Month: April 2021

Exercising Enforcement

It is not surprising that Peloton Interactive Inc. thought it could refuse to tell the Consumer Product Safety Commission the identity of a child who was killed in an accident involving one of the company’s treadmills. And it was not surprising that Peloton was shocked when the CPSC unilaterally issued a press release urging owners of the Tread+ to stop using the machine in homes with small children or pets.

The reason is that the CPSC has long been one of the more toothless of the federal regulatory agencies. As shown in Violation Tracker, over the past decade it has brought only about 50 enforcement actions involving monetary penalties. During the Trump Administration, the agency almost faded away, bringing only seven actions. There were none at all during the final two years of Trump’s tenure.

Instead, the CPSC has relied on the willingness of manufacturers to reveal safety problems on their own and voluntarily recall defective products. Peloton did disclose the fatal accident on its website and to the CPSC, but by withholding key details it thwarted the agency’s ability to investigate the matter. It also softened the negative impact of the announcement by making the disingenuous claim that it was protecting the privacy of the family involved.

Peloton also applied more of its own spin in the announcement by suggesting it was enough for users to “make sure” that the space around the equipment is clear. By contrast, the CPSC press release, which the company denounced as “inaccurate and misleading,” noted that it was aware of 39 incidents involving the Tread+, including at least one that occurred while a parent was running on the treadmill. The agency said this indicated that the risks were not limited to situations in which a child has unsupervised access to the treadmills, which cost more than $4,000.

Issuing the release without the company’s consent was a remarkable step for the CPSC, given that a provision of the Consumer Product Safety Act known as Section 6(b) restricts the ability of the agency to reveal company-specific information.

The agency is also limited in its ability to impose mandatory recalls. To do so, the CPSC would need a court order, meaning that a recalcitrant manufacturer could tie up the matter in protracted litigation, all while continuing to sell the dangerous product.

All of this is to say that the less than dazzling enforcement record of the CPSC is to some extent the result of structural impediments. Past attempts to remove those restrictions were not successful, but the Peloton dispute has prompted a renewal of those efforts. U.S. Senator Richard Blumenthal (D-CT) and U.S. Representatives Jan Schakowsky (D-IL) and Bobby L. Rush (D-IL) recently introduced legislation that would repeal Section 6(b).

Corporate lobbyists have worked so hard to promote the idea of over-regulation that many people will be surprised to hear the extent to which an agency such as the CPSC is prevented from taking strong action. The Peloton case is a reminder that the real problem is often not too much regulation but too little.

Public Money and Public Health

When a company is the subject of front-page stories about serious misconduct, the firm would normally have a track record of regulatory infractions documented in Violation Tracker. Yet Emergent BioSolutions, which has had to throw out millions of doses of Covid-19 vaccine because of serious production flaws, does not have a single entry in the database.

This is not because Emergent has had a perfect track record until the present. On the contrary, investigations by the New York Times, the Washington Post and the Associated Press have reported that probes by two federal agencies and by Johnson & Johnson, which contracted with Emergent to manufacture the vaccine, had found serious deficiencies, especially with regard to its efforts to prevent contamination.

If you read those articles carefully, you will see that the findings come from unpublished documents obtained through Freedom of Information Act requests or that were leaked to reporters. In other words, the public was unaware of the deficiencies being found by inspectors from the Food and Drug Administration and J&J auditors. There were no public enforcement actions against the company that would have shown up in the regulatory data collected for Violation Tracker. There are also no substantive references to regulatory issues in the publicly traded company’s 10-K filing.

I also searched the Nexis news archive for articles or press releases about Emergent. Prior to the recent revelations, almost all the coverage about the company focused on the numerous government contracts it has received. Two decades ago, it was the nation’s sole producer of the anthrax vaccine, as a result of which it received many millions of dollars in federal contracts. It also received funding to work on drugs for Ebola and Zika prior to getting on the Covid-19 gravy train.

Among the agencies providing this backing has been the Biomedical Advanced Research and Development Authority, an office within the Department of Health and Human Services. BARDA was apparently aware of shortcomings at Emergent but did little about them. The Times investigation found that in dealing with the company the agency “acted more as a partner than a policeman.”

Along with the federal largesse, Emergent has received millions of dollars in state economic development incentives. In 2004, Maryland provided up to $10 million in assistance for the facility that was producing the anthrax vaccine. The state provided a $2 million loan when Emergent built a new headquarters in 2013, with Montgomery County and the city of Gaithersburg kicking in another $1 million. More public money was provided to the company’s Baltimore operations, where the Covid-19 work has been performed pursuant to an estimated $1.5 billion in manufacturing contracts.

While the production problems were kept quiet, Emergent was able to pretend that all was well at the company. Its CEO Robert Kramer’s total compensation jumped to $5.6 million last year. The company’s stock price at one point last summer soared to $135.

Now all that is over. The stock price is at less than half that level. The company is facing multiple investigations whose results are likely to be made public. Kramer should not expect a big boost in pay.

It is unclear how much Emergent’s practices have set back the country’s campaign to defeat the coronavirus. Yet it seems clear this was an egregious case of a corporation living high on public money without paying adequate attention to public health.

The Infrastructure of Workplace Protection

Republicans are having limited success turning the public against the Biden Administration’s $2 trillion infrastructure plan by claiming the proposal is too wide-ranging. A new NPR poll shows solid support not only for the provisions relating to roads and bridges but also for spending on modernizing the electric grid, achieving universal broadband coverage and even expanding long-term healthcare.  

Given the sweeping scope of the proposal, it is not possible for pollsters to ask about every component. I suspect there would also be high numbers for a portion of the plan that has received little attention. That is the provision that would strengthen the capacity of federal departments responsible for enforcing workplace protections.

Biden is proposing that $10 billion be spent to beef up agencies such as the Occupational Safety and Health Administration, the Equal Employment Opportunity Commission and the Wage and Hour Division. The plan states: “President Biden is calling on Congress to provide the federal government with the tools it needs to ensure employers are providing workers with good jobs – including jobs with fair and equal pay, safe and healthy workplaces, and workplaces free from racial, gender, and other forms of discrimination and harassment.”

It makes sense to push for improvements in job quality at the same time the country is striving to bring the quantity of jobs back to the levels seen before the arrival of Covid-19. Workplace abuses predated the pandemic, in some ways got worse during the past year—especially with regard to job safety in industries such as meatpacking—and will be with us long after the health crisis abates.

Congress has perennially failed to fund these agencies adequately, leaving them with insufficient numbers of inspectors and investigators. For example, the most recent edition of the AFL-CIO’s Death on the Job report notes that the number of workplace safety inspectors declined steadily during the Trump years both at the federal and state levels. These staffing shortages create a form of de factor deregulation as many workplace abuses go undetected and unprosecuted.

Biden’s plan also briefly addresses another problem with workplace enforcement: artificially low penalty structures, especially at OSHA. The Administration calls for increasing these penalties but does not provide specifics.

The penalty situation at OSHA is not as bad as it used to be. Changes made during the Obama Administration, including 2015 legislation that extended inflation adjustments to workplace safety fines, helped raise penalty rates. The maximum for a serious violation is now $13,653 and the maximum for a willful or repeated violation is $136,532.

These maximum amounts do not tell the full story. As Death on the Job points out, the average penalty for a serious violation in fiscal year 2019 was only $3,717. The average for willful violations was $59,373 and for repeat violations it was $14,109. Even in cases involving fatalities, the median penalty was just $9,282.

The cumulative effect of low OSHA penalties can be seen in the data in Violation Tracker, which only includes fines of $5,000 or more. OSHA accounts for 37 percent of the cases in the database but less than 1 percent of the total penalty dollars. Numbers such as these cause too many employers to conclude that their bottom line is best served by skimping on workplace safety and paying the meager fines that may or may not be imposed by OSHA.

The Biden infrastructure plan could begin to change that.

The Violation Tracker Origin Story

The article and dazzling infographics on Violation Tracker just published by Fortune are not only great publicity for the database. They also provide an opportunity to recall how the idea for a resource on corporate misconduct came about in the first place.

As the Fortune piece mentions, the origin story dates back to 1980, when I was a young researcher on the staff of that same magazine. Yet there is more to be said about what occurred behind the scenes during that project and its aftermath.

Back then, Irwin Ross, a contributor to the magazine, had seen a news article about small-business corruption in Chicago and thought it would be interesting to explore similar behavior among large companies. His assumption—and that of Fortune’s editors—was that illegality was rare in big business.

After being assigned to the project, I set out to disprove that premise by gathering as many cases as I could involving our sample universe of just over 1,000 companies that had appeared on the Fortune 500 and related lists at any point during the previous ten years. The editors decided to limit the scope of the research to five categories: bribery, criminal fraud, illegal political contributions, tax evasion, and criminal antitrust violations.

To the dismay of the editors, I found that quite a few of the corporations – 117 to be precise – had been the subject of a successful federal prosecution during the specified time period. Among these was Fortune’s then-parent, Time Inc., whose subsidiary Eastex Packaging had pleaded no contest to a price-fixing charge.  

After much hand-wringing, Fortune’s editors decided to publish the list of the cases, along with an article by Ross, in the December 1, 1980 issue with the headline “How Lawless Are Big Companies?” and the subhead “A look at the record since 1970 shows that a surprising number of them have been involved in blatant illegalities.” The story was featured on the cover with a photograph depicting an executive being fingerprinted by a U.S. Marshal.

As one might expect, the companies included in the list were quite displeased. To their credit, Fortune’s editors did not retract or disown the article, but they did agree to give one of the corporations an opportunity to respond.

The December 29, 1980 issue contained a piece by William Lurie, general counsel of International Paper, headlined “How Justice Loads the Scales Against Big Corporations.” Calling my list “simplistic and misleading,” he tried to explain why IP had felt compelled to plead nolo contendere to price fixing charges. His argument was essentially that it was simply too risky for a company to fight such charges in court, given that a guilty verdict would open the door to crushing damages in a follow-on civil suit.

This was not exactly a profession of innocence. In fact, as the Fortune article noted and Lurie acknowledged, no contest is tantamount to a guilty plea. Lurie’s argument, like nolo itself, served as a way for corporations to save face after being labeled corporate criminals. His piece also took the pressure off Fortune editors for diverging from what was then their unvarying defense of corporate behavior.

For me, the experience created a life-long fascination with documenting corporate misconduct. I later learned that this kind of research had begun much earlier, especially through the work of the sociologist Edwin Sutherland. When his book White Collar Crime was published in 1949, the company names were removed. It was only in 1983 that an unexpurgated version was published by Yale University Press.

Following in the tradition of Sutherland’s book and other work such as the Project On Government Oversight’s Federal Contractor Misconduct Database, Violation Tracker is designed to show that lawlessness among large corporations is a problem that persists.

Note: drop me a line at pmattera@goodjobsfirst.org if you can’t get behind the Fortune paywall and want to see the whole story.