Phil Mattera

Federal Database of Contractor Misconduct Now One Step Closer

The effort to centralize information on federal contractors that have broken the law or violated regulations took an important step forward today when the House approved by voice vote H.R. 3033, the Contractor and Federal Spending Accountability Act. The issue now goes to the Senate, where Claire McCaskill (D-Mo.) today introduced a companion measure.

The bills would require the federal government to take over a function that until now has been unofficially handled by the Project On Government Oversight. POGO’s Federal Contract Misconduct Database has been an immensely valuable pilot effort covering the 50 companies doing the most business with Uncle Sam.

First on that list in terms of contract dollars is arms maker Lockheed Martin, for which POGO has found 42 instances of misconduct—resulting in $553 million in fines and settlement costs—since 1995. Number two contractor Boeing has 24 instances and $863 million in misconduct dollars, followed by Northrop Grumman with 23 instances and $450 million. While Lockheed leads in the number of misconduct instances (followed by General Electric and Exxon Mobil and Honeywell International before Boeing and Northrop), it ranks 9^th in misconduct dollars. The winners in that category are Exxon and BP Amoco. POGO defines “misconduct” as cases in which contractors “violate laws or regulations or are the subject of misconduct allegations in their dealings with the government, individuals, or private entities.”

H.R. 3033 would mandate the creation of a public database that would reveal whether any recipient of a federal contract or grant had, within the past five years: been involved in any civil, criminal or administrative proceeding resulting in a finding of fault of $5,000 or more; had a federal contract or grant terminated because of default; or been suspended or debarred from doing business with the federal government. This would enable federal agencies to weed out bad actors before awarding future contracts.

If it passes, the contractor database would represent the second instance in recent years in which a disclosure initiative pioneered by a non-profit became an official federal program. The recently launched USA Spending database of federal contracts and grants, mandated by bipartisan legislation sponsored by Sen. Barack Obama (D-Ill.) and Sen. Tom Coburn (R-Okla.), was directly modeled on the FedSpending database that had been created by OMB Watch.

CEOs Who Never Pick Up the Tab

I was intrigued by a post that just appeared in Footnoted.org about some companies whose recent proxy statements disclose they are reimbursing top officers for the cost of having their cars washed. We have all heard about the expensive perks large corporations shower on their executives: country club memberships, use of corporate jets, personal financial advisors, etc.—all in addition to munificent salaries and bonuses. Yet are companies also taking care of mundane everyday expenses as well?

In theory, it shouldn’t be possible to learn these details, since even under the more rigorous disclosure rules imposed by the SEC in 2006, companies are not required to list perks worth less than $10,000. Nonetheless, I decided to follow Footnoted’s lead and search the database of recent proxy statement to look for other kinds of personal services being provided to executives. Here’s an assortment of what I found.

SLM Corp.—the student loan company also known as Sallie Mae—reports that it not only provided a townhouse for president C.E. Andrews but also paid for “real estate taxes, homeowner’s insurance, neighborhood association fees, repairs and improvements, utilities, lawn and housekeeping services, and pest control.”

Harris & Harris Group—a business development company focusing on nanotechnology—pays for both a health-club membership and a personal trainer for chief executive Charles E. Harris.

BioLase Technology—a producer of dental lasers—paid the laundry expenses of Keith Bateman while he was executive vice president of the company.

Military contractor Raytheon and numerous other companies pay for security systems at the homes of their top executives.

Home Depot pays for the home internet services used by their top executives and picks up the tab when they send funeral flowers.

Beermaker Anheuser-Busch has a company barber shop for top executives and provides free beer “for personal use and entertaining.”

The costs of these perks are trivial in comparison to the cash compensation the executives receive and are barely a blip in the overall finances of the companies. But they illustrate the regal manner in which the corporate elite are treated. How can a CEO who doesn’t have to pay many of his or her own personal expenses—including in some cases the cost of six pack—understand the situation of those who get nothing for free?

Taking the Sweat Out of University Logo Apparel

If you will excuse a bit of parental pride, I would like to report that my son Thomas, a sophomore at the University of North Carolina-Chapel Hill, has been involved in a protest aimed at getting UNC to participate in a program that protects the rights of workers who sew university logo apparel. On Friday, students held a demonstration on campus, while a smaller group is in the fifth day of a sit-in at the building containing the office of Chancellor James Moeser, the target of the pressure campaign. Carolina Blue clothing is among the most popular “brands” of university apparel.

The UNC actions are part of the latest wave of recent campus actions in support of the Designated Supplier Program (DSP), an initiative of the Worker Rights Consortium and United Students Against Sweatshops. Recent actions have taken place at schools such as Penn State University, the University of Montana, Appalachian State University and the University of Houston. While all the protests have been non-violent, more than 30 students were arrested last week at Penn State.

The DSP, launched in 2005, is an attempt to fight sweatshop conditions by getting universities to demand that licensee companies distributing their logo apparel make use of supplier factories that have been independently verified to pay a living wage and respect the right of workers to organize. Currently, more than 30 schools have signed on to DSP (including the entire University of California system), while officials at other institutions have resisted.

Apparel companies such as Nike, Champion (owned by Hanesbrands) and Russell Athletic (owned by Berkshire Hathaway) are among the big players in the $3 billion university logo market. Nike, the target of intensive protests during the 1990s over its use of sweatshop suppliers, has cleaned up its act, though the company itself has acknowledged that its suppliers do not always comply with its standards. Since monitoring its large number of plants—located in 36 countries—is impossible, the alternative is to direct business to a smaller group of factories known to treat their workers decently—hence, DSP. That way, students can ensure that the sweat in university apparel comes from wearers, not producers.

Note: The Worker Rights Consortium has an online database of factories around the world that produce university logo apparel.

Private Debt Collectors Can’t Reach IRS’s “Low-Hanging Fruit”

The Washington Post article this week on the poor performance of the private debt collectors working for the Internal Revenue Service is a classic story of wrong-headed federal outsourcing. The paper reported that the companies, set loose in 2006 to collect $1 billion owed to Uncle Sam by deadbeat taxpayers, “have rounded up only $49 million, little more than half of what it has cost the IRS to implement the program. The debt collectors have pocketed commissions of up to 24 percent.”

What makes the story more galling is that the contractors were handed the work on a silver platter. By the early 2000s, the IRS was being underfunded to the point that it had to ignore many scofflaws. Rather than allowing the agency to hire more employees, who typically bring in much more than they cost, the Bush Administration and the Republican-controlled Congress gave in to long-standing lobbying (and ample campaign contributions) by the private debt collection industry to get a piece of the action. The private collectors were to be given the “low-hanging fruit”—taxpayers who had not disputed their debt but were slow in paying. Nonetheless, there were widespread misgivings about giving private parties access to personal financial information and having them represent the government in an activity so prone to abuse.

The initial companies chosen by the IRS in 2006 to participate in the program included one firm that had a particularly questionable track record: Linebarger Goggan Blair & Sampson LLP, an Austin-Texas based law firm that became a leading figure in outsourced debt collection for government agencies around the country. The Houston Chronicle once wrote (10/13/2002) that the firm was frequently criticized for its “political rainmaking and hardball collection tactics.” In 2004 a former name partner in the firm was convicted in a bribery case involving payments to city councilmen in San Antonio to secure a debt collection contract. Around the same time, the Linebarger firm privately settled a lawsuit in which a competitor alleged it had engaged in bribery and bid rigging in various locations. A collection contract awarded to the firm by New Orleans was reported to have been the subject of an FBI investigation.

The IRS removed the Linebarger firm from its private debt collection program last year without explanation. That left two contractors: CBE Group of Waterloo, Iowa and Pioneer Credit Recovery of Arcade, New York. Both companies have been sued multiple times over aggressive tactics in their efforts on behalf of clients other than the IRS.

Pioneer is a unit of SLM Corporation, otherwise known as Sallie Mae, which started out as a government-sponsored enterprise but was subsequently privatized and started trading on the New York Stock Exchange. It was to have been taken private in a leveraged buyout last year but the deal collapsed. The company, which has been suffering heavy losses, is being investigated by New York Attorney General Andrew Cuomo.

Leave it to the Bush Administration: Not only does it contract out functions that by all rights should be done by public employees, it makes highly dubious choices in selecting the companies to carry out the work. So it should come as no surprise when we end up with the worst outcome, which in this case means abuse of taxpayers and poor financial results. Ah, the magic of private enterprise.

“Green” Corporations Among the Toxic 100

The appearance of a new version of the Political Economy Research Institute’s Toxic 100 is a useful reminder that, for all their feel-good green ads, large corporations are still defiling the environment in a major way. This year’s list of the biggest corporate air polluters is led by DuPont and includes household names such as Dow Chemical, Eastman Kodak, General Electric and Exxon Mobil among the top ten. The companies are ranked by their “toxic score,” which the Institute calculates by multiplying the amount of toxic air releases reported to the EPA by the relative toxicity of the chemicals involved and the size of the population at risk of exposure.

What’s new this year is the inclusion of foreign corporations with facilities in the United States. There are three such listings in the top ten portion of the Toxic 100: Nissan Motor, Bayer Group and ArcelorMittal.

It’s interesting to see that foreign companies can be no less hypocritical than their U.S. counterparts when it comes to saying one thing about the environment and doing another. Nissan USA brags on its website about its Green Program, which uses as its catch phrase “seeking a symbiosis of people, vehicles and nature.” Bayer just announced it “will partner with the United Nations Environment Programme’s Regional Office in North America to help sponsor the 36^th annual World Environment Day celebration.”

Even more awkward is the appearance on the list of steel giant ArcelorMittal. Just last month, it was one of a handful of corporate sponsors of the green jobs conference put on in Pittsburgh by the Blue Green Alliance, led by the United Steelworkers and the Sierra Club. The conference program contained a full-page ad for the company saying: “At ArcelorMittal, Sustainability is one of the company’s core values.” Under the corporation’s name is the motto “Transforming tomorrow.” Perhaps ArcelorMittal should focus a bit more on transforming its air pollution problem today.

Their Information-Gathering and Ours

The activist world is abuzz over two new articles about corporate spying on environmental and labor groups.

James Ridgeway has published an exposé in Mother Jones on a private security company called Beckett Brown International (later S2i). According to documents obtained by Ridgeway, the firm, organized and managed by former Secret Service officers, spied on Greenpeace and other environmental groups in the late 1990s. Its activities are said to have included “pilfering documents from trash bins, attempting to plant undercover operatives within groups, casing offices, collecting phone records of activists, and penetrating confidential meetings.” Because the papers seen by Ridgeway are not complete, it cannot be said exactly which groups were spied on for whom. The firm’s clients are known to have included corporations such as Allied Waste, Halliburton, Monsanto and Wal-Mart.

The other article was written by Amy Bennett Williams for the Fort Myers (Florida) News-Press. It reports on an attempted infiltration of the Coalition of Immokalee Workers farmworker advocacy group by the owner of a private surveillance company. The Coalition suspects that the company may have been hired by Burger King, which is the current target of a campaign to raise pay for tomato pickers. The article notes that a person using an e-mail address traced to Burger King’s corporate headquarters made disparaging online comments about the Coalition.

Reports such as these are certainly a matter of concern, but it is important to distinguish between unlawful corporate espionage and legitimate information-gathering of the type that campaigners themselves do against companies all the time.

For example, in speaking about his article on Democracy Now this morning, Ridgeway mentioned that among the Beckett Brown documents he obtained was a background report on David Fenton, who runs the largest public-interest p.r. firm in the country. Ridgeway mentioned that the file included license plate numbers and property tax records.

As a corporate researcher (and licensed private investigator) for unions, environmental organizations and other activist groups, I find nothing scandalous about the presence of that kind of information, which is part of the public record (though there are often restrictions on who can access license plate numbers). The same goes for divorce, bankruptcy and other court records; criminal records and driving violations; tax liens; state corporate filings; campaign contributions; and voting records (indicating whether someone voted, not who they voted for). I’m also not scandalized by dumpster diving, assuming that it was done in a jurisdiction where it is not illegal (laws vary).

Let’s not be disingenuous. Campaigners use all legal means at our disposal to find possibly incriminating information about corporations and their executives. We should accept that they are doing the same about us.

The difference, of course, is that corporations and their agents sometimes cross the line. As the Ridgeway and Williams articles suggest, companies may use operatives who engage in burglary, infiltration, pretexting (misrepresenting oneself to obtain financial and telephone records) and other illegal or improper tactics. By all means, let’s condemn those practices, while being careful not to preclude those information-gathering techniques we need for our nobler purposes.

Will Tesco Brings Its Litigious Ways to the USA?

Say all you want about Wal-Mart—the giant retailer usually deals with its many adversaries in the court of public opinion rather than by filing lawsuits against them. The same can’t be said about Tesco, the British counterpart of Wal-Mart that has begun to enter the U.S. market.

In the past week, Tesco has brought two separate legal actions against its critics. First, it sued the Guardian newspaper and its editor Alan Rusbridger for “libel and malicious falsehood” in connection with a series of articles claiming that the company had used offshore partnerships as a way of avoiding up to £1 billion in taxes when selling UK properties. Tesco acknowledges that it may have saved £23-60 million in taxes but wants its day in court to argue that the £1 billion figure is erroneous. Playing hardball, Tesco says it is collecting communications from customers angry about the Guardian stories—and who say they are taking their business elsewhere—to justify a demand for “special damages.”

Now it’s been reported—by the Guardian—that Tesco has brought a libel suit against a former member of parliament in Thailand for criticizing the company’s expansion in that country. This follows a similar action against a Thai newspaper columnist.

Tesco may be tempted to bring similar suits in the U.S., given the negative coverage of its campaign to create a string of Fresh & Easy Neighborhood Markets. Some of the criticism is purely of a business nature. USA Today wrote recently that the stores, which it described as “about the size of a Trader Joe’s with lots of Whole Foods-type natural foods and prices that can seem Costco-esque,” don’t seem to be hitting the mark. The paper continued: “The unfamiliar combination—and a rather sterile store décor—seem to have left American shoppers confused about just what the chain is.” It’s apparently for this reason that Tesco recently decided to freeze its U.S. rollout, which began in Southern California, Las Vegas and Phoenix.

Like Wal-Mart, Tesco has started facing scrutiny—most notably in a report published last year by the Urban and Environmental Policy Institute of Occidental College—on supply-chain issues and its expected U.S. labor practices. If the rollout continues to falter, these issues may become moot. Otherwise, let’s hope the company spends more here on public relations and less on lawyers.

The Fortune (Mostly Non-Union) 500

Fortune magazine has come out with the latest edition of its list of the 500 largest publicly traded U.S. corporations, and all the attention will be paid to which companies rank higher or lower based on revenue. For the average person, another measure of the performance of those giant corporations may be more relevant: the extent to which they are depressing wage rates by getting rid of unions or continuing to keep them out of their operations.

One way to gauge this is to look at the new 10-K filings that companies have been issuing in recent weeks. Each of those documents—annual reports submitted to the U.S. Securities and Exchange Commission—has a section on employees in which companies have traditionally given an indication of the extent to which their workforce is unionized.

I decided to look at these sections for the top 50 on the new Fortune list. I found that, of that group, only five reported that a majority of their U.S. employees are covered by a collective bargaining agreement: General Motors, Ford, AT&T, Kroger and UPS. An additional half dozen reported that a minority of their U.S. workers have union protection: Verizon (40%), Boeing (36%), General Electric (15%), Costco (11%), AmerisourceBergen (4%) and Wellpoint (“a small portion”). Two companies—United Technologies and Marathon Oil—mention unions but don’t indicate the extent of their presence.

The remaining 35 companies (State Farm and Freddie Mac don’t file 10-Ks) make no reference to unions or declare they are union free. Home improvement retailer Lowe’s almost seems to be gloating when it says:

As of February 1, 2008, we employed approximately 160,000 full-time and 56,000 part-time employees, none of which are covered by collective bargaining agreements. Management considers its relations with its employees to be good.

And, in the absence of a union, who’s going to tell them otherwise?

A few of the more than 30 companies in the group that don’t mention unions are known to engage in some collective bargaining (the big oil companies, for instance), but it’s interesting that they deem it so insignificant that it need not be mentioned in a document that is supposed to warn investors of potential risks such as work stoppages. Unfortunately, the SEC rule (Regulation S-K) governing what is supposed to go into 10-Ks is not very explicit about disclosure requirements relating to labor relations, but the general principle is that matters material to the financial prospects of the company have to be reported.

It appears that most big companies have reached the point that the union presence in their workforce is not material. That may allow investors and managers to breathe easier, but it explains a lot of what is wrong with the U.S. labor market.

Look here for information on one proposed remedy for declining union density—the Employee Free Choice Act.

Will the WARN Act Become More than a Headache for Job-Cutting Employers?

The buyout industry—or private equity, as it prefers to be called—likes to give the impression that it creates new jobs rather than destroying them in the companies it takes over. Yet plant closings do occur among private equity portfolio firms, and in some cases the owners aren’t even willing to observe basic federal law governing shutdowns. The other day, the Dow Jones LBO Wire ran a story noting that several buyout firms have been sued for allegedly violating the Worker Adjustment and Retraining Notification Act, or WARN Act for short.

One of the defendants is Code Hennessy & Simmons LLC, which is charged with failing to provide the required 60 days’ warning when its portfolio company Hoboken Wood Flooring abruptly shut its doors last fall. Another case involves Reliant Equity Investors, which is said to have violated WARN when layoffs occurred recently at its company BlueSky Brands.

The Dow Jones story referred to WARN as “an obscure and somewhat toothless labor law” that was “causing headaches for buyout firms.” To reinforce the latter idea, the web version of the article was illustrated with two aspirin containers.

It is true that WARN currently leaves something to be desired in terms of effectiveness. This was made abundantly clear in a four-part series by James Drew and Steve Eder that ran in the Toledo Blade last summer. They found that the 1988 legislation “is so full of loopholes and flaws that employers repeatedly skirt it with little or no penalty.” Part of the problem is that Congress did not provide for enforcement of the act, so workers must bring their own court actions that often result in meager settlements.

While buyout firms (and other employers) would probably prefer to see the law repealed, some pro-labor members of Congress are pushing to strengthen the act. At the same time, states such as New Jersey are moving to enact their own WARN Acts that go beyond the current federal statute. (For details on both federal and state initiatives, see the website of the Sugar Law Center for Economic and Social Justice, which has worked on WARN issues since its founding in 1991.)

Layoff notification requirements by themselves are no solution for job dislocation, but given the way the economy is going, workers need all the help they can get.

Some other WARN resources:
Toledo Blade Interactive map with info on WARN lawsuits Congressional Research Service report (September 26, 2007)
GAO report (September 2003)
Directory of State Rapid Response Coordinators

Hillary Clinton is Ahead in the Wal-Mart Election

It hasn’t been a great week for Wal-Mart, what with having to back down from its demand that the family of brain-damaged former employee Debbie Shank reimburse the company’s health plan for her medical treatment.

Yet in an interview with the Financial Times published Thursday, Wal-Mart CEO Lee Scott indicated that in a wider sense the company is doing well:

Mr Scott expressed satisfaction that in spite of the union campaign, Wal-Mart’s record had not become an issue in the Democratic primaries. Hillary Clinton served on Wal-Mart’s board from 1986 to 1992 when her husband was governor of Arkansas, the retailer’s home state.

It’s easy to forget it was once thought that this presidential race would focus on the impact of Wal-Mart on the economy and the labor market. In January 2007 a columnist for U.S. News wrote: “The ginormous retailer is sure to be a frequent target for Democrats during the 2008 presidential election.” Barack Obama made an issue of Clinton’s tenure on the Wal-Mart board during a debate in January but has not had much to say about the company since John Edwards left the race. Clinton, far from attacking Wal-Mart, has had to contend with investigations, such as one done by ABC News in late January, showing that during her time as a director she remained silent about the company’s assaults on union organizing drives. Clinton responded by saying her views had changed and that she is now a strong supporter of unions.

Despite this professed change of heart about the Wal-Mart philosophy of labor relations, it appears that Clinton is the favorite presidential candidate among those working at the company. A search of individual campaign contribution data on the Open Secrets website shows that Wal-Mart executives and other employees have contributed far more to Clinton— $22,000—during the current election cycle than to John McCain or Obama, each of whom has received $3,700. (Note that only those contributing $200 or more have to list an employer. The totals were derived by searching both “Wal-Mart” and “Walmart” in the employer field.)

The Wal-Mart contributions are a minuscule portion of the more than $160 million Clinton has raised, but it is notable that among those giving their individual maximums to the New York Senator are two of Wal-Mart’s executive vice presidents—Thomas Hyde and PR guru Leslie Dach. Either they know something we don’t about Clinton’s current views, or this, like the company’s previous hard line in the Debbie Shank case, is an example of how Wal-Mart executives are often thick-headed about what is really in the company’s best interests.