Phil Mattera

Violation Tracker’s New Track

Since Violation Tracker was introduced in 2015, my colleagues and I at the Corporate Research Project have put a lot of effort into identifying the ultimate parent companies of the firms named in the many thousands of individual enforcement records we collect. This has allowed us to show which of those parents have the highest penalty totals linked to their current line-up of divisions and subsidiaries. That dubious distinction has been achieved by the likes of Bank of America, BP and Volkswagen.

Some of the corporations on this list have complained it is unfair to link them to penalties incurred by subsidiaries before they were acquired. We have taken the position that when a company is purchased, the acquirer is in effect buying that entity’s track record. We have thus felt comfortable attributing those past bad acts to the current owners.

Nonetheless, we recognize that Violation Tracker users may want to distinguish between penalties received while the entity has been linked to the current owner and those that occurred before. We thus undertook the task of reconstructing the ownership history of the entities named in the 106,000 entries in Violation Tracker that are linked to one of the more than 3,000 parents for which we aggregate data.

That project is now complete, and the historical data has been incorporated in a newly redesigned Violation Tracker—both in the individual entries and in a list showing the 100 parents with the largest penalty totals based on ownership linkages at the time each penalty was announced.

Before I reveal more about that list, I must report that the cost of this project and the ongoing expenses associated with a very labor-intensive resource compelled us to begin requiring users to purchase a subscription in order to access certain features of the site. Those features include the parent history data and the ability to download search results. Searching and displaying search results (without the historical data) remain free of charge. More details of the subscription system can be found here.

The expanded entries visible to subscribers show the parent at the time of the penalty and the current parent. If the two are different, there is a field summarizing the ownership changes that occurred. For example, an entry on a penalty paid in 2002 by the trucking company Overnite Transportation now notes that its parent at the time was Union Pacific. A new history recap field states: “In 2003 Union Pacific spun off Overnite. In 2005 the company was acquired by United Parcel Service, which sold it to TFI International [the current parent] in 2021.” In addition to accessing such information in individual entries, subscribers can search by historical parent name in the Advanced Search section.

Returning to the list of most penalized parents based on historical ownership linkages, the first finding is that it contains many of the same corporations as the list based on current linkages. In fact, the same name is at the top of both lists: Bank of America. The only difference is that BofA’s historical penalty total–$79 billion—is lower than its total on the current list: $83 billion. That mainly reflects the subtraction of the penalties incurred by Merrill Lynch and Countrywide before they were acquired by BofA amid the financial crisis of 2008.

JPMorgan Chase, number two on the current list, drops to third place on the historical list because of the elimination of penalties related to its big 2008 acquisitions: Washington Mutual and Bear, Stearns. BP rises from third to second. Otherwise, the corporations in the top ten and their rankings are identical in the two lists. The others in that group are: Volkswagen, Citigroup, Wells Fargo, Deutsche Bank, UBS, Goldman Sachs, and Johnson & Johnson. Their penalty totals range from $14 billion to $25 billion on both lists.

Expanding the focus to the full list of the top 100 yields similar results. Eighty-four of the 100 most penalized current parents are also on the list of the 100 most penalized historical parents. Of the remaining 16, four fall slightly above 100 in the historical ranking. The other dozen are parents which, like Bank of America and JPMorgan Chase, bought or merged with other companies with substantial penalty histories.

For example, when Occidental Petroleum bought Anadarko Petroleum in 2019, it took on a business that had earlier been involved in a $5 billion settlement with the Justice Department. Apart from Anadarko, Occidental has accumulated $218 million in penalties.

Among the 16 companies on the historical top 100, but not the current list, is Abbott Laboratories. It gets eliminated from the current list because of its 2013 spinoff of AbbVie, which included businesses with more than $1.5 billion in previous penalties. Without AbbVie, Abbott still has penalties of $785 million.

Any parent company with ownership changes involving businesses with substantial penalty records is going to rank differently on the current and historical lists. Yet these differences do not change the fact that most large corporations have abysmal compliance records no matter how we add up their penalties.

The Regulation Bashers

Uber Technologies, a company which already had a less than sterling reputation, now has to contend with more blemishes on its record, thanks to a massive leak of internal documents to the International Consortium of Investigative Journalists.

Using what has been dubbed the Uber Files, ICIJ and partner media outlets such as The Guardian and The Washington Post have published a flurry of articles describing how the company, during a period when cofounder Travis Kalanick was still CEO, used a variety of aggressive techniques to fight regulators as it sought to conquer the tax industry around the world. At the same time, the company ingratiated itself with numerous world leaders to help in its expansion. Some Uber executives liked to refer to themselves as “pirates.”

While many of the details are fascinating, the main revelations in the Uber Files are far from surprising. The company was already known for ruthless tactics. In the United States alone, Uber has racked up more than $300 million in fines and penalties. About half of that total comes from a single settlement with a group of states which alleged that it tried to cover up a data breach affecting over 50 million customers.

Uber paid $20 million to resolve Federal Trade Commission allegations that it misled prospective drivers with exaggerated claims about earnings potential and about the availability of vehicle financing. It paid $10 million to Los Angeles and San Francisco counties (another $15 million was suspended) in settlement of allegations it misled customers about the background checks it carried out on its drivers. It was fined numerous times by state regulators for operating without proper authority or for failing to comply with reporting requirements.

It is clear that Uber, especially during the Kalanick era, has regarded regulation with contempt. One cannot help but suspect that the company’s name is meant to portray it not only as being above its competitors but also above the oversight of governments.

While Uber has been quite brazen in its hostility toward regulation, that opposition is hardly unusual. The Uber Files are appearing not long after the rightwingers of the U.S. Supreme Court handed down a ruling that not only blocked the Biden Administration’s effort to limit greenhouse gas emissions but may also lead to the dismantling of many other forms of government oversight of business.

There is now growing concern that the Court could revive rulings such as the 1905 Lochner decision which struck down a New York law that prohibited employers from imposing excessive working hours. Lochner held sway for several decades until giving way to the labor protections adopted during the New Deal era.

It is not hyperbole to suggest that the Court wants to bring back an economy that resembles the laissez-faire system of the 19^th Century. That is, after all, an implication of the originalism the rightwing Justices claim to espouse. If Roe has to be overturned because the Constitution says nothing about abortion, then don’t laws about fair labor standards or product safety also have to fall because the founders did not address those issues either?

It may be that the bigger threat comes not from business executives pretending to be pirates but from extremists in black robes laying waste to essential government safeguards.

Corrupt Watchdogs

At first glance it seemed to be a satirical piece from The Onion. The Securities and Exchange Commission issued a press release announcing that Big Four accounting firm Ernst & Young was being fined $100 million for failing to prevent its audit professionals from cheating on ethics exams required to obtain and maintain their CPA licenses.

Not only did EY exercise poor oversight over its employees—it also tried to withhold evidence of the misconduct from agency investigators. This prompted the SEC to impose the largest fine ever against an audit firm.

The SEC’s release quoted Enforcement Division Director Gurbir Grewal as saying “it’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams, of all things,” adding: “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”

Yes, it’s shocking, shocking in a Casablanca sort of way to learn that EY management is apparently as corrupt as its auditors. The SEC failed to mention that EY has a long track record of misconduct. Even before this latest case, it has racked up more than $350 million in fines and settlements since 2000, as documented in Violation Tracker.

In 2013, for instance, EY paid $123 million to resolve allegations that it promoted a tax shelter scheme to clients that was so dodgy that the IRS asked the Justice Department to bring criminal charges against the firm. In 2009 EY paid $109 million to the Michigan Attorney General to settle allegations that it failed to expose accounting fraud in its audits of HealthSouth Corporation.

The SEC itself fined EY eight previous times in the past two decades, including a case last year in which the firm paid $10 million to settle allegations it violated auditor independence rules.

EY is not the only member of the Big Four with a checkered record—they are all tainted. As shown in Violation Tracker, PricewaterhouseCoopers has accumulated $114 million in penalties, Deloitte has $260 million and KPMG a whopping $560 million.

A big portion of the KPMG total came from a 2005 case in which it paid $456 million to resolve criminal charges that it designed and marketed fraudulent tax shelters. It has paid penalties to the SEC nine times since 2000—including a $50 million fine involving the same kind of cheating found at EY.

Given the ineffective deterrent effects of monetary penalties and criminal charges resolved through non-prosecution and deferred prosecution agreements, one might ask whether there is any way to eliminate corruption among the big auditing firms.

The 2002 Sarbanes-Oxley Act created a federal entity called the Public Company Accounting Oversight Board, which is supposed to keep auditing firms on the straight and narrow. It has brought more than 100 cases against the Big Four and smaller firms, yet auditing scandals continue to happen.

There is a need to find ways to end the stranglehold the Big Four have on providing auditing services for large corporations. This could include reforms such as stricter requirements for companies to rotate the firms they use. New reforms adopted in the UK will require large corporations to use smaller firms for at least a portion of their auditing.

A bolder approach could involve the creation of non-profit auditing agencies with more rigorous independence rules to prevent them from being influenced by unscrupulous clients. These and other reforms are urgently needed to end a system in which auditors who are supposed to ferret out corruption instead end up facilitating it.

Note: Just before the EY case was announced, Violation Tracker posted its latest quarterly update with about 10,000 new federal, state and local regulatory enforcement actions and class action lawsuits. This brought the total number of entries to 522,000 and total penalties to $804 billion. The EY case will be added soon.

The Not-So-Woke Corporations

In its never-ending effort to use culture war issues for political advantage, the American Right has a new favorite target: woke corporations. This is the derogatory term conservatives have seized on to attack those portions of Big Business that have decided to show concern about issues such as racism, sexism and inequality.

This is one of those debates with a lot of empty posturing on both sides. Corporatist Republicans are pretending to be fire-breathing critics of the Fortune 500. Chief executives who are still preoccupied with profit above all are pretending to be social reformers.

Since behavior counts more than public statements, let’s look at the track record of large corporations when it comes to the issue at the center of wokeness: their treatment of women and people of color. One has only to look at some of the cases in the news over the past couple of months to get an indication of what really goes on in the business world.

Recently, for example, Google agreed to pay $118 million to settle litigation that accused it of systematically underpaying its female employees. The lawsuit, originally filed in 2017, alleged that the company put women into lower career tracks than their male counterparts, resulting in lower salaries and bonuses. Once a judge granted class action status to the plaintiffs—something that some similar suits against tech companies failed to achieve–it was almost inevitable that the company was going to have to make a substantial payout.

This case is not the only instance of discrimination allegations against Google. In 2021 a branch of the U.S. Labor Department found evidence of compensation and hiring discrimination against female and Asian applicants for engineering positions. Google had to pay out $2.5 million in back pay and set aside $1.25 million for pay-equity adjustments. The company is also defending itself against a lawsuit accusing it of racial discrimination.

In another major discrimination case, Sterling Jewelers recently agreed to pay out $175 million to settle a long-running lawsuit accusing it of underpaying and underpromoting tens of thousands of women at its stores. There were also accusations of sexual harassment at the company.

Not long ago, a federal court approved a consent decree entered into by the gaming giant Activision Blizzard to resolve an action brought by the Equal Employment Opportunity Commission in response to reports of sexual harassment, pregnancy discrimination and related retaliation at the company. The company is paying out $18 million.

Activision is being acquired by Microsoft, which has had its own discrimination issues. In May, the same Labor Department agency that fined Google required Microsoft subsidiary LinkedIn to provide $1.8 million in back pay and interest to a group of nearly 700 female employees said to have been the victims of gender-based pay discrimination.

As I documented in a 2019 report, almost all large corporations have been caught up in discrimination cases. While many of the cases are resolved through confidential settlements, I was able to show that 189 Fortune 500 companies had paid a total of $1.9 billion to resolve private litigation or cases brought by federal government agencies since 2000.

There is no indication that the policies that gave rise to those cases have come to an end. In fact, the main problem with woke corporations seems to be that they are not woke enough.

ESG Besieged

Things have been rough lately for those high-minded asset management services promoting ESG investment practices. The Right is dragging ethical investment into its culture war, accusing the ESG world of promoting “woke capitalism.” In a recent op-ed in the Wall Street Journal, former Vice President Mike Pence went so far as to state that “the next Republican president and GOP Congress should work to end the use of ESG principles nationwide.”

Unfortunately, the ESG world has left itself vulnerable to such attacks. Its criteria for deciding which corporations deserve a seal of approval are often less than rigorous and may be based on unverified data produced by the companies themselves.

The problems of ESG have reached the point that the Securities and Exchange Commission recently proposed rules that would impose stricter disclosure standards on ethical investment funds and require them to meet somewhat stricter criteria in order to use ESG or related terms in the name of the fund.

Yet perhaps the biggest embarrassment for the ESG world just occurred in Germany, where dozens of agents from the Frankfurt public prosecutor’s office and the financial regulatory agency BaFin raided the offices of Deutsche Bank and its asset management subsidiary DWS. In the wake of that action, the chief executive of DWS resigned.

The investigators were reported to be seeking evidence that DWS defrauded clients by exaggerating the extent to which its green investment products were actually based on sustainable practices. In other words, the Deutsche Bank subsidiary appears to be under criminal investigation for engaging in greenwashing. The case is said to be related to a probe that the SEC has reportedly been conducting of the matter—though without any dramatic raids.

Without pre-judging the outcome of the investigation, I find it difficult to believe that DWS is innocent. After all, it is part of a corporation with a long history of engaging in misconduct. As shown in Violation Tracker, it has racked up more than $18 billion in fines and settlements for cases involving the sale of toxic securities, manipulation of interest rate benchmarks, promotion of fraudulent tax shelters, violations of anti-money-laundering laws, foreign bribery, and more. This is all on top of Deutsche Bank’s questionable business dealings with Donald Trump and Jeffrey Epstein.

I’ve always found it odd that a bank with a reputation such as this could put itself forth as a practitioner of ethical investing. Yet that is a big part of the problem with ESG. Rap sheets such as that of Deutsche Bank are often ignored, and companies are deemed worthy based on some specific practice that is far from representative of its overall behavior.

The Deutsche Bank case is not the only example of an ESG investment adviser being held to account. Recently, the SEC charged BNY Mellon Investment Adviser for misstatements and omissions concerning the ESG criteria used in some of its mutual funds. The company agreed to pay $1.5 million to resolve the matter.

Cases such as these signal that the ethical investing world is going to have to get a lot more ethical—and rigorous—if it is going to survive.

A Legacy of Corruption

According to conventional economic thinking, commodity prices are governed by impersonal market forces. That’s how oil companies, for instance, are able to claim they are not to blame for soaring petroleum prices even as they rake in record profits.

What these corporations conveniently leave out of their narrative is the fact that markets can be manipulated. This reality is made abundantly clear in a multinational criminal case involving the Swiss commodity trading and mining company Glencore.

Law enforcement officials in the United States, the United Kingdom and Brazil have just announced that Glencore will plead guilty and pay more than $1 billion in penalties for a case that involves, among other things, manipulation of fuel oil prices in the United States over a period of eight years. According to the U.S. Justice Department, Glencore created phony transactions in order to effect changes in benchmark rates that benefitted the company’s trading positions. As punishment for this behavior, Glencore will pay a criminal fine of $341 million and criminal forfeiture of $144 million.

The charges against Glencore also include allegations of widespread bribery. The DOJ stated that over a decade the company violated the Foreign Corrupt Practices Act by making more than $100 million in improper payments to government officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and the Democratic Republic of the Congo (DRC).

After using these bribes to gain improper business advantages, Glencore was said to have concealed the payments by entering into sham consulting agreements and paying inflated invoices. In other words, it falsified its own records in an effort to cover up its corruption. For these offenses, Glencore was hit with a criminal fine of $428 million and disgorgement in the amount of $272 million.

It is unclear to what extent Glencore’s market manipulation behavior affected overall fuel oil prices in the United States and what harm its bribes may have caused in those African and South American countries.

What is undeniable is that Glencore has now joined the list of large corporations whose ethics policies have turned out to be a sham. As of this writing, the company’s website still touts its code of conduct, which is spelled out in a 59-page document. It includes statements such as: “We act honestly and with integrity and are accountable for everything we do.” And: “We do not engage in corruption and we never pay bribes regardless of who we’re dealing with or what the local custom or practice is.”

It actually should come as no surprise that Glencore would fail to live up to those high-minded ideals. After all, the company was originally created by the notorious Marc Rich, who in 1983 was indicted in the United States on dozens of criminal counts relating to racketeering, income tax evasion, wire fraud, and violation of economic sanctions against Iran.

Facing the possibility of many years in prison, Rich fled the country and spent years eluding a team of U.S. marshals tasked with bringing him back to face trial. While he was a fugitive, his companies paid millions in civil penalties. Not only did Rich avoid being extradited but he received a highly controversial pardon from Bill Clinton on his last day in office.

Glencore’s dubious behavior could even be seen in its press release announcing the resolution of the criminal cases. In it, the company stated that Glencore cooperated with the investigations, whereas the DOJ release emphasized “the company’s failure to voluntarily and timely disclose the conduct to the department.” In other words, Glencore is trying to take credit for having cooperated only after it was caught. It is appropriate that the resolution of the case includes a requirement that the company retain an independent compliance monitor for three years.

The Glencore case comes on the heels of DOJ’s multi-billion-dollar resolution of a case involving the financial services company Allianz, which was accused of engaging in a massive scheme to lure pension funds into complex investments that ended up generating massive losses.

These two resolutions have not attracted a lot of attention in the U.S., where neither Allianz nor Glencore is a household name. Yet the cases are indications that the Biden DOJ may very well be making good on its promise to get tougher on corporate crime after the lax enforcement during the Trump years. I look forward to seeing the book thrown at some large domestic companies as well.

The Biden Administration’s First Corporate Crime Mega-Case

Observers of the corporate crime scene have been waiting to see when the regulators and prosecutors of the Biden Administration would announce a mega-case of the sort that had largely disappeared during the lackluster enforcement period of the Trump years. That case has arrived, and the target is not exactly a household name in the United States: the German financial services corporation Allianz.

The Justice Department and the Securities and Exchange Commission have announced that Allianz and its investment management arm, Allianz Global Investors (AGI), will pay more than $6 billion to resolve criminal and civil allegations relating to what the SEC called a “massive fraudulent scheme.” The victims of that scheme included public employees participating in pension funds that were misled about the riskiness of complex financial products marketed by AGI. The true extent of the risk became evident during the COVID-related market volatility of 2020, when the pension funds and other investors suffered catastrophic losses.

The $6 billion settlement ranks among the 20 largest penalties recorded in Violation Tracker for the period since January 2000. More than half of those cases involve financial services corporations.

Allianz, whose Violation Tracker penalty total until now was $182 million, joins the 30 banks and other financial services companies that have each paid more than $1 billion in aggregate penalties. These include 13 European banks, among which are two from Germany: Deutsche Bank and Commerzbank.

There are a couple of encouraging aspects of the AGI case that go beyond the substantial monetary penalty. First, the SEC announced that AGI, because of its guilty plea in the DOJ case, will be disqualified from providing advisory services to US-registered investment funds for the next ten years, and will exit the business of conducting these fund services. This contrasts with other cases in which financial services companies have avoided these sorts of consequences in criminal cases by arranging for the guilty plea to be submitted by a minor subsidiary—or by getting a waiver.

In addition, criminal charges were brought not only against the company but also against several individuals, including Gregoire Tournant, the chief investment officer of AGI. Tournant was charged with securities fraud and investment fraud as well as obstruction of justice. The latter related to allegations that Tournant and the other defendants made multiple, ultimately unsuccessful, efforts to conceal their misconduct from the SEC, including, the agency stated, “false testimony and meetings in vacant construction sites to discuss sending their assets overseas.”

The charges against Allianz were all the more appropriate in that the company’s U.S. operations have been involved in several other investor deception cases. For example, in 2004, three of its subsidiaries were fined $50 million by the SEC. Another subsidiary paid $18 million to settle a case with the New Jersey Attorney General. Yet another unit was fined $5 million by the industry regulator FINRA. Allianz’s U.S. insurance subsidiaries have also been fined numerous times by state regulators.

Let’s hope that the Allianz matter is a sign that the Biden Administration is serious about cracking down on corporate crime and that recidivists will be made to pay a significant price for their ongoing transgressions.

A New Kind of Corporate Watchdog

Large companies prone to misconduct usually have to contend with three main kinds of watchdogs: government regulators and prosecutors, class action lawyers, and activist institutional investors. These parties have, respectively, the ability to impose fines, extract settlements, and bring about policy changes through shareholder resolutions.

Now it turns out that corporations are increasingly being scrutinized in another way. According to a recent article in Law360, insurance companies are paying more attention to business conduct. This is especially the case for ESG (environmental, social and governance) practices that big firms tout as evidence that they are good corporate citizens.

Underwriters providing coverage for liability claims against directors and officers are taking a more aggressive posture in two respects. First, they want to be sure any company they insure is not behaving in a way that could hurt the financial situation of the firm or damage its reputation, either of which could lead to costly shareholder lawsuits. Second, they are taking a closer look at the ESG reporting of the companies to see whether it is accurate.

Since corporations have to stay in the good graces of their insurers if they want to maintain their coverage, this trend toward stricter risk management could have significant positive consequences. For too long, insurers took a passive position toward questionable corporate conduct. They covered claims without doing much to get clients to change that behavior.

It is especially significant that more insurers are no longer taking the statements of firms at face value. The Law360 article quotes an official at insurance broker AON as saying that when it comes to ESG, “some companies just checked the box and said they have a policy in place, but that was never implemented.”

This gets to the heart of the problem with ESG policies: they are voluntary and largely unenforceable, while outcomes are often unverifiable. This makes them attractive to corporations: they can make grandiose claims about the good they are doing, and outsiders have to take their word for it.

Insurers have come to realize, Law360 reports, that “underlying litigation risk and uncertainty will continue to grow in the absence of clear definitions and common standards and regulations applicable to ESG.”

It remains to be seen whether insurers can get companies to establish clearer definitions. It may be that ESG is inherently fuzzy and that serious standards can only come from government regulators. Yet the new posture of the insurers could help discourage the most unsubstantiated ESG claims.

Hopefully, insurers will come to see that the most valid measures of business behavior should be based on metrics assembled outside the companies themselves. That is what my colleagues and I attempt to do with Violation Tracker.

The data we collect is all from regulatory agencies and court records. We ignore the statements of corporations, including those—such as the Legal Proceedings sections of 10-K filings—in which firms are supposed to own up to their transgressions. Those disclosures are almost always incomplete.

In the end, meaningful change in corporate behavior will only come about through outside pressures, not boardroom enlightenment. If insurers are serious about contributing to those pressures, so much the better.

The Phony Feud Between Republicans and Big Business

When Florida Gov. Ron DeSantis struck back at Disney for declining to support his culture war demagoguery, some observers were quick to see this as evidence of a supposed rift between the Republican Party and big business.

The Washington Post ran a front-page story declaring that “growing numbers of state and federal Republican leaders today seem eager to clash with the country’s biggest corporations.” The article portrayed the Disney dispute and a few other examples, such as criticism of Delta Air Lines for opposing restrictive voting law changes in Georgia, as “cracks in the once-sturdy relationship between companies and a business-friendly GOP.”

A similar article in the New York Times was headlined “Rebuke of Disney is Sign of a Shift by Republicans Away from Big Business.”

Reading these pieces gave me a strong feeling of déjà vu. I was reminded of the commentaries that were published about Donald Trump during his first presidential race and after his election in 2016. Much was made of his supposed attacks on big banks, military contractors and pharmaceutical companies. This continued when Trump went after Amazon.com for its supposed sweetheart deal with the postal service.

It eventually became clear that all of purported conflict amounted to nothing of substance. Trump never followed through on any actions that would negatively impact large corporations. In fact, he pursued a thoroughly pro-business agenda of lavish corporate tax cuts and a relentless attack on regulation. The latter made life easier for payday lenders, brazen polluters and employers engaged in wage theft. While some major corporations expressed misgivings about Trump’s style or his rhetoric on other issues, they were thrilled to watch him fulfill their most ardent policy desires.

Trump’s evil genius was his ability to give his working-class supporters the impression he was promoting their interests while actually catering to the corporate elite.

I have no doubt that DeSantis and other Republicans now attacking big business are engaged in the same kind of political theater. The only difference is that, while Trump pretended to be an economic populist, today’s rising GOP stars find it more advantageous to spar with corporations over social issues. It is true that DeSantis got Disney’s special taxing district rescinded, but he will probably get it reinstated once he no longer needs the company as a political foil.

The GOP spats with corporations are made easier by the fact that much of big business these days is engaged in its own posturing. Under the rubric of corporate social responsibility or ESG, many large companies are speaking out on social and environmental issues, often depicting themselves as the vanguard of change. They may do this on their own initiative, or, as in the case of Disney, are pressured by employees.

Trump-style Republicans and politically correct corporations are both engaged in a kind of kabuki dance. DeSantis et al. are pretending to be moral crusaders when they simply pursuing their political ambitions. Large companies are pretending to be moral crusaders of another sort when they are simply burnishing their commercial image.

Reporters looking for serious corporate critics are not going to find them anywhere in the Republican Party—nor among most Democrats. The mark of a serious challenger to big business is someone willing to support efforts to curb corporate power. That means strengthening worker organizing rights, consumer protection laws, environmental oversight, antitrust laws and the like—not concocting phony disputes with companies to advance a misguided culture war agenda.

The Dubious Rehabilitation of the Arms Industry

War always creates business opportunities, and the brutal Russian invasion of Ukraine is no different. Some of those opportunities are direct: producers of military hardware stand to benefit from increased orders from the Pentagon to replenish stockpiles of weapons being shipped to help the Kyiv government survive. Some are indirect: petroleum companies are profiting from the rise in world oil prices brought on by the war.

We are now seeing another kind of boon: corporations previously regarded as pariahs are now being viewed by some in a new light. Chief among these are the weapons producers. In addition to the new orders, these corporations are enjoying the fact that some investment advisors and analysts who previously shunned their shares are now arguing for their rehabilitation.

After the war began, two analysts at Citigroup led the way with the claim that “defending the values of liberal democracies and creating a deterrent” meant that weapons makers should be included in funds with the ESG—environmental, social and governance—label. Sweden’s Skandinaviska Enskilda Banken is allowing some of its funds to buy shares of military companies, reversing a position it adopted just a year ago.

Many ESG advocates are pushing back on this effort, but the fact that it is happening is an indication of the inconsistency in the motivations for ethical investing. Some ESG investors simply want to dissociate themselves from companies they find objectionable. Others hope that companies denied ESG approval will feel pressured to change their practices. A third category believe that firms such as fossil fuel producers are susceptible to legal risks that will undermine the value of their shares. And yet others may hope that disinvesting in odious companies will ultimately put them out of business.

These different categories are further complicated by the distinction between companies that are shunned because of their own practices and those which are part of an industry that is problematic.

One thing made clear by the war in Ukraine is that big military contractors are not headed for oblivion, as some hoped after the end of the Cold War. That applies not only to producers of conventional weapons that are now in great demand. Russia’s claims that it just tested a new intercontinental ballistic missile could spark a new nuclear arms race.

All this is not to say that we should be pinning a halo on the likes of Northrop Grumman and Raytheon Technologies. Even if some of their products are currently needed for the legitimate cause of helping Ukraine, much of what that do is still inherently objectionable. A long-term, large-scale build-up of weapons spending is not what we need.

Moreover, the major military contractors have long rap sheets involving repeated violations of the False Claims Act in their dealings with the Pentagon as well as bribery, export control transgressions and other offenses. None of them are model corporate citizens.

The sad truth is that the decisions of ethical investors will make little difference in the future of the military contractors. With or without an ESG seal of approval, they are riding high and will continue to prosper as international conflicts intensify. We can only hope that the world calms down, and we can go back to treating weapons producers with the same disdain we direct toward coal and tobacco companies.