Same-Industry Marriages

mergersSame-sex unions are not the only kind of marriage on the rise. In the business world, same-industry combinations are happening at breakneck speed as large corporations join with their rivals.

The same-industry marriages that will probably affect the largest number of people are those being proposed in the health insurance industry, where Aetna is seeking to buy Humana, and Anthem (formerly known as Wellpoint) is playing the mating game with Cigna, though UnitedHealth may get in on the act. Additional concentration does not bode well for keeping insurance premiums under control.

There’s a lot more going on. This was driven home to me recently while I was updating the parent-subsidiary linkages in the Subsidy Tracker database I oversee in my role as research director of Good Jobs First. I had to make adjustments relating to dozens of recently completed mergers.

Among these are the combination of Heinz and Kraft Foods arranged by Warren Buffett and the Brazilian investment firm 3G Capital, the union of deep-discount chains Dollar Tree and Family Dollar, and the merger of packaging giants MeadWestvaco and Rock-Tenn into a combined firm called WestRock.

An interesting trend is increasing German control over what remains of the U.S. industrial sector. Siemens recently completed its purchase of the industrial equipment firm Dresser-Rand, and ZF Friedrichshafen acquired TRW Automotive.

Other deals still in the pipeline include Staples’ bid for Office Depot, Expedia’s plan to acquire Orbitz (after gobbling up Travelocity), Monsanto’s offer for Syngenta, and AT&T’s plan to buy Dish Network, which in the meantime is looking to acquire T-Mobile.

Thanks to all this activity, 2015 could set a new record for M&A activity. Along with the economic benefit of consolidation, large companies are taking advantage of the mostly lax regulatory climate. Business apologists complain when the occasional deal — such as the attempted mergers of Sysco and US Foods, and Comcast and Time Warner Cable — is blocked, but the fact is that a large portion of proposed combinations face little opposition. And when regulators do protest, they can often been placated with relatively minor concessions, such as the requirement that Dollar Tree sell off only 330 out of the more than 8,000 outlets in the Family Dollar chain.

These corporate combinations are all about profit. In a country that claims to revere free competition, large corporations tend to move in the opposite direction: they want to control markets. While human marriages, as Justice Kennedy put it, are all about dignity, these business unions are about power and are thus one kind of marriage we should not be celebrating.

Redistributing Work Hours

punching inThe Obama Administration’s new overtime proposal is an important and long overdue reform, but those who see it primarily as a way to address stagnant wages are missing the point. If the rule works properly, the main benefit will come in the form of time rather than money.

Noam Scheiber, the new labor reporter for the New York Times, exhibited the misconception in a news analysis arguing that the proposal “falls well short of helping substantially increase middle-class wages.” The piece compounded the problem by quoting Sen. Chuck Schumer calling the step “the middle-class equivalent of raising the minimum wage.”

Enacted in 1938, the overtime provision of the Fair Labor Standards Act (FLSA) is designed to discourage employers from compelling workers to work excessive hours. The time-and-a-half provision is meant not as a wage bonus but rather as a penalty for firms that overwork their staffs rather than increasing the headcount.

Under pressure from business interests, Congress wrote language into the FLSA providing an exemption from the overtime provisions for executive, administrative and professional employees. The rationale was that such persons would be paid a salary rather than a hourly wage, and their compensation would be high enough to make some extra hours tolerable.

It was left to the Labor Department to define exactly which employees would be covered by the exemption. It chose to set criteria that referred mainly to job content but also set a compensation level below which overtime had to be paid regardless of the nature of the job.

That latter provision turned out to be essential. It would be all too easy for an employer to give a position superficial managerial or administrative responsibilities with the aim of making it exempt from overtime. The problem was that the wage cutoff was set too low, and revisions tended to be slow in coming. After the cutoff was raised to $155 a week in 1975, it took another 29 years before it was increased again.

In the meantime, employers did everything possible to shrink the portion of the workforce eligible for overtime pay. This was perhaps most common in the retail sector, where workers were given bogus titles such as assistant store manager while most of their responsibilities were not managerial or administrative in nature. Once they were off the overtime clock, it was profitable for the real bosses to work them long hours.

Obama’s proposal, which would raise the cutoff to $970 a week, did not come out of the blue. Groups such as the Economic Policy Institute and the National Employment Law Project have been campaigning on the issue for years.

There’s also been a battle going on in the courts. A slew of lawsuits have been brought against major retail companies for misclassifying people as overtime exempt. Earlier this year, for example, a federal judge approved a $30 million settlement of overtime claims brought by so-called managers at Publix Super Markets. Payless Shoesource has agreed to a $2.9 million settlement of similar allegations.

Dollar stores, which are obsessive in their cost-cutting efforts, have been the target of numerous overtime suits brought by purported managers. Dollar General paid $8.3 million to settle one such case.

The employer class is, of course, up in arms over the proposed new standard, making the usual foolish claims about job cuts and loss of freedom. The Washington Post quoted one chief executive as saying: “Everything in this proposed rule is anti-American work ethic and culture.”

That in a sense is true, if one acknowledges that our work culture is now one in which some people are forced to work excessive hours and others, especially in the sprawling retail and restaurant sectors, are kept in involuntary part-time status with unpredictable schedules and not enough hours to piece together a decent living.

A measure of the success of the new overtime rule will be the extent to which it rectifies this lopsided distribution of working hours.

Who are the Real Champions of Sports Corruption?

sports-moneyGuest Post by Thomas Mattera

Though FIFA’s corruption scandal dominated headlines for weeks, the inevitable has happened: the revelations have slowed to a trickle and sporting world has started to move on. Most previously captivated onlookers will return to the scene of these crimes again for one of only two reasons: to see if the next two World Cups will be moved or if FIFA President Sepp Blatter will mercifully fulfill his currently hollow promise to resign.

In turning the page, many in the United States are confident that the sports they enjoy domestically are free from misconduct contained in the FIFA accusations.

Unfortunately, this is a serious misconception. Though FIFA and its Cups have deservedly garnered the spotlight for alleged misappropriation of public funds, cover-ups, and labor violations, American sports have many of the same issues. The important difference: here they have been legalized and, gradually, normalized.

It shocks the world when kickbacks and campaign finance illegalities facilitate a taxpayer-funded, $900 million World Cup stadium in Brazil that currently functions as a bus depot. Meanwhile, this is public policy as usual in the United States as massive amounts of American public dollars annually go to a small group of billionaires, leaving stadium boondoggles with features like a multimillion dollar aquarium behind home plate.

Heads roll at its Zurich headquarters when FIFA is accused of suppressing incriminating evidence. Across the pond, the National Football League never has to admit guilt as it litigates away its cover up of the discoveries it made regarding the serious health implications of playing football professionally.

Finally, there is no shortage of international coverage surrounding the fact the World Cup generates billions in profit while the impoverished, unrepresented construction workers who make it happen risk serious injury for almost no compensation. Strangely enough, there is an eerie American equivalent that, although often criticized, continues on mostly unchanged.

This is not to say that American sports are free from unsanctioned trespasses. One only has to look at the recent revelation that the St. Louis Cardinals of Major League Baseball allegedly hacked into the database of a rival team to be reminded of that.

Nor is futbol’s governing body without its own maneuvers that operate dubiously yet legally. Case in point: like the NFL did for decades, FIFA has billions in the bank yet still masquerades as a nonprofit to claim tax-exempt status.

However, the fact remains that the FIFA allegations captivated the the sporting world while events in American sports that yield similar outcomes go unpunished and comparatively unnoticed every day. Though their sport suffered great embarrassment over the past two weeks at least, world soccer fans can at least find solace in the fact that the sources of their sporting injustice have been revealed, reviled, and now hopefully redeemed. Unfortunately, that is far more than can be said for the everyday injustice of the sporting landscape of their fellow sports fans stateside.

Dual Perils Confront the ACA

scylla-and-charybdis-bookpalaceThe Affordable Care Act is a Rube Goldberg-like contraption based on both private-sector competition and government subsidies. Both of those elements are in danger of collapse.

The disappearance of the federal subsidies that enable millions of lower-income people to purchase the coverage they are now required to have is, of course, a possible outcome of an imminent Supreme Court ruling. It is mind-boggling that the King v. Burwell case, a brazen effort by diehard Obamacare opponents to exploit an obvious drafting error in the ACA, has gone this far and might actually succeed. It says a lot about the mangled state of public policy in this country that we see a front-page story in the New York Times about the growing panic among conservatives that they might win and be held responsible for the ensuing chaos. Apparently, they forgot there is a difference between taking meaningless votes in the House and bringing a case to a high court with a significant contingent of Justices inclined to take ideological posturing seriously.

Also at risk is the system in which private insurance carriers are supposed to compete against one another to provide coverage in the exchanges to their expanded pool of captive customers. In many places, that competition was not very robust to begin with, but now it may become even more diminished.

According to reports in the business press, the biggest for-profit health insurance companies are looking to gobble up their slightly smaller rivals. The Wall Street Journal says UnitedHealth Group has its eye on Aetna, which in turn is said to be exploring some form of cooperation with Humana, whose success in selling supplementary insurance to Medicare enrollees is attractive. At the same time, the Journal reports, Anthem has been in negotiations with Cigna, which is also said to be talking to Humana.

We can see where all this is going. Unless antitrust regulators show some backbone, the current private health insurance oligopoly could turn into a duopoly. The non-profit portion of the market does not provide much help. The 37 independently owned companies that make up the Blue Cross and Blue Shield network are increasingly inclined to divvy up markets and avoid competing with one another, according to lawsuits now pending in federal court. The litigation charges that the behavior of the Blues, some of which are controlled by for-profits such as Anthem, is driving up premium costs for customers while at the same time pushing down payment rates for physicians and other healthcare providers. These predatory practices threaten both the ACA and traditional employer-provided plans.

In the eyes of the Administration, the big insurers are the good guys. Initially suspicious of the ACA, the companies came to accept the law and even turned into major boosters. They embraced ACA’s Medicaid expansion component, seeing opportunities for managed care business in some states, and supported the Administration’s position in King v. Burwell. A SCOTUS ruling in the other direction would take a big hit on their soaring stock prices.

That’s where mainstream healthcare reform has left us — caught between predatory insurance providers on the one side and nihilistic ideologues on the other.

Eliminating the Burden of Predatory Student Debt

student debt strikeThe Obama Administration has done the right thing in forgiving the debts of students who attended the schools run by Corinthian Colleges, the for-profit education racket that recently shut down and filed for bankruptcy amid widespread charges of fraud and a $30 million federal fine. Yet the action should have come much sooner and should be much wider in scope.

Over the course of 20 years, Corinthian, once a Wall Street darling, built an empire of some 100 schools offering dubious post-secondary career training programs to hundreds of thousands of students across the country. The company deceived applicants into signing up for expensive degrees of questionable value in landing good jobs, much of which made possible by the availability of what amounted to predatory federal student loans.

There have been questions about Corinthian’s practices for more than a decade. By 2004 the company was being investigated by the U.S. Department of Education and the attorney general of California, where the company was based. A narrowly focused SEC probe went nowhere, but more state cases were launched, along with student-initiated lawsuits.

California finally brought suit against Corinthian in 2013, accusing it of false and predatory advertising, securities fraud and intentional misrepresentations to students. At the same time, however, a federal appeals court ruled that the plaintiffs in the separate student lawsuits had to take their claims to arbitration, a process known for favoring corporations.

In 2014, under pressure from federal and state regulators, Corinthian began selling off its campuses or phasing them out. The company was then sued by the federal Consumer Financial Protection Bureau for illegal predatory lending. This helped bring about an announcement by Zenith Education Group, which had purchased many of Corinthian’s remaining properties, that it would forgive 40 percent of outstanding student loans.

Yet that was not enough. There were growing calls to cancel all the debt of Corinthian students. Some of those students did not wait for officials to act; they launched a debt strike. It was in this context that the Obama Administration’s action finally came, though the strikers are disappointed that the Education Department is not simply discharging the debt outright but is instead setting up a bureaucratic application process.

It may be hard to believe but there was once a movement called Wages for Students, which argued not only that those in school should not have to take on debt but they should in fact get compensated for the time spent being prepared to be more useful for a future employer. That view lost out to the ideology of personal responsibility and the mistaken notion that the average person can borrow his or her way to prosperity — a notion was exploited by predatory operators such as Corinthian using the federal government as their enablers and their collection agencies.

It is a positive development that the discussion has shifted from simple debt alleviation to the alternative of debt cancellation, but the process should not stop with Corinthian, which was egregious but not unique. There are plenty of other for-profit educational companies that have saddled students with debt for degrees of questionable value, or in many cases no degree at all.

The federal government did a lousy job addressing the predatory lending in the housing sector that contributed to the financial meltdown and seriously damaged the economic well-being of much of the population. Now it should make up for that failing by doing an aggressive and thorough job of eliminating abusive student debt once and for all.

California Schemin’

la stadium (2)
Rendering of proposed Rams Inglewood stadium

Guest Blog by Thomas Mattera

Most of the hot air released at last month’s National Football League owners meeting in San Francisco had nothing to do with ball deflation. Instead, the hyper-exclusive club, with three dozen members and a cumulative net worth of $77,000,000,000, discussed something much more important long-term than a month without Tom Brady’s chiseled jaw: the possible move of several teams to the Los Angeles area as early as the 2016 season.

The star-struck franchises in question, the St. Louis Rams, Oakland Raiders, and San Diego Chargers, have each ramped up their efforts in the last few months. The Rams have wasted no time imploding historic structures to make room on a plot of land in suburban Inglewood recently acquired by team owner Stan Kroenke. Meanwhile, the Raiders and Chargers are proposing a joint $1.7 billion stadium in nearby Carson, to be paid for largely by a certain vampire squid’s creative accounting.

These maneuvers are nothing new. Threatening to move your team to Los Angeles is as ubiquitous in the NFL as unpunished domestic violence and long term tax dodging. Since the league left the City of Angels in 1995, an owner claiming to be interested in moving there has become a perennial event, with more than half of the league’s franchises using the football-vacant city as leverage at one point or another. The playbook at this point is tried and true:

  1. Claim your current stadium is too old to compete for paying customers and is fast becoming structurally unsound.
  2. Insist taxpayers bear the cost of a new stadium or large-scale repairs to your old one.
  3. If demands are not immediately met, float the possibility of moving to Los Angeles.
  4. Champion the idea that a new stadium will bring much needed economic development to a struggling area. Pay no mind to the overwhelming evidence debunking this theory.
  5. (optional) If local officials still wont capitulate, fly in a theoretically impartial high ranking NFL official to seal the deal.
  6. When area politicians inevitably cave, announce that you will be staying because of your undying loyalty to the hardworking fans of (insert city here).
  7. Reap the near instant private rewards as the value of your team skyrockets while the city deals with the decades-long impacts of unforeseen construction costs and hundreds of millions in public debt.

The owners of the Rams, Raiders, and Chargers have shown no interest in deviating from this well-worn gameplan. Kroenke, a billionaire six times over who built his empire by marrying into the Walton family and developing shopping centers (many of them subsidized projects anchored by Walmarts), has yet to even sit bother to sit down with officials in St. Louis to try to broker a compromise. Yet this has not stopped the cash-strapped city from offering a new stadium deal replete with public financing.

Not to be outdone, the owners of the Chargers and Raiders recently announced in a joint statement that “If we cannot find a permanent solution in our home markets, we have no alternative but to preserve other options to guarantee the future economic viability of our franchises.” Unlike the Rams, however, both current California teams face fierce pushback against public funding for new stadiums from legislators and residents. These cities are indicative of how American municipalities are slowly realizing the error of their ways and beginning to demand an end to subsidized billion-dollar boondoggles.

If the people of Oakland and San Diego stay organized in their resistance, the owners of the Rams and Chargers may be forced have to skip all the way down to the fine print at the bottom of the owners playbook:

  1. If you cannot sufficiently extort a wildly favorable deal from your current city, just move to Los Angeles.

After all, teams do occasionally follow through on their threats and actually relocate. Case in point: The Rams left L.A. for St Louis 20 years ago, in large part because of the construction of the Edward Jones Dome, a building for which Missouri taxpayers still owe millions a year in annual maintenance payments for the next decade, even if the Rams move back West.

Additionally, there is an obvious reason teams have and continue to make the L.A. threat even if, for them at least, it is almost always an idle one. America’s largest traffic jam is the nation’s No.2 media market and in the past has shown it will support professional football. Moving there may be the best way for NFL owners to support their real favorite team: The Greenbacks.

These factors are not lost on the Rams, Raiders, or Chargers. Any of the three could ultimately decide to move past hypotheticals and formally propose a move at the next owners’ meeting in August. It is here where they will face a group significantly less generous than a bunch of local political pushovers. Any move to L.A. needs to be approved by 24 of the NFL’s 32 franchises, which figures to be a tall order. After all, with the L.A. vacancy filled what will the rest of the owners do the next time they feel the hankering for a shiny new stadium? Negotiate in good faith? Or..gasp..actually pay for it themselves?

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New in Corporate Rap Sheets: Alpha Natural Resources — the landing place for rogue corporations Massey Energy and Pittston Coal.

Punishments that Fit the Corporate Crime

gm-ignition-switch-accident-victims_0Now that several large banks have pled guilty to criminal charges, the next addition to the list of corporate felons could be General Motors, which is reportedly negotiating a settlement with the Justice Department to resolve an investigation of the company’s concealment of an ignition-switch problem that has been linked to more than 100 deaths.

Another criminal investigation is targeting Takata Corp., whose defective airbags recently prompted the record recall of 34 million vehicles. Its airbags can explode violently when activated, shooting shrapnel that has been tied to six deaths and more than 100 injuries.

In reporting the possibility of a plea by GM, the New York Times said the company is likely to be hit with a record financial penalty, suggesting that this will be the main punishment faced by the automaker. Presumably, Takata will also have to fork over a substantial sum.

Federal prosecutors have been extracting larger and larger amounts from companies in settlement deals, but are monetary penalties enough when it comes to corporate misconduct that results in serious physical injuries and loss of life?

Of course, there is a long tradition in the tort system of attaching dollar amounts to victims of business negligence, but when the wrongdoing is serious enough to warrant criminal charges, the culprits should not be able to buy their way out of jeopardy.

Ideally, such cases should also include the filing of charges against individuals, especially top executives, who could face the loss of their personal liberty. In most instances, however, prosecutors say it is too difficult to prove individual culpability.

How, then, could companies be punished beyond financial penalties (which are often easily affordable and tax deductible)? Short of using the corporate death penalty (charter revocation), which in the case of a large firm such as GM would cause economic upheaval, there are other options to consider.

It’s frequently said that corporations cannot be put in prison, but there are ways of restricting their freedom to operate. These involve excluding them from certain markets or putting restrictions on the scope or size of their business. Such penalties already exist in the form of debarment from federal contracting or disqualification from certain regulated activities.

The problem is that prosecutors and regulators are wary of making full use of these sanctions, as seen in the fact that the banks that recently pleaded guilty to criminal charges of rigging the foreign currency market were promptly given waivers by the SEC from rules that would have disqualified them from the securities industry.

Perhaps the bank offenses were too abstract to engender much public anger over the way they were allowed to escape some of the more serious consequences for their crimes. But I’d like to think that companies found to have caused death and dismemberment will be expected to do more than write a check.

Convictions Without Consequences

get_out_of_jail_freeIn the years following the financial meltdown, corporate critics complained that the big banks were not facing serious legal consequences for their misconduct. They were being allowed to essentially buy their way out of jeopardy through financial settlements under which they admitted no wrongdoing.

In 2012 the Justice Department gave in to the pressure and extracted a guilty plea, but it was made by an obscure subsidiary of a foreign bank, Switzerland’s UBS, to resolve a charge of felony wire fraud in connection with the long-running manipulation of LIBOR benchmark interest rates. The plea seemed to do little to impede UBS’s operations. The bank dodged one serious consequence when it received an exemption from the Labor Department from a rule that should have disqualified it from continuing to serve as an investment advisor for pension funds.

Things would be different, critics said, when a criminal conviction involved a parent company. Last year, that happened when another Swiss bank, Credit Suisse, pleaded guilty to conspiracy charges of assisting U.S. taxpayers in dodging taxes by filing false returns with the Internal Revenue Service. Subsequently, Credit Suisse applied for its own exemption from the Labor Department; a decision is pending but is likely to go in the bank’s favor.

Now, at last, the Justice Department has gotten major two major U.S. banks — Citicorp and JPMorgan Chase — to plead guilty to something, which turned out to be felony charges of conspiring to manipulate foreign exchange markets. Two foreign banks — Barclays and Royal Bank of Scotland — also agreed to guilty pleas in the case.

The four financial institutions will together pay criminal fines of just over $2.5 billion. Additional fines were assessed by their regulator, the Federal Reserve.

It’s not clear they will suffer much more than those easily affordable financial penalties. Along with likely exemptions from the Labor Department, the banks have already been granted waivers from SEC rules barring criminals from engaging in the securities business. The banks will be on probation for three years, but keep in mind that BP was on probation at the time of the Gulf of Mexico disaster.

A somewhat higher hurdle may be faced by UBS, which the Justice Department announced has entered a new guilty plea (this time by the parent company) after being found to be in breach of the 2012 non-prosecution agreement it signed when the Japanese subsidiary pleaded guilty.

While newly designated criminals such as Citibank and JPMorgan can claim they will never break the law again, UBS is already found to have violated its commitment to be law-abiding by participating in the foreign exchange conspiracy and engaging in other forms of misconduct.

Taken together, all these developments illustrate the farce that is law enforcement when large corporations are involved. For years they were freed from serious consequences through the use of deferred- and non-prosecution agreements. The size of the financial settlements they had to pay rose into the billions, but these were still affordable costs of doing business.

Now corporations are starting to plead guilty to felony charges, but the practical implications of those convictions are being undermined by regulatory agencies. Having a criminal record is not pleasing to corporations, but if they can continue to do business as usual, they will learn to live with that stigma.

When street crime was on the rise a few decades ago, public officials fell over themselves to enact harsh punishments. Now is the time for a serious discussion of how to get tough on crime in the suites.

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New in Corporate Rap Sheets: Peabody Energy. The “Exxon of Coal” fights CO2 regulation and pushes climate denial.

Shelling the Alaskan Coast

shellPresident Obama has taken pride in his “all of the above” energy philosophy, but it now seems that approach is so inclusive that it will allow a company with a horrendous safety record to proceed with plans to drill for oil in the treacherous Arctic waters of the Chukchi Sea off the coast of Alaska. Is it necessary to run the risk of another Exxon Valdez or Deepwater Horizon disaster just to prove that you’re not hostile to fossil fuels?

Abigail Ross Hopper, director of the Interior Department’s Bureau of Ocean Energy Management (BOEM) said the decision to give Royal Dutch Shell a green light came after the agency took “a thoughtful approach to carefully considering potential exploration in the Chukchi Sea.” Yet what has really changed in the two years since Interior Secretary Ken Salazar said “Shell screwed up in 2012” in announcing that approval for the Arctic drilling was being withheld until the company cleaned up its act? The new permit is not final but it gives unwarranted momentum to Shell’s plan.

There are many reasons why the decision is a mistake, but they all come down to Shell’s less than sterling credibility and its tarnished track record.

Shell has had a troubled relationship with the truth at least since 2004, when it admitted overstating its proven oil and natural gas reserves by 20 percent. This prompted an investigation by the U.S. Securities and Exchange Commission and a decision by the twin boards of the company to oust chairman Philip Watts, who was replaced by Jeroen van der Veer. It later came out that top executives, including van der Veer, knew of the deception about the reserves back in 2002. The company ended up paying penalties of about $150 million to U.S. and British authorities.

In 2008 there were reports that Shell manipulated a supposedly independent environmental audit of a huge Russian oil and gas project in which it was involved to influence financial institutions considering funding for the $22 billion project.

That same year, reports released by the Inspector General of the U.S. Department of the Interior listed Shell as one of the companies that made improper gifts to government employees overseeing offshore oil drilling. The agency involved was the Minerals Management Service, which was dismantled as a result of the scandal and replaced by two entities, including the BOEM.

In 2011 a Shell pipeline off the coast of Scotland leaked some 1,300 barrels of oil in the worst North Sea oil spill in a decade.

The 2012 screw-up to which Salazar was referring included problems in the same area it wants to drill. In one incident a spill containment system failed during testing; later, a drilling rig owned by Shell broke loose from a tug that was pulling it to a maintenance facility and crashed into an uninhabited island off the Alaskan coast.

The company is even more notorious for its operations in Nigeria, which were marked by numerous pipeline ruptures and other environmental damage caused by practices such as extensive gas flaring. Ken Saro-Wiwa, a leading critic of the company, was hanged by the Nigerian military in 1995. Shell was widely blamed for propping up the regime, while a 2011 United Nations report estimated that an environmental cleanup of the area around Shell’s operations would cost $1 billion and take 30 years.

Shell’s environmental policy states: “Our approach to sustainability starts with running a safe, efficient, responsible and profitable business.” They’ve got the profitable part covered, but the rest is another matter.

Hiding Hazards

blindersWhen Stanley Works and Black & Decker announced merger plans in late 2009, the two firms made sure to describe themselves as producers of quality tools while claiming that their marriage would produce “significant cost synergies.” More than five years later, the combined company, Stanley Black & Decker, seems to be making progress on costs (and profits), but new revelations put into question its commitment to quality.

The federal Consumer Product Safety Commission and the Justice Department recently announced that the firm’s Black & Decker unit would pay $1.575 million to settle allegations that it “knowingly violated federal reporting requirements with respect to cordless electric lawnmowers that started spontaneously and that continued to operate after consumers released the lawnmower handles and remove the safety keys.” In other words, Black & Decker has been selling products with uncontrollable spinning blades.

While CPSC press releases are normally neutral in tone, the statement on Black & Decker was unusually harsh. Agency chairman Elliott Kaye was quoted as saying: “Black & Decker’s persistent inability to follow these vital product safety reporting laws calls into question their commitment to the safety of their customers.”

What had apparently ticked off Kaye was that this was the fifth time the commission had cited Black & Decker for reporting violations. The previous case was in 2011, when the company had to pay $960,000 to settle allegations that it failed to report a defect in one of its Grasshog trimmer/edgers that could cause parts to loosen and become projectiles.

Most CPSC civil penalties are brought against companies that fail to report defects and accidents in a timely manner: “That means within 24 hours, not months or years as in Black & Decker’s case,” Kaye stated with obvious annoyance. Assistant Attorney General Benjamin Mizer was also blunt: “Not for the first time, Black & Decker held back critical information from the public about the safety of one of its products.” The company was said to have received more than 100 consumer complaints and accident reports from lawnmower customers over a period of years before it decided to share the information and recall the products.

Black & Decker is not the only large “quality” manufacturer that has been accused of essentially covering up dangerous defects in its products. Earlier this year, General Electric had to pay the CPSC $3.5 million — one of the largest civil penalties in the commission’s history — to settle allegations that it failed to report “an unreasonable risk of serious injury” relating to some of its ranges containing connectors that could overheat and cause fires.

Large companies these days profess to be committed to transparency and accountability, but some are still inclined to hide their dirty (and dangerous) secrets.

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New in Corporate Rap Sheets: Barrick Gold and its environmental and human rights controversies on five continents.