January 2016 Archives

Amazon Delivers Exploitation

workhard The 2015 financial results just announced by Amazon.com leave no doubt: the “everything store” is well on its way to dethroning Wal-Mart as the king of retail. Unfortunately, it also seems intent on taking over the role of the worst employer.

Amazon’s revenues leaped 20 percent last year to $107 billion as it dominated online commerce, especially during the holiday season. Profitability remained weak, but that’s a result of heavy spending to build a network of distribution centers enabling superfast delivery. It’s not because Amazon is generous to its 150,000 employees.

On the contrary, lousy working conditions have been a fact of life at Amazon since its earliest years. In 1999 the Washington Post published a story about the pressure put on customer service representatives to work at breakneck speed. “If it’s hard for you to go fast,” one Amazon manager told the newspaper, “it can be hard for you here.”

Amazon — which adopted the employee motto “Work hard, have fun and make history” — successfully opposed union organizing drives at its distribution centers using traditional retrograde employer tactics such as captive meetings and the closing of facilities where pro-union sentiment ran too high.

In the absence of unions, Amazon was able to go on using temp agencies to hire workers, who could thus be easily terminated if they did not meet the company’s unreasonable productivity demands. Amazon even skimped on things such as providing a tolerable temperature level in its vast warehouses. In 2011 the Allentown (Pennsylvania) Morning Call published a lengthy exposé on working conditions at Amazon’s sprawling Lehigh Valley distribution center, where temperatures rose so high during the summer that the overtaxed workers suffered from dehydration and other forms of heat stress. People collapsed so frequently that Amazon arranged for ambulances to be standing by outside the facility. It was only after the story gained national coverage that Amazon broke down and installed air conditioning.

The intense pace of work has also contributed to accidents. In June 2014 the Occupational Safety and Health Administration cited third-party logistics company Genco and three staffing services for serious violations in connection with a December 2013 incident in which a temp worker was crushed to death at an Amazon distribution center in Avenel, New Jersey. OSHA proposed fines of $6,000 against each of the companies. The agency said it was also investigating a fatality at another Amazon distribution center in Carlisle, Pennsylvania. Amazon itself was fined $7,000 at its warehouse in Campbellsville, Kentucky.

Amazon has also been the subject of complaints regarding violations of the Fair Labor Standards Act, including the failure to compensate workers for time spent waiting in long lines at the end of shifts to be searched to make sure they aren’t stealing merchandise. In October 2015 drivers for the Amazon Prime Now delivery service in California filed a class action lawsuit charging that they were being misclassified as independent contractors and thus denied protection under state laws governing minimum wages, overtime pay and business expense reimbursement.

Reports about harsh working conditions have also surfaced in connection with Amazon’s facilities in Europe. In 2013 a German television program documented the brutal treatment of temp workers brought in from Poland, Spain and other countries to help with the Christmas rush at Amazon’s German distribution centers. The abuses were said to be carried out by black-uniformed guards employed by a security company hired by Amazon, which responded to the scandal by ending its relationship with the firm. Amazon was also confronted by its regular German distribution center employees, who began staging strikes to support demands for higher pay. Amazon, unlike most domestic and foreign employers, refused to cooperate with the country’s powerful labor unions.

Labor protests have also taken place in response to conditions at Amazon distribution centers in the United Kingdom. In 2013 the BBC sent an undercover reporter to work at one of those centers and aired a program describing the hectic work pace and quoting an academic expert as saying that it created “increased risk of mental illness and physical illness.”

Rather than improving working conditions, Amazon has focused on replacing workers with automation, a move assisted by the 2012 purchase of the robotics company Kiva Systems. A February 2015 article in the Seattle Times reported that a new Amazon warehouse in Washington was “teeming with hundreds of Kiva robots. Those are the squat, coffee table-sized gadgets that buzz around, lifting and moving shelves of products, delivering them to workers who pluck items to be shipped off to customers.” It seems that the robots are not making things easier for workers; instead, they are probably helping to intensify the pace at which the reduced workforce is expected to toil.

Labor controversies are not limited to distribution centers. Charges of abysmal working conditions have also been raised in connection with Mechanical Turk, a service created by Amazon to parcel out repetitive online tasks to thousands of individuals who are paid on a piecework basis. It’s been estimated that these “crowdworkers” earn an average of about $2 an hour.

In August 2015 the New York Times published an investigation of Amazon’s white-collar workforce, describing a situation in which employees were compelled to work long hours and were encouraged to criticize one another mercilessly. The rigid system was said to be governed by a series of principles promulgated by company founder and CEO Jeff Bezos that everyone was expected to follow. Those who failed to adjust to the system were dismissed.

When Amazon released its diversity data for the first time in 2014, the percentage of the U.S. workforce that was black or Hispanic was nearly 25 percent, far higher than at other tech companies. Yet subsequent data indicated that many of those minorities were employed at its warehouses and in other relatively low-skill jobs. Just 10 percent of Amazon’s executive and technical employees are black or Hispanic.

Speed-up, wage theft, union-busting, safety and health abuses: Amazon stocks the full inventory of exploitative labor practices.

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New in Corporate Rap Sheets: Food giant ConAgra, touting its Healthy Choice brand, has been involved in a long series of food and workplace safety controversies.

A Struggling Arch Coal Deserves Little Sympathy

archcoal Arch Coal recently became the latest and largest coal producer to seek protection in Chapter 11. The company has also lost its listing on the New York Stock Exchange. Arch vows to go on operating but faces a very uncertain future.

It’s difficult to summon much sympathy for Arch or its struggling competitors. While its workers deserve a just transition to new livelihoods, Arch deserves to fade away. The main reason, of course, is the coal industry’s outsize contribution to the climate crisis, but a look at Arch’s track record shows a string of other major negative impacts.

Pollution. Arch’s first big environmental controversy occurred in 1996, when a massive mine waste spill at the operations of its Lone Mountain subsidiary in Virginia contaminated 30 miles of rivers and streams, killing thousands of fish. The company was hit with a $1.4 million state fine, one of the largest in Virginia’s history.

Arch also became a bigger target for environmental activists when it escalated its involvement in mountaintop-removal mining in Appalachia. It took advantage of the Bush Administration’s support for the controversial practice and resisted when the Obama Administration moved to tighten the rules. In 2010 an Arch subsidiary sued the Environmental Protection Agency over the planned revocation of a permit for a large mountaintop project in West Virginia that the agency decided would do irreversible damage to the environment. The EPA stood its ground, and when the revocation for the Spruce No.1 Mine was formally announced, Arch said it was “shocked and dismayed” and charged that the decision “will have a chilling effect on future U.S. investment.” Arch took the case all the way to the Supreme Court and was rebuffed at every stage.

In 2011 the EPA and the Justice department announced that Arch would pay $4 million to settle alleged violations of the Clean Water Act in Kentucky, Virginia and West Virginia. As part of the settlement, Arch was required to take steps to prevent an estimated two million pounds of pollution from entering waterways, including the implementation of a system to reduce selenium discharges. That same year, Arch paid $2 million to settle a lawsuit brought environmental groups over the selenium issue in West Virginia.

In 2015 Arch had to pay another $2 million to the federal government to settle similar alleged violations by 14 subsidiaries connected to its International Coal Group operations in five states.

Federal Leasing. Arch is one of a handful of companies taking advantage of a non-competitive program that allows coal operators to lease federal land at below-market rates. A 2012 report by the Institute for Energy Economics and Financial Analysis estimated that over 30 years the Treasury lost $28.9 billion in revenue from the failure to obtain fair market value for the coal extracted from the Powder River Basin of Wyoming and Montana, the country’s largest coal-producing region. A report released by the U.S. Government Accountability Office in 2014 also found a pattern of undervaluing coal leases, as did a 2015 report by Headwater Economics estimating that two reform options would have generated additional revenue ranging from $850 million to $5.5 billion for the 2008-2012 period.

In 2014 the Western Organization of Resource Councils and Friends of the Earth filed a lawsuit asking that the Interior Department’s Bureau of Land Management be required to prepare a comprehensive environmental impact review of the federal leasing program. The last time such an assessment was done was in 1979. Arch’s Chapter 11 filing came just days before the Obama Administration announced the suspension of new federal coal leases.

Mine Safety. A 2003 inspection of Arch Coal’s Black Thunder mine in Wyoming by the federal Mine Safety and Health Administration resulted in more than 50 violations. Two miners had been killed at the massive operation in the previous 12 months. In 2015 MSHA issued an imminent danger order at Black Thunder.

There have been other fatalities at Arch operations, including one at a Kentucky mine in 2013 that MSHA found had occurred after the company knew of a significant danger but failed to take proper precautions.

The most serious accident associated with Arch was the 2006 disaster at the Sago Mine run by a subsidiary of International Coal Group, which became part of Arch in 2011. Twelve miners died in a methane gas explosion at the West Virginia operation, which had been cited by MSHA for “combustible conditions” and “a high degree of negligence.” During 2005 the mine had received more than 200 violations, nearly half of which were serious and substantial. Investigations of the accident by the state and the company suggested that lightning had set off the explosion, whereas a United Mine Workers report concluded that sparks generated by falling rocks inside the mine were the cause.

According to the Violation Tracker database, Arch’s current operations have been fined a total of more than $6.4 million by MSHA since the beginning of 2010.

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Note: This post is drawn from my new Corporate Rap Sheet on Arch Coal, which can be found here.

Too Big to Be Honest

breakingup For a long time the big financial institutions of the United States had an unrelenting urge to grow bigger. Acting on the principle that only the big would survive, banks and related entities spent the 1990s and the early 2000s gobbling up one another at a furious pace. The result was a small group of mega-institutions such as Citigroup and Bank of America that nearly brought down the whole financial system in 2008.

Federal regulators declined to break up the giants, which in recent years have grown only larger. But now some of the rules put in place in the wake of the meltdown are having the desired effect. Some major financial players are deciding to split themselves up in the hope of evading the more stringent capital requirements imposed on companies designated as systemically important (SiFi) institutions.

The latest firm to bow to this pressure is insurance behemoth MetLife, which just announced it is exploring a spinoff of its retail life and annuity business in the U.S. into a new presumably non-SiFi company. The move comes in the wake of moves by General Electric to dismantle large parts of its huge GE Capital business. Among the businesses that contributed to GE Capital’s heft was the banking operation it purchased from MetLife in 2011 as part of a previous move by the insurer to reduce its regulatory oversight.

Now other large insurers such as Prudential Financial and American International Group, the latter the recipient of a $180 billion federal bailout, may take similar steps. Apart from the regulatory pressures, AIG has been dealing with breakup calls from investors such as John Paulson and Carl Icahn, who dubbed it “too big to succeed.”

It remains to be seen whether the big banks will succumb to the breakup. For the moment they are resisting, but that’s the stance MetLife had long maintained. Their sagging stock prices make them susceptible to a move by someone like Icahn.

It’s gratifying to see regulation working as designed to make the country less vulnerable to large reckless institutions and a bit less enthralled with financialization. GE’s announcement that it is moving its headquarters to Boston is part of its retreat from finance.

Yet more still needs to be done to get the banks to clean up their act. Stricter capital rules are fine, but the likes of B of A and JPMorgan Chase need to feel more pressure to obey the law. They’ve had to cough up larger and larger financial settlements and in a few cases have even had to plead guilty to criminal charges. Yet they haven’t gotten the message.

Perhaps what’s needed are “honesty requirements” to go along with the more stringent capital requirements. In other words, banks that break the law would have to sell off the businesses involved in the misconduct. This would accelerate the move away from overly large financial institutions and hopefully put more operations in the hands of firms that are willing to play by the rules.

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Note: the Dirt Diggers Digest Enforcement page, which provides links to the compliance data posted by more than 50 federal regulatory agencies, has just been updated and expanded.

DOJ’s Sputtering Case Against Volkswagen

There’s a scene in “The Wolf of Wall Street” in which a federal prosecutor tells Jordan Belfort (played by Leonardo DiCaprio) that the case against him for securities fraud was a “Grenada,” meaning that it was as unloseable as the 1983 U.S. invasion of that poorly defended Caribbean island.

The Justice Department has had another Grenada in recent months with the case against Volkswagen for systematically cheating on auto emissions tests. As the scope of the deception broadened to include millions of vehicles, VW effectively admitted guilt and put aside the equivalent of about $7 billion to resolve the issue, later acknowledging that sum would not be enough.

After three months of preparation, Justice has filed its case yet is failing to make full use of its leverage against the automaker. As a result, it could end up with only a modest win against one of the most egregious cases of corporate environmental fraud this country has ever seen.

The biggest disappointment is DOJ’s decision to forgo criminal charges and handle this solely as a civil matter. Admittedly, prosecutors were confronted with the fact that a little known loophole in the Clean Air Act exempts the auto industry from criminal penalties. Yet there appeared to be ways to get around this limitation by alleging fraud, for instance, given that there was apparently a deliberate effort to deceive the federal government about emissions. It’s not clear why DOJ rejected this approach and did not even use the frequent gambit of pursuing a criminal case and then offering the company a deferred- or non-prosecution agreement. Those options are problematic, but with them criminal charges are at least part of the picture rather than being left out entirely.

Also frustrating is the failure of Justice to bring charges (civil or criminal) against individual VW executives. This flies in the face of the department’s hyped announcement in September of a new policy of holding individuals accountable for corporate misconduct. Charging senior VW officers was all the more important in light of indications that the company has been seeking ways to place the blame on lower-level engineers.

It is disturbing to think that VW may have intimidated DOJ away from an aggressive prosecution. Although the scope of the scandal has widened, taking in more of the company’s brands in more countries, VW seems to be adopting a less conciliatory posture than it did earlier in the case. In fact, the DOJ complaint accuses the company of impeding and obstructing the investigation through “material omissions and misleading information” — accusations that make the absence of criminal charges all the more bewildering.

It is likely that VW will have to pay billions of dollars to resolve the charges against it. This is right and proper, but is it enough? Corporations from BP to Bank of America have gotten used to buying their way out of legal jeopardy, treating fines and settlements as (often tax deductible) costs of doing business. Those costs have been rising — BP has had to pay out more than $24 billion in connection with its Gulf of Mexico disaster — but there is little evidence that the penalties are having the intended deterrent effect.

Criminal charges are not a panacea. They’ve been brought against BP, several large banks and other companies yet no longer have the same bite. Several banks, for instance, have received waivers from SEC rules barring criminals from the securities business.

Yet at least there is the possibility of applying criminal penalties more aggressively. Going the purely civil route, as Justice is doing with VW, guarantees from the start that the case will be little more than a financial transaction. In a case of deliberate and widespread deception with severe environmental and health impacts, that’s simply not good enough.