resolve a case brought by the FTC and the Justice Department alleging that it was in breach of the 2011 settlement for having told users it was collecting their telephone numbers and email addresses for account-security purposes while failing to disclose that it also intended to use that information to help companies send targeted advertisements to consumers.

Since Zatko was fired by Twitter in January, he is in no position to describe company behavior since the most recent settlement. It is difficult to believe that the $150 million fine will be sufficient to get Twitter to become serious about data protection.

Twitter is not the only tech company with a checkered history in this area. In 2012 Facebook and the FTC settled allegations that the company deceived consumers by telling them they could keep their information private and then repeatedly allowed it to be shared and made public. Facebook agreed to change its practices.

As with Twitter, it eventually became clear that Facebook was not completely living up to its obligations. The FTC brought a new action, and in 2019 the company had to pay a penalty of $5 billion for continuing to deceive users about their ability to control the privacy of their data. The settlement also put more responsibility on the company’s board to make sure that privacy protections are enforced, and it enhanced external oversight by an independent third-party monitor.

Zatko’s allegations may prompt the FTC to seek new penalties against Twitter that go beyond the relatively mild sanctions in the settlement from earlier this year.

The bigger question is whether regulators and lawmakers are willing to find new ways to rein in a group of mega-corporations. The effort in Congress to enact new tech industry antitrust measures seems to have fizzled out for now. Such initiatives need to be revived. We cannot let an industry that plays such a substantial role in modern life think it is above the law.

The Pill Mills of the Fortune 500

The downfall of Purdue Pharma illustrated the role played by drugmakers in the opioid crisis. Large settlements paid by the likes of McKesson and AmerisourceBergen highlighted the culpability of the major drug wholesalers. Now more attention is being paid to the other players in the corrupt supply chain: pharmacies.

The assumption used to be that the main retail culprits were small pharmacies in places such as West Virginia that readily filled far more oxycontin prescriptions than would be expected to arise from legitimate use in their communities. Those businesses, like the unscrupulous clinics that wrote the prescriptions, are often called pill mills.

A decision just handed down by a federal court in San Francisco indicates that our understanding of that phrase needs to be revised. Following a bench trial, U.S. District Judge Charles Breyer ruled that the giant pharmacy chain Walgreens improperly dispensed hundreds of thousands of suspicious prescriptions for narcotic painkillers in the Bay Area over more than a decade.

“In exchange for the privilege of distributing and dispensing prescription opioids,” Judge Breyer wrote, “Walgreens has regulatory obligations to take reasonable steps to prevent the drugs from being diverted and harming the public. The evidence at trial established that Walgreens breached these obligations.”

Those regulatory obligations come from the Controlled Substances Act (CSA), a federal law which regulates the distribution of drugs ranging from Xanax to fentanyl. As shown in Violation Tracker, the U.S. Justice Department and the Drug Enforcement Administration have brought about two dozen successful CSA actions against large pharmacy chains, including those operated by the big supermarket companies.

In 2013 Walgreens had to pay $80 million to resolve a DEA case involving what the agency called “an unprecedented number of record-keeping and dispensing violations.” CVS, another pharmacy goliath, has paid out over $130 million in a dozen CSA cases.

These amounts are likely to be dwarfed by the damages against Walgreens in the San Francisco case, which have yet to be determined. Walgreens and CVS, along with Walmart, are also embroiled in an opioid test case brought by two counties in Ohio. The plaintiffs are seeking a payout of several billion dollars to help pay for addiction services.

If those Ohio counties are successful, it would give a green light to several thousand other cases that have been filed around the country and are being treated as a multidistrict action. On top of that, Walgreens, CVS and Walmart are facing a slew of opioid cases brought by the Cherokee Nation and other tribes.

It is unlikely that Walgreens or CVS will suffer the same fate as Purdue Pharma, which had to file for bankruptcy and agree to turn itself into a public benefit company while its owners, the Sackler Family, had to promise to pay out billions. CVS, which generated nearly $8 billion in profits last year, is particularly well positioned to handle the massive settlements to come.

The real question is whether it and Walgreens will own up to their misconduct and get serious about complying with their obligations to prevent opioid abuse.

Another Crooked Bank

When one large corporation is found to be breaking the law in a particular way, there is a good chance that its competitors are doing the same thing. The latest evidence of this comes in an announcement by the Consumer Financial Protection Bureau concerning U.S. Bank.

The CFPB fined the bank $37.5 million for illegally accessing credit reports and opening checking and savings accounts, credit cards, and lines of credit without customers’ permission. U.S. Bank employees were said to have done this in response to management pressure to sell more financial products and thus generate more fee revenue.

If this sounds familiar, it is exactly what came to light in 2016 regarding Wells Fargo, which was initially fined $100 million by the CFPB for the fraudulent practice and subsequently faced a wave of other legal entanglements, including a case brought by the U.S. Justice Department in which Wells had to pay $3 billion to resolve civil and criminal charges.

The U.S. Bank case has not yet generated the tsunami of outrage that accompanied the revelations about the phony accounts at Wells. Perhaps that is because it is the middle of the summer. Yet chances are that the CFPB’s enforcement action will not be the only punishment the bank will face.

U.S. Bank’s practices were no less egregious than those of Wells. According to the CFPB, the management of the bank, which currently has more than half a trillion dollars in assets, was aware for more than a decade that its employees were creating fictitious accounts.

And like Wells, U.S. Bancorp has a long history of questionable behavior. Violation Tracker documents more than $1.2 billion in penalties from 40 cases dating back to 2000. Half of the total comes from offenses involving serious deficiencies in anti-money-laundering practices, including a 2018 case in which the bank had to pay $453 million to settle criminal charges brought by the U.S. Justice Department plus another $75 million to the Office of the Comptroller of the Currency to resolve civil allegations.

In 2014 U.S. Bank had to pay $200 million to settle allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the Federal Housing Administration that did not meet applicable requirements. The bank also had a previous run-in with the CFPB, which penalized it $53 million in 2014 for unfairly charging customers for credit identity protection and credit monitoring services they did not receive.

It is likely that U.S. Bank’s penalty total will rise substantially through additional cases prompted by the CFPB’s latest allegations, which include accusations the bank violated not only the Consumer Financial Protection Act but also the Fair Credit Reporting Act, the Truth in Lending Act, and the Truth in Savings Act.

Apart from monetary penalties, U.S. Bank may face an additional form of punishment applied to Wells: in 2018 the Federal Reserve restricted the growth of the firm until it cleaned up its practices and improved its governance. Since fines have proven to be a weak deterrent against corrupt practices at major financial institutions, more aggressive measures provide the only hope of bringing the big banks under control.

Parent Company Makeovers?

The addition of historical parent data to Violation Tracker, including a list of the most penalized corporations based on that data, may have led some p.r. executives to hope that their employer would look better on the new tally. Many of them will end up disappointed.

In last week’s Dirt Diggers, I compared the 100 most penalized current parents to the 100 most penalized historical parents and found limited differences. This week I expand the focus to the top 1,000.

Among that larger group, nearly half have penalty totals based on historical parent-subsidy linkages that are lower than their totals based on current ownership relationships.

Yet the median difference for those with lower historical totals is just $14 million. Only 34 of the 1,000 companies ended up with zero penalties using the historical basis; another 33 ended up with totals below $1 million. The biggest beneficiary of the different approach is Viatris, almost all of whose $1 billion in penalties based on current linkages were incurred by Mylan and Upjohn before they merged in 2020 to form the new company.

Other parents that look good when switching from current to historical linkages include: Equitable Holdings, whose big penalties occurred when it was owned by AXA, and Daimler Truck, just about all of whose penalties date from the period when it was still part of Daimler AG, now known as Mercedes-Benz Group.

Among the 1,000 most penalized current parents there are more than 400 whose historical total is exactly the same, reflecting the fact that they neither acquired nor spun off penalized subsidiaries. Those in this group with the largest penalty amounts are Deutsche Bank, Purdue Pharma, GlaxoSmithKline, Toyota, Allianz, PG&E, and Barclays. The median penalty total for all the zero-difference parents in the top 1000 list is $59 million.

Sixty-seven of the top 1,000 parents look worse when switching from the current to the historical basis. That is because they divested a heavily penalized subsidiary. Those with the biggest penalty differences include: Abbott Laboratories, which spun off AbbVie with its $1.5 billion in penalties; AXA, which spun off Equitable and its $651 million in penalties; and Daiichi Sankyo, which sold Ranbaxy USA, which had accumulated more than $500 million in penalties.

Another 11 companies—such as BP, which sold its heavily penalized operations in Texas City, Texas to Marathon Petroleum, and General Electric, which has been downsizing in numerous sectors—have historical penalty totals at least $100 million lower than their current totals. Yet all of those still end up with historical totals of more than $300 million, and in four cases—BP, Johnson & Johnson, GE and Boehringer Ingelheim—the amount is above $1 billion.

The upshot of all this is that switching the focus from current to historical parent linkages does not show a dramatic difference in the misconduct track record of most large companies. While the new data may not help much for company makeovers, I hope it will prove useful for those taking a critical look at corporate behavior.

Note: the historical parent data now in Violation Tracker is accessible only to those who purchase a subscription. Searching and displaying the other data remain free of charge.