Phil Mattera

Wal-Mart Exercises Its Political Rights—Employees Be Damned

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SRI Firm Now has Blemish On Its Own Record

Socially responsible investment (SRI) managers should be above reproach, given that they are essentially in the business of marketing virtue. It appears that Pax World Management Corp. lost sight of that principle. Today the Securities and Exchange Commission announced that it had charged Pax with misleading investors by investing in some companies that did not meet Pax’s stated criteria. Without admitting or denying the SEC’s findings, Pax agreed to pay a fine of $500,000 and to “cease and desist from any further violations of certain antifraud, false filing, and other provisions of the securities laws.”

The SEC’s filing states that in the period from 2001 through 2005 Pax World Management, which advises the Pax World Funds, purchased ten securities for its Growth and High Yield Fund portfolios that should have been excluded. These included:

– three that violated restrictions on companies deriving revenue from gambling or alcohol;

– three that violated restrictions on companies deriving more than 5% of their revenue from the U.S. Department of Defense; and

– four that failed to satisfy criteria relating to environmental or labor practices.

It is unclear from the SEC filing whether someone at Pax deliberately added those stocks (which are not identified) to its portfolios or did so through sloppiness. The SEC also charged that until 2004 Pax did not continuously monitor fund portfolios for compliance with their SRI criteria.

Pax CEO Joseph F. Keefe put out a press release today that oddly referred to the charges as “legacy SEC claims” because they occurred “prior to my arrival as CEO,” but he stated that “we regret and take full responsibility for what occurred during the 2001-2205 time period.” He also insisted that Pax is “committed to meeting the highest standards going forward.” It is unclear, however, whether Pax can now satisfy the screens that SRI investors may themselves employ in choosing money managers.

MORE SEC NEWS: Today the SEC also announced that its commissioners had voted unanimously to propose measures that would greatly expand the amount of information readily available on municipal bonds. Under the measure, the ongoing disclosure documents filed by issuers of muni bonds would be made available for free on the web by the Municipal Securities Rulemaking Board.

As I reported earlier this year, the MSRB has already begun to make the prospectus-type filings known as Official Statements available on a free site called Electronic Municipal Market Access, or EMMA. If the proposal is implemented after the public comment period, the annual financial information documents would also be available on EMMA.

“Shocking” and “Disgraceful”

“Shocking” and “disgraceful” are not the sort of words we expect to hear from a corporate executive when referring to his or her own company, but that’s exactly what happened at a Senate hearing today about the conditions at Imperial Sugar. Those descriptors made up part of the testimony of Graham H. Graham, vice president for operations at the company, which was recently hit with a proposed fine of $5 million by the Occupational Safety and Health Administration in connection with conditions that caused a dust explosion (photo) earlier this year at its Port Wentworth, Georgia plant that killed 13 workers. Another fine of $3.7 million was proposed by OSHA in connection with similar problems at the company’s operation in Gramercy, Louisiana.

“It was without a doubt the dirtiest and most dangerous manufacturing plant I had ever come to,” said Graham about the non-union Port Wentworth refinery, which he toured after being hired by Imperial Sugar late last year. He claimed to have pointed out more than 400 safety violations and was in the process of having them corrected when the accident occurred. CEO John Sheptor, who declined to testify at today’s hearing of the Senate Committee on Health, Education, Labor & Pensions, told the Associated Press that Graham has “exaggerated numerous things regularly about our facilities.” Sheptor’s p.r. people should have told him that line doesn’t work when you have the blood of 13 workers on your hands.

In addition to the fines—which Imperial Sugar is contesting and in any event would not put too much of a dent in a company which in its last fiscal year had profits of $53 million on revenues of $875 million—AP reports that criminal charges are possible.

Any investigation should not stop with the immediate managers at the plants. The conditions at the Imperial Sugar refineries appear to have been so horrendous that the failure to clean them up must have in effect been a company policy emanating from the highest levels—the CEO and other top executives. Accountability should also fall on the members of the board of directors of the publicly traded company, whose non-executive members are the following:

– James J. Gaffney (Chairman), a consultant to investment funds affiliated with Goldman Sachs

– Curtis G. Anderson, chairman of the investment company Anderson Capital

– Gaylord O. Coan, former CEO of poultry processor Gold Kist

– Yves-Andre Istel, vice chairman of investment bank Rothschild Inc.

– Robert S. Kopriva, former CEO of Sara Lee Foods

– Gail A. Lione, executive vice president of Harley-Davidson

– David C. Moran, president of U.S. consumer products at H.J. Heinz

– John K. Sweeney, a managing director at investment bank Lehman Brothers.

Sweeney deserves special attention because Lehman Brothers is the largest shareholder in Imperial Sugar, with a 28 percent stake. Lehman claims that part of its corporate mission is to “be one of the most responsible investment banks.” It could show those words mean something by using its influence to get Imperial Sugar to start showing some concern about the safety of its workers.

Getting Companies to Come Clean About Risks

In 1982 building materials producer Johns-Manville filed for bankruptcy, overwhelmed by a rising tide of lawsuits brought by workers crippled from exposure to the company’s most infamous product: asbestos insulation. The Manville litigation and Chapter 11 filing caught many investors off guard because the company, despite knowing the risks of asbestos for decades, did not disclose the potential consequences to shareholders. The episode is one of the most egregious cases of corporate irresponsibility in U.S. history.

Unfortunately, Corporate America did not learn the lesson of the asbestos debacle. Many companies—from cigarette manufacturers to investment banks involved with subprime mortgages—have failed to fully inform investors of potential liabilities. They have been able to do so, in large part, because of lax accounting rules.

That could now change. The entity that sets the rules—the Financial Accounting Standards Board—is currently working on the first modifications since 1975 to its disclosure guidelines, known as FAS Statement No. 5, regarding “loss contingencies.” The problem is that FASB is considering revisions that some advocacy groups consider too weak.

The Investor Environmental Health Network (IEHN), “a collaborative project of investment managers that tracks product toxicity issues,” has just issued an appeal for interested parties to submit comments urging FASB to adopt stricter standards for Statement No.5. The comments are due by August 8.

Specifically, the IEHN is concerned that the revision of Statement No. 5, while requiring companies to report maximum possible loss, has three significant loopholes. These would allow companies to skirt the new rules if the company claims that the risks are only remotely likely and would not be resolved within the next year, or if it claims that the disclosure would be “prejudicial.” Also, the new rules would apply only to legal liabilities, not asset impairments (such as the risk that a company’s property might be destroyed by flooding related to climate change).

As Sanford Lewis, who serves as counsel for IEHN, puts it in an e-mail message to me: “For Enron, subprime lending and asbestos, the unifying theme is that management treated these severe-impact issues as only ‘remotely likely’ to hurt their companies. Now FASB wants to make some of these ‘remotely likely’ issues discloseable, but only if the issue is expected to be resolved within a year. Yet issues such as these typically take many years, if not decades, to be resolved. Investors need to know about them now, not right before the financial catastrophe hits.” (See his video on the issue here.)

Stricter accounting rules might not prevent risky behavior on the part of corporate executives, but they would increase the odds that investors would know about those risks before it was too late to bail out—or pressure management to clean up its act.

Mubadala Brings Good Things to Light?

Mubadala Development Company, an investment fund controlled by the government of the Emirate of Abu Dhabi (photo), announced Tuesday that it was forming an extensive partnership with U.S.-based industrial powerhouse General Electric. The fund, which said it intends to become one of GE’s top ten institutional investors, will collaborate with the company in areas such as commercial finance, development of clean-energy technology, aviation maintenance and oilfield services. The finance joint venture alone will involve a combined investment of $8 billion.

We’ve gotten used to wobbly U.S. financial institutions such as Citigroup and Merrill Lynch turning to sovereign wealth funds for infusions of capital. Are we now going to see major U.S. industrials do the same? GE, which is not ailing like the financials, will no doubt insist that it is not being propped up by Mubadala but is simply exploiting common areas of interest with the fund.

Even if the arrangement is not an indication of financial weakness, it is another sign that GE is abandoning its status as a U.S. company. The process has been underway for quite some time. Twenty years ago, then-CEO Jack Welch was describing GE as “boundaryless,” and he used the company’s global reach, among other things, to weaken labor unions. Welch—known as Neutron Jack because, like a neutron bomb, he eliminated workers while allowing buildings to remain standing—was also notorious for his statement that factories would ideally be built on barges so they could be readily transported to wherever labor costs were lowest.

Over the past decade, GE has made massive investments abroad, opening not only production facilities but also research & development centers in countries such as India and China. Meanwhile, it is dumping major U.S. operations such as its century-old home appliance business.

The results can be seen in the company’s financial statements. A decade ago, GE bragged in its annual report (p.39) that it “made a positive 1997 contribution of approximately $6.3 billion to the U.S. balance of trade.” The company’s 2007 report does not even mention how much it exported from the United States, while disclosing (p.99) that only 35 percent of its property, plant and equipment is now located on American soil.

So, while GE dazzles us with its “eco-imagination” ads touting its commitment to renewable energy, the company is hooking up with a tiny Middle Eastern country that is awash with petrodollars. American workers and communities, meanwhile, are left to pick up the pieces.

No Love for Nukes

An op-ed in Monday’s Wall Street Journal is headlined “Let’s Have Some Love for Nuclear Power.” A few environmentalists such as James Lovelock have adopted the same stance. John McCain has proposed a major expansion of nuclear power capacity, and Barack Obama has indicated he is also willing to consider the idea. Yet proponents of a nuclear renaissance may want to pay more attention to what has been going on in Vermont before they travel too far on the industry’s bandwagon.

The Green Mountain State is experiencing an uproar over a proposal by Entergy Corp. to extend the operating license of its Vermont Yankee nuke. The generating plant began operation in November 1972 and thus will be 40 years old when the current license expires in 2012. Entergy wants permission to keep the plant going for another 20 years.

This does not sit well with many Vermonters, who are concerned that VY, as the state’s newspapers refer to it, is already showing signs of deterioration. This week a federal panel is hearing testimony in a challenge to the license extension filed by an anti-nuke group called the New England Coalition. The challenge, which is being supported by the State of Vermont, centers on technical issues such as Entergy’s assumptions about metal fatigue.

Although the current hearing will not address them, VY has been plagued by a series of other operating problems, including an incident last year (photo) in which part of a cooling tower collapsed and caused a leak of thousands of gallons of water, though Entergy said that no radioactivity was released. The company put the blame on rotting timbers that had not been inspected properly. Earlier this month, a new cooling tower leak forced Entergy to reduce VY’s output to less than 50 percent of capacity. Nuclear Regulatory Commission Chairman Dale Klein told a Senate committee recently that Entergy has failed to keep up with industry knowledge on cooling tower failures.

Entergy has also been getting grief from state lawmakers, who are in a powerful position based on the fact that Vermont, unlike other states, gives its legislators veto power over nuke license extensions. Earlier this year, the legislature passed a bill tightening Entergy’s obligations to a fund that would pay for the eventual decommissioning of the nuke. This was prompted by concerns that a plan by Entergy to place ownership of VY in the hands of a new entity would make the fund less secure and increase the chances that the state would end up paying much of the shutdown costs, projected to be at least $800 million. Gov. Jim Douglas has voiced concerns about VY’s license extension, but he vetoed the decommissioning-fund bill. An angry Vermonter showed his displeasure with the veto by throwing a cream pie in the governor’s face at a Fourth of July parade.

Vermont may have its unique practices when it comes to nukes, but the contentious situation there is a taste of what can be expected if the nuclear industry – and particularly a company such as Entergy – continues trying to build new plants or extend the life of existing ones into old age.

An Encyclopedia of Corporate Abuses

If today’s ubiquitous feel-good corporate advertisements are to be believed, big business wants nothing more than to improve the lives of all the world’s peoples. A very different perspective appears in a 68-page report recently submitted to the United Nations Human Rights Council. The study—prepared by the Corporate Accountability Working Group of the International Network for Economic, Social and Cultural Rights (ESCR-Net) with the assistance of 40 non-government organizations from around the world—describes more than 150 cases in which “business enterprises have had significant impacts upon the enjoyment of all types of human rights.” The report ends with a series of recommendations for more effective United Nations action on these problems.

Here are the areas covered by the report with a sample of the cases cited in each:

LABOR RIGHTS – Allegations of child labor at Bridgestone rubber plantations in Liberia. Allegations of the use of forced labor by Brazil’s Amaggi Group in clearing fields for soybean production. Charges that companies such as Wal-Mart and Toyota violated trade union rights of workers. Reports that workers in Indonesian sneaker factories supplying firms such as Nike “received minimal compensation while working in humiliating conditions and living in extreme poverty” (p.7). Various cases of unsafe working conditions, gender discrimination and race discrimination.

ENVIRONMENTAL RIGHTS – Reports of high rates of infant mortality, birth defects, childhood leukemia and other forms of cancer in areas of the Ecuadorian Amazon where Texaco (now Chevron) operated between 1964 and 1992. Charges that a mine owned by Placer Dome in the Philippines “caused severe pollution of the sea, bay and rivers, slowly poisoning people and their food source” (p.11). Reports that AngloGold Ashanti contaminated water supplies used by people living near its mining operations in Ghana.

RIGHT TO LIBERTY & SECURITY OF PERSONS – Reports that private security contractors such as Blackwater have killed and wounded innocent civilians in Iraq. Cases in which companies such as Occidental Petroleum allegedly provided logistical support for the Colombian Air Force in an attack on a local village. Numerous cases in which companies supported abusive governments.

RIGHTS OF INDIGENOUS PEOPLES – Allegations that the rights of the Shuar people in Ecuador were violated when Arco Oriente, and later Burlington Resources, “disregarded the objections of the community’s elected leadership to the company’s petroleum exploration activities” (p.18).

RIGHT TO HOUSING – “The homes of the Grand Bassa community in Liberia were demolished, according to the Centre on Housing Rights and Evictions (COHRE), its farms and crops destroyed, ancestral burial plots and secret shrines desecrated in order to provide for the operations of Liberia Agriculture Company” (p.21).

FREEDOM OF EXPRESSION AND RIGHT TO INFORMATION – Charges that Western internet companies such as Yahoo assisted Chinese authorities in investigating dissidents. Allegations that Electricité de France “failed to provide complete assessment studies on potentially serious impacts from the construction of the Nam Theun Dam” in Laos (p.26).

RIGHT TO AN EFFECTIVE REMEDY – Numerous cases in which victims of corporate abuses were unable to obtain remedy in their national courts. Charges in Brazil that “Shell had not undertaken activities ordered by a judge at the federal court…to stop dumping chemical waste, clean up contaminated areas, decontaminate drinking water sources and take steps to protect workers’ health” (p.31).

Given the multitude of cases cited by the Working Group report, the amount of detail provided on each is quite limited (though there are ample endnotes). Nonetheless, the document serves as a veritable encyclopedia of the many ways in which corporate activities around the world—especially in poorer countries—can undermine the broad economic, social and civil rights of various populations. This is not a report about which companies will issue press releases to highlight their inclusion.

Note: An excellent resource for tracking abuses of the sort mentioned in this report is the website of Business & Human Rights Resource Centre.

Volkswagen Test Drives New American Worker

It took 20 years but Volkswagen is finally going to try making cars in the United States again. Today the German automaker announced plans to invest $1 billion on a production facility in Chattanooga, Tennessee that will turn out vehicles for the North American market. The move is seen as the only way the company can, given the strong euro, hope to increase its meager U.S. market share.

The initial coverage of the announcement I saw did not mention the circumstances under which VW abandoned its previous U.S. manufacturing initiative. In April 1978 the company opened an assembly plant in Pennsylvania to produce its Rabbit model. A few months later, the workers, represented by a newly formed local of the United Auto Workers, shocked the company—as well as their parent union—by staging a wildcat strike to protest the fact that they were being paid less than their counterparts at the plants owned by the Big Three. Stopping production of the Rabbit, the workers chanted “No Money, No Bunny.”

The workers eventually returned to work, but labor relations at the plant remained tense as the UAW, compelled by members of the local, pressured the company to narrow the wage gap. VW was also confronted with a lawsuit charging that it discriminated against black employees. Finally, in 1988, VW gave up and closed the plant.

It appears that VW is being more cautious this time. It has followed in the footsteps of other foreign automakers that have located their U.S. plants in Southern right-to-work states or other areas with low union density. Thus is Toyota in states such as Kentucky, Alabama and Mississippi; Nissan in Tennessee and Mississippi; BMW in South Carolina; Mercedes in Alabama; Kia in Georgia; and Hyundai in Alabama. The scarcity of unions may be the real commonality that Tennessee Gov. Phil Bredesen had in mind when he said today that VW chose his state because of “shared values.”

The Southern states have rewarded foreign car companies not only with non-union labor but also with lavish economic development subsidies—in many cases more than $100 million per plant. Volkswagen’s package from Tennessee is still being negotiated. Gov. Bredesen today said only that the deal is “complicated,” which should probably be taken as code for “extravagant.”

Government giveaways and docile labor: Volkswagen may not have had it so good since the era when the People’s Car was born.

Bailing Out Bondholders While Investors Sink

This weekend’s announcement that the Treasury Department and the Federal Reserve will take steps to shore up Fannie Mae and Freddie Mac put a stop, for now, to the rapid decline of the shareholder-owned/government-sponsored entities (GSEs). Yet the nature of the federal intervention is raising questions about whether different groups of stakeholders are getting equal protection.

The greatest tension is between those who hold shares in Fannie and Freddie and those who hold bonds. In theory, the intervention would help both groups by allowing the GSEs to borrow more from the federal government, which would also, if necessary, purchase equity positions in the firms. Yet these capital infusions are being viewed more as a boon to existing bondholders by reducing the odds of a default while doing little to directly help shareholders whose stock has fallen in value by about 90 percent over the past year. The Wall Street Journal’s Deal Journal blog website argued today that the bailout of Fannie and Freddie, like that of Bear Stearns earlier this year, “leaves shareholders starving.” The Journal itself reported on Saturday that Treasury Secretary Henry Paulson (photo, taken earlier) was adamant about not bailing out shareholders.

Apparently, helping shareholders creates a “moral hazard” (de-sensitizing them to risk) while protecting bondholders is considered essential to protecting the financial system. There may be practical reasons why creditors have to be given preference over investors, but it’s instructive to see who comes out ahead or behind with that approach.

According to Fannie Mae’s most recent proxy statement, its largest shareholders are two money managers: Capital Research Global Investors (12% of shares) and Capital World Investors (11.3%). The two are both arms of Los Angeles-based Capital Research and Management, which oversees investments for the huge American Funds family of mutual funds.

According to the subscription service Vicker’s Stock Research, which assembles data reported by institutional investors, many of the other largest investors in Fannie and Freddie are mutual funds and their parent companies—including Fidelity, Vanguard and Lord Abbett. Vickers also shows that public pension funds, which provide retirement benefits to state and local government employees, are also big investors in Fannie and Freddie. For example, the New York State Common Retirement Fund had holdings worth a total of about $93 million in the two GSEs as of its most recent quarterly report.

Getting information on Fannie and Freddie’s bondholders is not quite so easy. But the Council on Foreign Relations has found that a massive amount of such debt is held by foreign central banks—especially those of China and Russia, with about $512 billion between them.

So this is what it has come to: the federal government will do whatever it takes to protect the “confidence” of foreign central banks while allowing the retirement savings of working Americans to be ravaged by the market.