Month: October 2012

Wal-Mart’s Other Sins

The job actions taking place at many Wal-Mart locations around the United States have brought new attention to the abysmal labor practices of the country’s largest private employer. More than any other company, Wal-Mart depends on low wages, meager benefits, overtime abuses and gender discrimination to keep its labor costs artificially low while quashing any efforts by workers to rectify those conditions.

Two weeks ago, I used this blog to recount Wal-Mart’s labor and employment track record. Here I want to remind readers of some of the company’s many sins outside the workplace, using information I assembled for the new 5,000-word Wal-Mart entry in my Corporate Rap Sheets series.

Corruption. Wal-Mart doesn’t seem to mind its hardline reputation on personnel matters, but it has tried to otherwise paint itself as a squeaky-clean operation. That image was shattered last spring, when the New York Times published an 8,000-word front-page exposé about moves by top management to thwart and ultimately shelve an investigation of Foreign Corrupt Practices Act violations, focusing on extensive bribes paid by lower-level company officials as part of an effort to increase Wal-Mart’s market share in Mexico.

That story made a huge splash and reportedly undermined the company’s urban expansion efforts. A major public pension fund, the California State Teachers’ Retirement System, sued the company for breach of fiduciary duty in connection with the bribery scandal. It and other institutional investors showed their discontent with top management by opposing the official slate of directors at Wal-Mart’s annual meeting. About 12 percent of the shares outstanding were voted against the slate, an unprecedented level of dissent by the company’s previously quiescent shareholders. The company, apparently still trying to deal with the fallout, has just announced an overhaul of its compliance department.

State income tax avoidance. In 2007 the Wall Street Journal published a front-page story revealing that Wal-Mart was using a real estate gimmick to avoid paying many millions of dollars in state corporate income taxes each year. It was doing this by putting many of its stores under the ownership of a real estate investment trust (REIT) controlled by the company. The stores would pay rent to the captive REIT and deduct those payments as a business expense.

This trick, essentially paying rent to itself, reduced the company’s taxable income and thus lowered its state tax bill (the REIT was structured so its income wasn’t taxed by any state). A report by Citizens for Tax Justice estimated that Wal-Mart had thereby avoided some $2.3 billion in state income tax payments between 1999 and 2005–an average of more than $300 million a year.

Local property tax avoidance.  A 2007 report by my colleagues and me at Good Jobs First found that Wal-Mart has sought to reduce its property tax payments by frequently and aggressively challenging the assessed value attached to its U.S. stores and distribution centers by local officials.  The report examined a 10 percent random sample of the stores and found that such challenges had been filed for about one-third of them; an examination of all of the distribution centers found challenges at 40 percent, even though many of the latter had been granted property tax abatements when they were built.

Sales tax “skimming.” In a 2008 report by Good Jobs First entitled Skimming the Sales Tax, we found that Wal-Mart was receiving an estimated $60 million a year as a result of the little-known practice in some states of compensating retailers for collecting sales taxes and calculating the amount of that compensation based on total sales. This, in addition to the estimated $130 million in sales-tax-based economic development subsidies, means that Wal-Mart is depriving hard-pressed state and local governments of at least $73 million each year. This is just a small part of the more than $1.2 billion in state and local subsidies that Good Jobs First has documented on our website Wal-Mart Subsidy Watch.

Environmental violations. Wal-Mart has tried very hard in recent years to depict itself as a pioneer of sustainability by wide-ranging initiatives with regard to energy efficiency and the addition of organic foods and other green products to its shelves. Wal-Mart is largely silent about the environmental impact of the millions of customers who in most cases must still drive to the company’s retail outlets. It also wants us to forget that the company itself has had its share of environmental violations. For example, in 2004 the U.S. Department of Justice and the Environmental Protection Agency announced that Wal-Mart would pay a $3.1 million civil penalty and take remedial action to resolve alleged violations of the Clean Water Act in connection with storm water runoff from two dozen company construction sites in nine states. The following year, the company agreed to pay $1.15 million to the state of Connecticut to settle a suit alleging that it had allowed rain water to carry fertilizer, pesticides and other harmful substances stored outside its retail outlets into rivers and streams. It also signed a consent decree with the EPA to resolve charges relating to diesel truck idling at its facilities.

Undocumented Workers. When talking about Wal-Mart it is difficult to avoid the workplace entirely. Aside from its mistreatment of its own employees, the company takes advantage of exploited contract workers. For example, in 2003 a federal racketeering suit was filed against Wal-Mart by lawyers seeking to represent thousands of janitors who cleaned company stores and were reported to be working seven days a week and not receiving overtime pay. The filing took place 18 days after federal agents raided 60 Wal-Mart stores in 21 states to round up about 250 janitors described as undocumented aliens. In 2005 Wal-Mart agreed to pay $11 million to settle federal immigration charges. Documents later emerged suggesting that Wal-Mart executives knew that the company’s cleaning contractors were using undocumented immigrants.

“Dead Peasant” Insurance. Wal-Mart has not only worked people to death but also continued exploiting them after their demise. The mega-retailer is one of the large companies that engaged in the repugnant practice of secretly taking out life insurance on low-paid employees and making itself the beneficiary. The polite term for this is corporate-owned life insurance, though critics have labeled it “janitor’s insurance” or “dead peasant insurance.” In 2004 Wal-Mart settled one case brought in Houston for an undisclosed amount. Two years later it agreed to pay $5.1 million for a class action brought by the estates of former employees in Oklahoma, and in 2011 the company agreed to pay just over $2 million in a class-action suit filed in Florida.

The list could go on. In fact, it is difficult to find a form of corporate misconduct Wal-Mart has not exhibited. Yet it is probably the labor arena that counts the most in determining whether the company will be reined in. Support your local Wal-Mart “associates” in their efforts to stand up to the bully of Bentonville.

The Deadly Consequences of Weak Regulation

Unfortunately, it seems to take a public health crisis for the United States to remember the importance of diligently regulating companies such as drugmakers and food processors. And it is only during such crises that people realize that, despite the whines of corporate-friendly politicians, our problem is that such businesses are regulated too little rather than too much.

This scenario is being played out yet again in the fungal meningitis outbreak that has stricken more than 240 people and killed at least 20 of them around the country. It was only once the bodies began piling up that it became widely known that there has been confusion as to whether state or federal agencies should be overseeing operations such as the New England Compounding Center (NECC), which has been blamed for shipping tens of thousands of contaminated syringes with steroids used by patients with severe pain.

It turns out that the federal Food and Drug Administration had been keeping an eye on NECC, and in December 2006 the agency sent it and several similar companies a warning letter about distributing topical anesthetic creams without federal approval. An FDA press release about the warnings noted that exposure to high concentrations of local anesthetics can cause grave reactions and had in fact been linked to two deaths of users of the creams produced by one of the five firms. The NECC letter also mentioned concerns about the company’s practices related to the repackaging of Avastin, an injectable drug for treating colorectal cancer.

It’s not clear that the FDA letters had any impact. The compounding pharmacies paid little attention, given that a federal judge had previously issued a ruling calling into question the authority of the agency to regulate their business. Supposedly, state pharmacy boards are taking care of the matter.  One gets an idea of how serious that is from a Boston Globe story revealing that one of the members of the Massachusetts board is an executive with Ameridose, a compounding pharmacy also owned by NECC principals Barry Cadden and Gregory Conigliaro.

What makes companies such as NECC and Ameridose, both of which have suspended operations, even more dangerous is that they are privately held and thus have to disclose a lot less information about their operations. What they do reveal tends to be self-serving accounts of their supposed commitment to corporate social responsibility. The NECC website now consists solely of its “voluntary” recall, but the full Ameridose site is still up and has a less-than-hard-hitting news section.

There are numerous press releases about the company’s “outstanding” sustainability program, especially its recycling of cardboard and its installation of an ultrasonic humidification system. There are also releases about the company’s participation in a holiday food drive and its sponsorship of several industry conferences.

These are no doubt worthwhile initiatives, but the public might have also wanted to know how Ameridose was dealing with issues such as a 2008 FDA inspection that found that the company had been shipping products before it receive the results of sterility tests. That year Ameridose also had to recall some of its Fentanyl product.

The problems at Ameridose apparently went much deeper. According to reporting by the New York Times, employees at the firm expressed concern to management about serious safety and quality control issues but were rebuffed. One worker was quoted as saying: “The emphasis was always on speed, not on doing the job right.”

NECC and Ameridose are the kinds of companies lionized by Republican politicians preoccupied with defending “job creators” against government incursions in their business. It thus comes as no surprise that a search of the Open Secrets database shows that Conigliaro has contributed four times to Scott Brown’s Senate race in Massachusetts and has given $2,500 to Mitt Romney.

These firms are also among those government-dependent companies not singled out by Romney for mooching. Aside from the portion of their business covered by programs such as Medicare and Medicaid, the USA Spending database shows that Ameridose has received more than $800,000 in contracts from the federal government. In June, the U.S. Army signed an exclusive, five-year purchasing agreement with the firm to supply specialized compounded products for the pediatric intensive care unit at the Army’s Tripler Medical Center in Honolulu.

So the next time a politician complains about excessive regulation, we should keep in mind the risk to that pediatric intensive care unit and the actual harm caused to the meningitis victims.

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New in CORPORATE RAP SHEETS: Dossiers on the no-longer-merging military contracting and aerospace giants BAE Systems and EADS.

Standing Up to the Bully of Bentonville

The spreading job actions by Wal-Mart workers around the country, while still involving modest numbers, come across as a kind of catharsis. They inspire the same uplifting emotion as those movie scenes in which a long-suffering victim of bullying finally fights back against the tormentor.

Wal-Mart, probably more than any other large corporation, deserves the title of bully. For decades it has demonstrated utter contempt for the rights of its employees to act in concert to improve their conditions of work, which are in serious need of amelioration. It rules over a vast army of underpaid “associates” who in many cases are involuntarily limited to part-time status and thus denied even the meager benefits provided to full-timers, forcing them, with the cynical encouragement of management, to apply for taxpayer funded health coverage such as Medicaid that is not meant for employees of a $460 billion corporation.

Such impacts are not limited to those actually on Wal-Mart’s payroll. Since it is by far the largest U.S. private-sector employer, Wal-Mart’s abominable labor practices have set an example that makes it easier for many other employers to commit similar sins.

In the hope that we are indeed seeing a major turning point in the relationship between the giant retailers and its workforce, it is worth looking back at the company’s record to recall just how bad its behavior has been.

While some have sought to romanticize founder Sam Walton and pin the blame for the company’s retrograde policies on his successors, the exploitative approach was there from the start. As Bob Ortega points out in his 1998 book In Sam We Trust, Wal-Mart Sam Walton deliberately used superficial forms of paternalism to gain the loyalty of his workers while keeping labor costs at rock bottom. “We really didn’t do much for the clerks except pay them an hourly wage,” Walton wrote in his autobiography, “and I guess that wage was as little as we could get by with at the time.”

When Walton learned in the 1970s that some of his workers were talking about unionization, he did not try to address their concerns. Instead, he brought in a union-busting consultant named John E. Tate, who devised the policy of uncompromising resistance that would characterize Wal-Mart’s labor relations posture for decades to follow. That applied not only at the company’s stores, but also at its large network of distribution centers. For example, after nearly 50 percent of workers at a warehouse in Searcy, Arkansas signed cards in support of Teamsters representation in the early 1980s, Tate and his staff used the run-up to the election to scare the workforce into ultimately voting more than three-to-one against the union.

This scenario would play out again and again, both in the United States and Canada. For example, in 1997 the Ontario Labor Relations Board ruled that Wal-Mart had violated Canadian law by intimidating workers in the period preceding a representation election involving the United Steelworkers union. As a result, the board certified the Steelworkers, even though a majority of workers had voted against the union. The company, however, simply refused to bargain with the union.

When Wal-Mart used the same intimidation tactics during a 1997 election at one of its stores in Wisconsin, the National Labor Relations Board criticized the company but did not take the same sort of action as its Ontario counterpart. Later in 1997, exasperated United Mine Workers officials decided to call off an organizing drive at a Wal-Mart in Fairfield, Alabama less than 24 hours before the representation was scheduled to take place.

In 2000 a small group of courageous meatcutters at a Wal-Mart Supercenter in Jacksonville, Texas voted for representation by the United Food and Commercial Workers (UFCW). Within two weeks, the company announced that it was shutting down the meatcutting operations at that store and at more than 175 more in six states. The NLRB later ruled that the company had violated federal labor law by refusing to discuss the closing with the workers who had chosen union representation.

In 2001 the UFCW said it was launching a national organizing drive at Wal-Mart, but it focused on a few areas such as Las Vegas, where it engaged in a fierce battle with a slew of anti-union specialists flown in from corporate headquarters in Bentonville, Arkansas. Years later, the NLRB found that the company had engaged in various unfair labor practices, but by then the organizing effort had fizzled out. Looking back on the situation, the Las Vegas Sun published an article headlined WAL-MART BREAKS THE LAW, GETS PUNISHED, WINS ANYWAY.

While the UFCW largely turned away from individual store organizing in the United States, it continued the effort in Canada, on the assumption that the legal environment would be more conducive there. Yet Wal-Mart continued to run roughshod over Canadian law as well.

When workers at a store voted for representation, Wal-Mart simply refused to bargain with the union. If it was forced to do so, it turned to the same tactic it employed in Texas: shutting down the store or department where workers had asserted their desire for collective bargaining, pretending that the step was being taken for economic reasons.

After such a move in 2005 involving a store in Jonquiere, Quebec, Wal-Mart CEO Lee Scott defended the action in an interview with the Washington Post, saying that he “saw no upside to the higher labor costs” that union representation would have brought and that he “refused to cede ground to the union for the sake of being ‘altruistic.’”

That, in a nutshell, is Wal-Mart’s view of the world—that its desire to keep costs, especially those relating to labor, at the absolute minimum is all that matters. Any measures in furtherance of that goal are justified.

Along with fighting unions tooth and nail, the religion of cost minimization led to other practices that made life hellish for the company’s workforce. This included the systematic use of wage theft to cheat workers out of overtime pay as well as gender and racial discrimination. Over the past decade, the company has paid hundreds of millions of dollars to settle lawsuits over wage and hour violations. In 2005 it paid $11 million to settle federal charges related to the illegal use of undocumented immigrants—who were found to be working some 56 hours a week—to clean its stores. And Wal-Mart would have paid much more in damages for sex discrimination if the U.S. Supreme Court had not come to its rescue and derailed a massive class action suit (though other more limited suits took its place).

Wal-Mart’s employment practices have been so egregious that they go beyond regulatory infractions and enter the realm of human rights abuses. It’s thus no surprise that Human Rights Watch, which typically  analyzes atrocities in dictatorial governments, once published a report concluding Wal-Mart violated the right of its workers to freedom of association.

So here’s hoping that the freedom fighters of the Wal-Mart workforce succeed in fully taming the bully of Bentonville.

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New in CORPORATE RAP SHEETS: Dossiers on water villains Nestlé and Coca-Cola Company.

Corporate Rap Sheets

American Express is penalized $85 million for deceptive credit card practices. The Bear Stearns unit of JPMorgan Chase is sued for defrauding purchasers of mortgage-backed securities. These are just a single recent day’s contribution to the never-ending wave of corporate malfeasance—bribery, tax evasion, price-fixing, defrauding of government or consumers, environmental violations, unfair labor practices and much more. Given the frequency of these scandals, it is difficult to remember which corporation has done what.

A new feature of the Dirt Diggers Digest site (and that of the Corporate Research Project) will make it easier to keep track of these misdeeds. Corporate Rap Sheets are dossiers summarizing the most significant crimes, violations and other questionable activities of the world’s largest and most controversial companies. The rap sheets provide readable accounts of a company’s history on major accountability issues and, wherever possible, include links to key documents or other information sources.

These dossiers are not limited to formal legal actions and regulatory proceedings. They also look at the general behavior of the companies in areas such as environmental protection, labor relations, taxes and subsidies. They also list watchdog groups as well as books and reports about the company.

The Corporate Rap Sheets project is designed to contribute to the tradition of tabulating corporate misbehavior that began with Edwin Sutherland’s 1949 book White Collar Crime, resumed three decades later in works such as Everybody’s Business: The Irreverent Guide to Corporate America, and today is pursued on the web by sites such as the Project On Government Oversight’s Federal Contractor Misconduct Database and the Business & Human Rights Resource Centre. (I have prepared a fuller account of this tradition to go along with the rap sheets.)

I am launching the project with a set of 20 dossiers that focus on four industries known for their checkered accountability record: automobiles (General Motors, Ford Motor and the major Japanese and German producers); military contracting (Boeing, Lockheed Martin, Northrop Grumman and the like); mining (the big global resource companies such as BHP Billiton, Rio Tinto and Anglo American); and petroleum (the four remaining members of what used to be called the Seven Sisters: Exxon Mobil, Chevron, BP and Royal Dutch Shell).

In the months to come, I plan to add more rap sheets for the giants of other controversial industries such as pharmaceuticals, tobacco, agribusiness and banking. New rap sheets will be announced at the end of Dirt Diggers Digest weekly posts.

Here are some tidbits from the first batch of rap sheets:

HONDA. The company’s more fuel efficient cars have given it a relatively benign environmental reputation, yet in 1998 Honda had to pay up to $267 million to settle U.S. government allegations that it programmed millions of its cars to ignore spark-plug failures that could result in much higher emission levels. The company paid a civil fine of $12.6 million and $4.5 million to fund environmental projects, while spending up to $250 million to serve and repair the vehicles involved.

NORTHROP GRUMMAN. In April 2009 the company agreed to pay $325 million to settle federal charges that TRW, prior to its acquisition by Northrop, had failed to properly test parts (which turned out to be defective) used in spy satellites built for the National Reconnaissance Office.

ROYAL DUTCH SHELL. In 2004 the company admitted that it had overstated its proven oil and natural gas reserves by 20 percent. It later came out that top executives knew of the deception about the reserves back in 2002. The company ended up paying penalties of about $150 million to U.S. and British authorities.

GENERAL MOTORS. In 2011 workers at GM’s subsidiary in India went on strike to protest a speed-up and unsafe conditions. In 2012 GM was confronted with worker protests over its move to eliminate jobs and cut costs at some of its operations in South America. In Colombia, a group of former workers staged a hunger strike, alleging that they were fired after sustaining serious injuries resulting from unsafe conditions on GM assembly lines.

BOEING. In 1999 the U.S. Labor Department accused Boeing of impeding an investigation into racial discrimination at the company. Boeing later agreed to pay $4.5 million to settle claims of both racial and gender discrimination involving more than 4,000 women and 1,600 minority employees in six locations. The settlement with the U.S. Labor Department was the first in which a firm committed to a company-wide program to eliminate discriminatory pay disparities. Nonetheless, Boeing was hit with a class action sex discrimination lawsuit that was settled in 2004 when the company agreed to pay up to $72.5 million in damages and to revamp many of its personnel practices. The settlement was preceded by reports that Boeing had suppressed evidence in the case.

BHP BILLITON. The company has been a frequent target of criticism over its treatment of communities displaced or otherwise affected by its mining operations. For example, in 2005 Survival International accused the company of exploring for diamonds in the Gana and Gwi Bushmen’s reserve in Botswana without their consent. In 2007 a complaint was filed with the Organization for Economic Cooperation and Development accusing BHP of using forced eviction and destruction of a town in Colombia to provide land for the company’s Cerrejon open-cut coal mine. To resolve the dispute, the company agreed to consult more closely with local communities and to spend more on local sustainability projects.

Read more at the Corporate Rap Sheets page.