Month: October 2022

Poultry Concentration and Collusion

In the debate over the causes of today’s persistent inflation, corporate profiteering tends to get put far down on the list, well below factors such as supply-chain bottlenecks and the war in Ukraine. While corporate practices may not be the primary driver of rising prices, they are something government officials can actually do something about.

In fact, they already are trying to do so. One of the primary arenas is agribusiness, especially poultry processing. For instance, the Washington State Attorney General just announced that Tyson Foods has agreed to pay more than $10 million to settle its role in a lawsuit alleging that a dozen broiler chicken producers conspired to manipulate prices.

The U.S. Justice Department has also been targeting the broiler producers. It has run into difficulty proving its allegations against specific executives and has dropped a slew of individual charges. That doesn’t necessarily mean price fixing hasn’t been occurring. One of the major corporate defendants, Pilgrim’s Pride, pled guilty to criminal charges and paid a penalty of $107 million.

DOJ’s case against the chicken industry is not a response to recent inflation. It is an attempt to address many years of inflated prices resulting from collusion among a small group of companies in a highly concentrated industry.

Whatever happens with the government’s case, the industry is still facing a slew of private antitrust lawsuits that have been consolidated in federal court in Illinois. Last May, the judge presiding over the sprawling case certified three classes of plaintiffs: direct purchasers, indirect purchasers and end-user consumers. The plea by Pilgrim’s Pride in the DOJ case will make it much easier for the various plaintiffs to win substantial relief beyond the several hundred million dollars already paid out in partial settlements.

Chicken producers have also been accused of anti-competitive employment practices. In July, Cargill Meat Solutions, Sanderson Farms and Wayne Farms agreed to pay a total of $84.8 million to settle a civil antitrust case alleging that they engaged in a long-running conspiracy to depress wages by improperly exchanging information and coordinating their pay practices. A court-appointed monitor will oversee their behavior over the next decade.

The potential for future collusion, however, is now greater. Over the summer, a joint venture of Cargill and Continental Grain, the parent of Wayne Farms, acquired Sanderson and combined it with Wayne to form Wayne-Sanderson Farms. This deal creates another mega-producer alongside Tyson and Pilgrim’s Pride. The three will together control over 50 percent of the chicken market.

Diminished competition by itself serves to push prices higher. The effect is intensified in an industry whose dominant players have shown an inclination to engage in collusion as well. Anti-competitive practices by themselves do not account for mounting inflation, but they are a significant part of the story that deserves more attention—and more intervention by regulators and prosecutors.

Violation Tracker UK Year One

Corporate responsibility and ESG issues are receiving more attention than ever in the United Kingdom. Numerous services now exist to help investors pick ethical companies to add to their portfolios.

 Yet what about the irresponsible companies—the ones that break the rules and which investors may wish to shun? That’s where Violation Tracker UK comes in.

The free database, which is one year old this month, is a unique resource for identifying the companies that have been sanctioned by government regulators for infringements in areas extending from environmental compliance and employment standards to consumer protection and accounting fraud. Along with investors, users of the database include activists, journalists, lawyers, academics and public officials. VT UK is modeled on the U.S. Violation Tracker, which was launched in 2015.

VT UK collects data from four dozen regulatory agencies, ranging from the Health and Safety Executive and the Financial Conduct Authority to lesser known bodies such as the Groceries Code Adjudicator and the Gangmasters and Labour Abuse Authority. The latest agency to be added is the Jersey Financial Services Commission.

Since its launch, VT UK has grown to 77,000 entries dating back as far as 2010. We are constantly on the lookout for new datasets. For example, HM Revenue and Customs recently released a list of about 200 companies fined for having inadequate protections against money laundering. Their names are now in VT UK.

Every three months, we add new entries to the database and tag those that are subsidiaries of a group of more than 700 large UK and foreign parent companies, including those in the FTSE 100 and 250. This allows us to show which firms have the highest aggregate penalty totals. Those at the top of the list include aerospace giants Airbus and Rolls-Royce as well as major banks such as NatWest, Barclays and Lloyds.

The linkages are modified when there is a change of ownership. For example, the entries previously associated with the aerospace company Meggitt PLC now have Parker-Hannifin as their parent, given that company’s recent acquisition of Meggitt.

Every entry in VT UK is tagged with one of six broad offense groups. Safety-related cases account for the most cases–40,000—reflecting the heavy caseload of HSE. The second largest group, employment-related cases, contains 24,000 entries.

Although it has fewer cases, we have to spend a lot more time on the employment category. The reason is the difference in the way the major agencies in the two groups report their data. HSE posts its enforcement information on standardized pages that we are able to scrape fairly easily. The Employment Tribunal, on the other hand, reports its cases in individual PDF decision documents, which are often quite lengthy. Our lead UK researcher, Anthony Kay Baggaley, must read each decision—about 300 per month–and extract the key facts. His works allows us to determine, for example, that the companies with the largest number of employment-related offenses are the Royal Mail Group and Tesco.

The offense groups with the most cases don’t account for the largest aggregate monetary penalties. That distinction goes to competition-related offenses, with £5.4 billion paid by companies in just 320 cases. This is the result of the relatively heavy fines imposed by the Competition and Markets Authority, including a recent £63 million action against the U.S. drug company Pfizer, as well as some substantial bribery cases brought by the Serious Fraud Office.

When the penalty totals are viewed by parent industry, the financial services sector is in first place by far, with a total of £5 billion. That’s because the big banks have been hit with large fines across multiple offense groups, especially competition and, of course, financial cases. These offenders include not only the major UK financial institutions but also foreign banks headquartered in Europe (UBS, Deutsche Bank, etc.) and the United States (especially JPMorgan Chase and Citigroup).

We will continue to update and expand VT UK, but it is also a stepping-stone to a multi-country version of Violation Tracker we plan to create over the next couple of years. Stay tuned for Violation Tracker Global.

Reducing Exploitation in the Gig Economy

On October 10 the San Diego City Attorney announced that the grocery delivery service Instacart had agreed to pay $46.5 million to settle a lawsuit alleging that it violated California’s labor code by misclassifying some 308,000 of its workers over a five-year period.

The following day, the U.S. Department of Labor announced a proposed new rule for determining when gig workers should be classified as employees rather than independent contractors.

These events represent two fronts in the widening war between regulators seeking to bring traditional workplace protections to the gig economy and companies such as Instacart that have come to rely on low-cost flexible labor.

In the middle are the workers themselves, who do not line up neatly on either side. Some of those doing gig work value flexibility over things such as overtime pay and may view the DOL proposal and the stricter rules adopted by states such as California as threats to their livelihood.

Yet there are also large numbers of people toiling for the likes of Instacart and Uber who struggle to make a decent living and feel exploited. Many of them would welcome the benefits that come with employee status, even if it means more rigidity in their working arrangement.

The proposed DOL rule seeks to better identify who belongs in which category by replacing the narrow criteria adopted during the Trump Administration with a multi-factor test that it takes the department 184 pages to detail. For example, the DOL would look at whether the worker had the ability to set prices for the services provided.

These additional tests would likely make it more difficult for companies to classify workers as independent contractors. Yet even if the new rule is implemented in some form, the gig giants will resist changing their ways. In all likelihood, they will go on treating workers as independent contractors and wait to be challenged. That’s the approach they have taken under current law

As shown in Violation Tracker, four of the largest ride-sharing and delivery services have together paid over $88 million in class-action wage and hour lawsuits. Uber leads the pack with $49 million in such settlements, followed by Lyft with $28 million. Instacart and DoorDash have each paid about $5 million.

That is on top of what they have paid to state and local agencies in misclassification cases such as the one brought in San Diego. Uber, for example, recently paid $100 million to New Jersey.

If the rules are changed, these settlements will become even larger and more frequent. The gig companies will go on paying them in the hope of staving off something they see as much worse.

Once gig workers become employees, it will be a lot easier for them to seek the additional protections that come with collective bargaining. Employee status is an important stepping stone to unionization, which would mean an end to the worst forms of exploitation.

It is possible to imagine an economy that combines labor flexibility with strong worker protections, but it would require the gig employers to cede some of the one-sided control they now exercise.

Non-Profit Hospitals Need to Heal Themselves

Providence, a gigantic non-profit health system with more than 50 hospitals in five Western states, describes itself as “steadfast in serving all, especially those who are poor and vulnerable.” According to a recent New York Times investigation, Providence has also preyed on those populations by using aggressive techniques to get payments from patients who should have been given free care. Those techniques, dubbed Rev-Up, were developed with the help of the consulting firm McKinsey, which the Times said was paid more than $45 million for its advice.

Now Providence is trying to repair the damage to its image. The Times reports that the health system is providing refunds to more than 700 low-income patients who were hounded into making payments for their care. Providence is not disclosing how much its is refunding, but the amount is likely to be a small fraction of what ruthless efforts such as Rev-Up brought in. A lawsuit filed by the Washington State Attorney General accuses Providence of improperly siccing debt collectors on more than 50,000 patients.

Failing to live up to its obligation to provide free care is just one of the ways in which Providence has acted as something less than a model non-profit institution. As documented in Violation Tracker, the health system has paid out more than $380 million in regulatory fines and class action settlements. These include cases involving issues such as wage theft, workplace safety and privacy. It has paid out over $28 million in False Claims Act cases, which involve submitting fraudulent bills to federal programs such as Medicare. Providence’s biggest payouts have involved cases in which it was accused of mismanaging employee retirement plans.

Providence is just one of dozens of large non-profit health systems that show up in Violation Tracker with large penalty totals from multiple cases. The system that tops the list is California-based Sutter Health, which has racked up $749 million in penalties from 46 cases. The largest of these was a $575 million settlement with the California Attorney General and other parties, which accused Sutter of engaging in anti-competitive practices that drove up healthcare costs. Sutter has also paid $170 million in False Claims Act cases.

Apart from Providence and Sutter, about 20 other non-profit health systems have paid out at least $50 million in penalties. These include Trinity Health ($328 million), RWJBarnabas Health ($277 million) and Northwell Health ($208 million). About 120 others have paid at least $1 million.

Many of these penalties result from a preoccupation with the bottom line, which leads the health systems to cut corners on compliance, shortchange their employees and cheat the government. The non-profit hospital systems may not have shareholders, but they seek to generate ever-larger surpluses that can be used for building new facilities and buying up competitors. Expansion seems to be the ultimate goal.

Their behavior makes them increasingly indistinguishable from the giant for-profit health chains HCA and Tenet, each of which has well over $1 billion in penalties. The difference, of course, is that the public is subsidizing the non-profits by relieving them of the obligation to pay taxes. The time has come to force the giant hospital systems such as Providence to focus less on empire-building and more on their social obligations.