Month: July 2022

The addition of historical parent data to Violation Tracker, including a list of the most penalized corporations based on that data, may have led some p.r. executives to hope that their employer would look better on the new tally. Many of them will end up disappointed.

In last week’s Dirt Diggers, I compared the 100 most penalized current parents to the 100 most penalized historical parents and found limited differences. This week I expand the focus to the top 1,000.  

Among that larger group, nearly half have penalty totals based on historical parent-subsidy linkages that are lower than their totals based on current ownership relationships.

Yet the median difference for those with lower historical totals is just $14 million. Only 34 of the 1,000 companies ended up with zero penalties using the historical basis; another 33 ended up with totals below $1 million. The biggest beneficiary of the different approach is Viatris, almost all of whose $1 billion in penalties based on current linkages were incurred by Mylan and Upjohn before they merged in 2020 to form the new company.

Other parents that look good when switching from current to historical linkages include: Equitable Holdings, whose big penalties occurred when it was owned by AXA, and Daimler Truck, just about all of whose penalties date from the period when it was still part of Daimler AG, now known as Mercedes-Benz Group.

Among the 1,000 most penalized current parents there are more than 400 whose historical total is exactly the same, reflecting the fact that they neither acquired nor spun off penalized subsidiaries. Those in this group with the largest penalty amounts are Deutsche Bank, Purdue Pharma, GlaxoSmithKline, Toyota, Allianz, PG&E, and Barclays. The median penalty total for all the zero-difference parents in the top 1000 list is $59 million.

Sixty-seven of the top 1,000 parents look worse when switching from the current to the historical basis. That is because they divested a heavily penalized subsidiary. Those with the biggest penalty differences include: Abbott Laboratories, which spun off AbbVie with its $1.5 billion in penalties; AXA, which spun off Equitable and its $651 million in penalties; and Daiichi Sankyo, which sold Ranbaxy USA, which had accumulated more than $500 million in penalties.

Another 11 companies—such as BP, which sold its heavily penalized operations in Texas City, Texas to Marathon Petroleum, and General Electric, which has been downsizing in numerous sectors—have historical penalty totals at least $100 million lower than their current totals. Yet all of those still end up with historical totals of more than $300 million, and in four cases—BP, Johnson & Johnson, GE and Boehringer Ingelheim—the amount is above $1 billion.

The upshot of all this is that switching the focus from current to historical parent linkages does not show a dramatic difference in the misconduct track record of most large companies. While the new data may not help much for company makeovers, I hope it will prove useful for those taking a critical look at corporate behavior.

Note: the historical parent data now in Violation Tracker is accessible only to those who purchase a subscription. Searching and displaying the other data remain free of charge.

Since Violation Tracker was introduced in 2015, my colleagues and I at the Corporate Research Project have put a lot of effort into identifying the ultimate parent companies of the firms named in the many thousands of individual enforcement records we collect. This has allowed us to show which of those parents have the highest penalty totals linked to their current line-up of divisions and subsidiaries. That dubious distinction has been achieved by the likes of Bank of America, BP and Volkswagen.

Some of the corporations on this list have complained it is unfair to link them to penalties incurred by subsidiaries before they were acquired. We have taken the position that when a company is purchased, the acquirer is in effect buying that entity’s track record. We have thus felt comfortable attributing those past bad acts to the current owners.

Nonetheless, we recognize that Violation Tracker users may want to distinguish between penalties received while the entity has been linked to the current owner and those that occurred before. We thus undertook the task of reconstructing the ownership history of the entities named in the 106,000 entries in Violation Tracker that are linked to one of the more than 3,000 parents for which we aggregate data.

That project is now complete, and the historical data has been incorporated in a newly redesigned Violation Tracker—both in the individual entries and in a list showing the 100 parents with the largest penalty totals based on ownership linkages at the time each penalty was announced.

Before I reveal more about that list, I must report that the cost of this project and the ongoing expenses associated with a very labor-intensive resource compelled us to begin requiring users to purchase a subscription in order to access certain features of the site. Those features include the parent history data and the ability to download search results. Searching and displaying search results (without the historical data) remain free of charge. More details of the subscription system can be found here.

The expanded entries visible to subscribers show the parent at the time of the penalty and the current parent. If the two are different, there is a field summarizing the ownership changes that occurred. For example, an entry on a penalty paid in 2002 by the trucking company Overnite Transportation now notes that its parent at the time was Union Pacific. A new history recap field states: “In 2003 Union Pacific spun off Overnite. In 2005 the company was acquired by United Parcel Service, which sold it to TFI International [the current parent] in 2021.” In addition to accessing such information in individual entries, subscribers can search by historical parent name in the Advanced Search section.

Returning to the list of most penalized parents based on historical ownership linkages, the first finding is that it contains many of the same corporations as the list based on current linkages. In fact, the same name is at the top of both lists: Bank of America. The only difference is that BofA’s historical penalty total–$79 billion—is lower than its total on the current list: $83 billion. That mainly reflects the subtraction of the penalties incurred by Merrill Lynch and Countrywide before they were acquired by BofA amid the financial crisis of 2008.

JPMorgan Chase, number two on the current list, drops to third place on the historical list because of the elimination of penalties related to its big 2008 acquisitions: Washington Mutual and Bear, Stearns. BP rises from third to second. Otherwise, the corporations in the top ten and their rankings are identical in the two lists. The others in that group are: Volkswagen, Citigroup, Wells Fargo, Deutsche Bank, UBS, Goldman Sachs, and Johnson & Johnson. Their penalty totals range from $14 billion to $25 billion on both lists.

Expanding the focus to the full list of the top 100 yields similar results. Eighty-four of the 100 most penalized current parents are also on the list of the 100 most penalized historical parents. Of the remaining 16, four fall slightly above 100 in the historical ranking. The other dozen are parents which, like Bank of America and JPMorgan Chase, bought or merged with other companies with substantial penalty histories.

For example, when Occidental Petroleum bought Anadarko Petroleum in 2019, it took on a business that had earlier been involved in a $5 billion settlement with the Justice Department. Apart from Anadarko, Occidental has accumulated $218 million in penalties.

Among the 16 companies on the historical top 100, but not the current list, is Abbott Laboratories. It gets eliminated from the current list because of its 2013 spinoff of AbbVie, which included businesses with more than $1.5 billion in previous penalties. Without AbbVie, Abbott still has penalties of $785 million.

Any parent company with ownership changes involving businesses with substantial penalty records is going to rank differently on the current and historical lists. Yet these differences do not change the fact that most large corporations have abysmal compliance records no matter how we add up their penalties.

Uber Technologies, a company which already had a less than sterling reputation, now has to contend with more blemishes on its record, thanks to a massive leak of internal documents to the International Consortium of Investigative Journalists.

Using what has been dubbed the Uber Files, ICIJ and partner media outlets such as The Guardian and The Washington Post have published a flurry of articles describing how the company, during a period when cofounder Travis Kalanick was still CEO, used a variety of aggressive techniques to fight regulators as it sought to conquer the tax industry around the world. At the same time, the company ingratiated itself with numerous world leaders to help in its expansion. Some Uber executives liked to refer to themselves as “pirates.”

While many of the details are fascinating, the main revelations in the Uber Files are far from surprising. The company was already known for ruthless tactics. In the United States alone, Uber has racked up more than $300 million in fines and penalties. About half of that total comes from a single settlement with a group of states which alleged that it tried to cover up a data breach affecting over 50 million customers.

Uber paid $20 million to resolve Federal Trade Commission allegations that it misled prospective drivers with exaggerated claims about earnings potential and about the availability of vehicle financing. It paid $10 million to Los Angeles and San Francisco counties (another $15 million was suspended) in settlement of allegations it misled customers about the background checks it carried out on its drivers. It was fined numerous times by state regulators for operating without proper authority or for failing to comply with reporting requirements.

It is clear that Uber, especially during the Kalanick era, has regarded regulation with contempt. One cannot help but suspect that the company’s name is meant to portray it not only as being above its competitors but also above the oversight of governments.

While Uber has been quite brazen in its hostility toward regulation, that opposition is hardly unusual. The Uber Files are appearing not long after the rightwingers of the U.S. Supreme Court handed down a ruling that not only blocked the Biden Administration’s effort to limit greenhouse gas emissions but may also lead to the dismantling of many other forms of government oversight of business.

There is now growing concern that the Court could revive rulings such as the 1905 Lochner decision which struck down a New York law that prohibited employers from imposing excessive working hours. Lochner held sway for several decades until giving way to the labor protections adopted during the New Deal era.

It is not hyperbole to suggest that the Court wants to bring back an economy that resembles the laissez-faire system of the 19^th Century. That is, after all, an implication of the originalism the rightwing Justices claim to espouse. If Roe has to be overturned because the Constitution says nothing about abortion, then don’t laws about fair labor standards or product safety also have to fall because the founders did not address those issues either?

It may be that the bigger threat comes not from business executives pretending to be pirates but from extremists in black robes laying waste to essential government safeguards.