January 2019 Archives

Backlash of the Billionaires

Most of those who have thrown their hat in the ring for the 2020 presidential race have been met with varying mixtures of enthusiasm and indifference. Howard Schultz is another story. The former Starbucks CEO has engendered a wave of hostility based on concern that his plan to run as an independent would split the anti-Trump vote and usher in another term for the current occupant of the White House.

Schultz is making himself even more unpopular by unleashing a string of attacks on some of the key policy proposals being discussed by progressive Democrats, denouncing Medicare for All and taxes on the wealthy as un-American and ill-informed.

This could simply be an appeal to what remains of the right flank of the Democrats, but it also seems to be part of an emerging backlash among the super-wealthy and corporate elites to a progressive agenda that would affect them directly. Schultz is not the only billionaire complaining at the prospect of having to pay more to Uncle Sam. Michael Bloomberg, another potential presidential contender, has been mouthing off against Sen. Elizabeth Warren’s wealth tax idea and defending U.S.-style capitalism.

We may soon see large corporations speaking out as well. Foxconn did not explicitly link its decision to abandon plans to create 13,000 manufacturing jobs in Wisconsin to the election of progressive Tony Evers as governor, but Republican leaders in the state legislature are making the connection.

Big business has had the best of both worlds during the past two years. While a few corporations such as Foxconn have directly aligned themselves with Trump, most large companies have dissociated themselves from the president’s odious positions on immigration and nationalism. Some business figures such as Larry Fink of BlackRock have been promoting the idea that they are the true paradigms of civic virtue.

At the same time, these executives and their corporations have been making out like bandits from the tax breaks and regulatory rollbacks—including those eroding worker protections–promoted by the faux-populist Trump Administration and its Republican allies in Congress.

The time may soon be coming when large corporations and billionaires have to choose between pretending they are part of the resistance and giving up some of their economic privileges. Or maybe they will lose both.

After all, the idea that large corporations are a force for good is already a dubious notion. Take the case of Starbucks, which has cultivated an image of being a progressive employer but has had to pay more than $46 million to resolve collective-action lawsuits alleging wage and hour violations.

The big question is whether big business and the super wealthy will accept that they have to give back some of their advantages. We know that the likes of the Koch brothers and Sheldon Adelson will fight to their last breath. The Foxconn disinvestment decision could be a harbinger of a coming capital strike in some quarters.

Yet it will be more interesting to see how far purported liberals like Schultz and Bloomberg are willing to go in resisting progressive reforms, and whether they will be joined by the corporate social responsibility crowd. In the words of the old union song, they will have to decide which side they are on.

Mistreating Customers and Workers

For a long time, the corporation that stood out as America’s worst employer was Walmart, given its reputation for shortchanging workers on pay, engaging in discriminatory practices and ruthlessly fighting union organizing drives. Today, Amazon.com seems to be trying to take over that title, at least for its blue-collar workforce.

Yet when we look at the corporations that have been paying the most penalties for workplace abuses, there is another contender for the top, or really the bottom, spot among U.S. employers: Bank of America. In Big Business Bias, a report just published by the Corporate Research Project of Good Jobs First, we found that BofA has paid more in damages, settlements and fines in workplace discrimination and harassment cases than any other large for-profit corporation.

In Grand Theft Paycheck, a report we published last year on wage theft, BofA ranked third (after Walmart and FedEx) in total penalties paid in private wage and hour lawsuits and cases brought by the U.S. Labor Department.

BofA’s position in these tallies is to a significant extent the result of cases brought against its subsidiary Merrill Lynch, which the federal government pressured it to acquire during the financial meltdown in 2008. Merrill accounts for 95 percent of the $210 million in penalties BofA has paid in discrimination cases and more than one-quarter of the $381 million paid in wage theft cases.

Merrill brought with it problems beyond questionable personnel practices. In 1998 it had to pay $400 million to settle charges that it helped push Orange County, California into bankruptcy with reckless investment advice. In 2002 it agreed to pay $100 million to settle charges that its analysts skewed their advice to promote the firm’s investment banking business (plus another $100 million the following year). In 2003 it paid $80 million to settle allegations relating to dealings with Enron.

This track record was similar to that of BofA before the merger. For example, in 1998 the bank paid $187 million to settle allegations that in its role as bond trustee for the California state government it misappropriated funds, overcharged for services and destroyed evidence of its misdeeds. BofA later paid to settle lawsuits concerning its dealings with Enron ($69 million) and another corporate criminal, WorldCom ($460 million).

In the wake of the financial crisis, BofA had to enter into several multi-billion-dollar settlements concerning the sale of toxic securities and various mortgage abuses. It is for all these reasons that BofA tops the Violation Tracker ranking of the most penalized parent companies, with payouts of more than $58 billion.

BofA is not unique in this respect. Another major bank is also one of the ten most penalized corporations overall as well as high on the lists of those with the most penalties related to workplace discrimination and wage theft. That bank is Wells Fargo, which ranks sixth on the Violation Tracker list with over $14 billion in penalties, ninth in the discrimination tally with $68 million and fourth in the wage theft tally with $205 million.

Wells Fargo, of course, is notorious for creating millions of bogus accounts to generate illicit fees and other deceptive practices. Last year, the Federal Reserve took the unprecedented step of barring the bank from growing any larger until it cleaned up its act. The agency also announced that the bank had been pressured to replace four members of its board of directors.

Bank of America and Wells Fargo demonstrate all too clearly that mistreatment of customers can go hand-in-hand with mistreatment of workers.

Big Business Bias

The immediate culprits in many workplace discrimination and harassment cases are individual managers or co-workers, but in many situations the worst villain is the employer that fails to stop the abuse or engages in its own unfair practices.

The Corporate Research Project of Good Jobs First has just published a report called Big Business Bias showing for the first time which large corporations have paid the most to plaintiffs in discrimination or harassment cases based on race, gender, religion, national origin, age or disability.

As in many other things, the big banks turn out to be leading offenders. Bank of America (including its subsidiary Merrill Lynch) has paid a total of $210 million since 2000, more than any other large company. Morgan Stanley ranks fourth at $150 million and Wells Fargo ranks ninth at $68 million. The financial services industry overall has paid a total of $530 million in penalties. The retail sector has paid the same amount, so the two industries have the dubious distinction of being tied for first place.

The report, based on data collected for an expansion of the Violation Tracker database, covers private lawsuits (both class action and individual) brought in federal or state court as well as cases brought with the involvement of the Equal Employment Opportunity Commission (EEOC) and the U.S. Labor Department’s Office of Federal Contract Compliance Programs (OFCCP). It focuses on cases brought against corporations (and their subsidiaries) included in the Fortune 1000, the Fortune Global 500 and Forbes’ list of America’s Largest Private Companies.

We found that virtually every large company has paid damages or reached an out-of-court settlement in at least one discrimination or harassment lawsuit, but in the vast majority of cases the terms of the settlements were kept confidential. Our report is based on the subset of those cases with disclosed settlements as well as those with public court verdicts and EEOC or OFCCP penalties.

The report finds that since the beginning of 2000, large corporations are known to have paid $2.7 billion in penalties, including $2 billion in 234 private lawsuits, $588 million in 329 EEOC actions and $81 million in 117 OFCCP cases.

Following Bank of America in the ranking of most-penalized large companies are Coca-Cola ($200 million) and Novartis ($183 million). The corporation with the largest number of cases with disclosed penalties is Walmart, at 27. Its penalty total of $52 million would have been much higher if the U.S. Supreme Court had not ruled 5-4 in 2011 to dismiss a nationwide gender discrimination class action against the company.

Following banks and retailers, the industries with the most disclosed penalties are food/beverage products ($252 million), pharmaceuticals ($209 million) and freight/logistics ($187 million).

Race and gender cases (mainly relating to hiring, promotion and pay) account for the largest shares of discrimination penalties, with each category totaling just over $1 billion. Age discrimination cases rank third with over $240 million in penalties, followed by disability cases at $155 million and sexual harassment cases at $123 million.

Employees at all levels of the occupational hierarchy have filed discrimination lawsuits against large corporations. The report documents lawsuits whose plaintiffs range from executives, managers and professionals to blue-collar and service workers. However, it finds that managers are more likely to bring age discrimination cases while racial bias and sexual harassment suits more often are filed by blue-collar and service workers.

In addition to supporting the call by the #MeToo movement to end non-disclosure agreements and mandatory arbitration, the report endorses reforms that would require publicly-traded companies and large federal contractors to disclose how much they pay out each year in aggregate damages and settlements in discrimination and harassment cases.

Note: details on all the cases analyzed in the report can be found in Violation Tracker.

Oligopolies and Regulatory Compliance

There is growing awareness of the dangers posed by Amazon’s ever-increasing market clout, but the concentration of economic power is not limited to that online retailer. More and more U.S. industries have become oligopolies, and in some sectors the top two companies now have a market share in excess of 50 percent.

This concentration is made clear to me each time I revise the parent-subsidiary data in Violation Tracker. In the just-completed quarterly update, which will be posted next week, I had to make adjustments to reflect about three dozen instances in which one of the companies in our universe of some 3,000 parent companies completed the acquisition of another.

Among these deals: the purchase of Aetna by CVS Health, the acquisition of Express Scripts by Cigna, and the purchase of industrial gas giant Praxair by its competitor Linde.

But the one that stood out to me was the acquisition of oil refiner Andeavor by Marathon Petroleum. Andeavor is the name adopted last year by Tesoro, one of the largest petroleum refiners in the country. Over the last two decades it has bought refineries from large corporations such as Shell and BP, and in 2016 it purchased all of Western Refining.

Marathon Petroleum, which was spun off from Marathon Oil in 2011, has grown through previous deals such as the takeover of the infamous BP refinery in Texas City, Texas, the site of a 2005 explosion in which 15 workers were killed.

The marriage of Marathon and Andeavor will create the largest oil refiner in the United States, but at the same time it will join together two companies with very checkered environmental, safety and labor records.

Marathon’s operations, including those previously owned by BP in Texas City, have amassed more than $920 million in penalties, according to Violation Tracker. This total includes a $334 million settlement with the EPA and the Justice Department covering air pollution at refineries in five states, along with two dozen OSHA penalties.

Andeavor has accumulated $467 million in penalties, most of which comes from a single giant settlement with the EPA in 2016. It also has had about two dozen significant OSHA fines.

The combined company’s page in the updated Violation Tracker, which will include other new data, will show a total of nearly $1.4 billion in penalties. This will put Marathon in the dubious club of only a few dozen mega-corporations that have racked up ten-figure totals in Violation Tracker. It will put the company higher on that list than the long-time environmental miscreant Exxon Mobil.

Aside from the economic consequences, growing concentration may also be weakening regulatory compliance. As industries become increasingly dominated by large corporations with a history of breaking the rules, it is likely that those violations will become even more common. That’s another reason to get tough on oligopolies.

Dealing Boldly with Big Pharma

Three days after Donald Trump took office in 2017, the Pharmaceutical Research and Manufacturers of America trade association launched a multimillion campaign to bolster its image in the face of criticism from across the political spectrum of exorbitant drug price hikes. Under the banner of Go Boldly, PhRMA sought to persuade lawmakers and the public that biopharmaceutical producers were doing great things to improve our quality of life and were not just price-gouging crooks.

Two years later, the campaign is still in operation, apparently because the public has not been won over. That’s not surprising, given that Big Pharma is still behaving badly. Relieved that the Trump Administration’s drug cost initiative turned out to be toothless, major drug makers are implementing new rounds of price increases.

Promoting the idea that the industry is preoccupied with innovation is also being made more difficult by the announcement that Bristol-Myers Squibb is seeking to spend $74 billion to acquire rival Celgene. The deal would unite two companies that each have been struggling with their cancer treatments.

Bristol’s Opdivo drug has been losing ground to Merck’s Keytruda while Celgene has been experiencing setbacks in clinical trials and is facing a patent expiration in 2022 for its major product Revlimid. A marriage of the two companies would serve mainly as an excuse to eliminate jobs and raise prices, while doing little that would benefit patients.

The merger would also bring together two companies that have checkered legal and regulatory track records. According to Violation Tracker, Bristol has racked up nearly $1 billion in fines and settlements for a wide range of offenses. These include a $515 million settlement with the Justice Department of allegations relating to drug marketing and pricing; a $150 million settlement with the SEC concerning accounting fraud; a $14 million settlement of Foreign Corrupt Practices Act allegations; and a $3.6 million settlement of Clean Air Act violations.

It has also faced criminal charges, including one case in which it paid $300 million and got a deferred prosecution agreement to resolve allegations of accounting manipulation and another in which it pled guilty to lying to the federal government during an investigation of a secret agreement to thwart a generic competitor to its blood thinner Plavix.

For its part, Celgene paid $280 million in 2017 to resolve allegations that it promoted two cancer drugs for uses not approved by the Food and Drug Administration.

The prospect of one ethically challenged and market weakened drug company paying $74 billion to acquire another is emblematic of what is wrong with the U.S. pharmaceutical industry. It provides additional justification for aggressive reforms such as the bill introduced by Bernie Sanders and Ro Khanna that would allow the federal government to authorize generic alternatives to overpriced drug or the proposal by Elizabeth Warren and Jan Schakowsky that the federal government itself produce generic alternatives under certain circumstances.

If we want to Go Boldly, let’s do it with alternatives that empower patients not drugmakers.