The Collapse of Wal-Mart’s Social Responsibility Charade

For the past eight years, Wal-Mart has pursued an image campaign apparently inspired by the Marx Brothers line: “Who you gonna believe, me or your own eyes?”

Despite the preponderance of evidence of its unenlightened practices, the company has tried to give the impression that it is really a model corporate citizen. Recent events suggest that the giant retailer’s social responsibility charade is now crumbling.

Through all of its scandals and controversies over the years, Wal-Mart could at least count on the support of its institutional shareholders, which for a long time turned a blind eye to the company’s transgressions and focused on its growth. Now even that is changing. The recently released results of voting at the company’s annual meeting indicate unprecedented discontent with its leadership. Not counting the large bloc of shares controlled by descendants of founder Sam Walton, more than 30 percent of the votes were cast against CEO Mike Duke, board chair Rob Walton and former CEO and board member Lee Scott. In the past, Wal-Mart board members typically had approval rates close to 100 percent.

The high degree of no-confidence this time around is largely attributable to the fallout from an 8,000-word exposé by New York Times alleging that high-level executives at the company quashed an internal investigation of foreign bribery. Before the annual meeting, the California State Teachers’ Retirement System filed a lawsuit against current and former Wal-Mart executives and board members for breach of their fiduciary duties in connection with the bribery scandal.

That scandal also appears to have played a significant role in Wal-Mart’s decision to cave in to calls to suspend its membership in the American Legislative Exchange Council, which is under siege for its role in promoting “stand your ground” laws such as the one in Florida linked to the shooting of Trayvon Martin. In the past, Wal-Mart, long a stalwart member of ALEC, would have ignored pressure of the kind being exerted by the anti-ALEC campaign.

By all rights, the disintegration of Wal-Mart’s responsibility image should have come from its retrograde labor and employment practices, which were the main reason for the public relations effort but which didn’t substantially change during the campaign. The company has never strayed from its uncompromising opposition to unions (except for toothless ones in China). The Organization United for Respect at Walmart is not a conventional union-organizing effort, yet the company recently fired several activists in the group in an apparent act of intimidation.

In its 1.4 million-employee U.S. retail operations, Wal-Mart has maintained a low-road approach of meager wages, inadequate benefits and overuse of part-timers. Workers at its more than 100 distribution centers had enjoyed somewhat better conditions, but it appears that is no longer the case. A new report from the National Employment Law Project finds that the company is increasingly using logistics subcontractors and temp agencies that engage in rampant wage-and-hour abuses and other labor-law violations.

In the latest in a long line of its own fair labor standards cases, Wal-Mart was recently forced by the U.S. Labor Department to pay $5.3 million in back pay, penalties and damages for violating overtime rules. Although the U.S. Supreme Court came to Wal-Mart’s rescue last year by blocking a massive class-action sex discrimination case, several non-class actions have been brought in recent months making the same allegations on behalf of thousands of women.

One area in which Wal-Mart believes it has attained a measure of legitimacy is environmental policy. It has succeeded in winning over some green groups, which cannot resist the temptation of working with such a mammoth company to change industry standards.

Yet the funny thing about Wal-Mart’s green initiatives is that most of them involve changes that the retailer is requiring from its suppliers, who are expected to bear the costs of altering their products and their packaging. This is consistent with Wal-Mart’s longstanding practice of forcing suppliers to cut their wholesale prices to the bone. When Wal-Mart does take steps on its own, such as in reducing energy usage in its facilities, those reforms are ones that reduce its operating costs and thus add to its bottom line.

Even if you believe it is okay for Wal-Mart to boost its profits while pressing suppliers to be more environmentally responsible, it’s important to remember that many of those suppliers are in countries such as China where oversight is difficult. A recent investigative report in Mother Jones found that Wal-Mart’s monitoring of Chinese plants left a lot to be desired and that this is causing frustration among some of the environmentalists who have been working with the company.

A report by Stacy Mitchell of the Institute for Local Self-Reliance finds that Wal-Mart’s domestic green initiatives, such as using more renewable energy sources, are also faltering, while the company ignores the detrimental environmental impacts of its land use practices. All this is compounded, Mitchell notes, by Wal-Mart’s extensive political contributions to candidates who are global warming deniers or otherwise have poor voting records on the environment.

The demise of  Wal-Mart’s phony social responsibility initiative poses a fascinating question: Can the company return to its old critics-be-damned stance, or will it finally have to make some genuine reforms in the way it does business?

ALEC Staggers But Will it Fall?

Wal-Mart’s decision to drop its membership in the American Legislative Exchange Council is a milestone in the remarkable effort to drive a wedge between ALEC and the large corporations that have used the organization to promote their self-serving policy agenda at the state level.

At least 18 companies are reported to have cuts ties to ALEC in the face of a pressure campaign spearheaded by groups such as Color of Change, Common Cause, People for the American Way and the Center for Media and Democracy.

The campaign—which has also prevailed against the likes of Amazon.com, Coca-Cola, Kraft Foods, McDonald’s and Procter & Gamble—is already one of the most successful corporate accountability initiatives ever undertaken, and more wins are likely to occur. Yet there are also high hurdles to overcome.

Those companies that have succumbed to the anti-ALEC pressure are pretty much all consumer products firms that were concerned about the possibility of boycotts on the part of customers outraged at ALEC’s role in promoting “stand your ground” laws like the one in Florida at the center of the controversy over the shooting of Trayvon Martin.

A decisive win against ALEC will require splitting off a much larger portion of ALEC’s sizeable corporate membership, including companies that are not fazed by consumer unrest. Quite a few firms of this sort are represented on ALEC’s Private Enterprise Board, whose membership roll reads like a rogue’s gallery of corporate irresponsibility.

The pharmaceutical industry, which has fought countless battles over pricing and safety and has been hit with billions of dollars in fines for illegal marketing practices, has several representatives on the board, including the senior vice president of its trade association PhRMA and officials from Bayer, GlaxoSmithKline and Pfizer.

Big tobacco, another battle-hardened industry, is represented by officials from Altria and Reynolds American. The national chair of the board, W. Preston Baldwin, is listed as being affiliated with the corporate strategy consulting firm Centerpoint360, but he used to be an executive with the chewing tobacco producer UST (now owned by Altria).

Also represented on the board are two leading villains of the natural resources sector—petroleum behemoth and climate-change denier ExxonMobil and Peabody Energy, the largest private-sector coal producer in the world. For good measure, the board also includes a representative of Koch Industries, which is not only heavily involved in petrochemicals but is also, through the Koch Brothers, one of the primary backers of groups promoting the same kind of rightwing agenda pushed by ALEC.

Apart from those on the board, ALEC’s membership list is believed to still include corporate bad actors such as ASARCO, Bank of America, BP America, Caterpillar, Chevron, Comcast, Corrections Corporation of America, Dow Chemical, Freeport-McMoRan Copper & Gold, Monsanto, Northrop Grumman, Shell Oil, T-Mobile and Verizon.

In other words, the effort to cleave off ALEC’s corporate members will increasingly mean taking on companies that are not only notorious but which have a long track record of fending off challenges from labor, environmental and other progressive forces.

It’s true that Wal-Mart, whose vice president for public affairs was serving as secretary on the ALEC board until the company’s departure, is also part of that category. Yet Wal-Mart has been less combative of late, due in large part to the fallout from a foreign bribery scandal and its ongoing effort to give the impression of being an environmental leader. And it is a consumer-oriented company.

So what will it take to knock out these other ALEC loyalists? There’s no easy answer, but it may be necessary for the campaign to treat the relationship of those firms to ALEC in a different way. Until now, the campaign has focused on making ALEC seem like a rogue organization that has adopted positions that diverge from the interests of the target companies. The online petition being circulated by Common Cause states:

Stop risking your company’s reputation. Your association with the American Legislative Exchange Council aligns you and your stockholders with a partisan drive to deny millions of Americans their right to vote, an attack on public schools, and the proliferation of “Stand Your Ground” laws that promote vigilantism.

Your company probably joined ALEC to get help in lobbying for legislation that impacts your business. But ALEC’s agenda these days puts the pursuit of private profit ahead of the public interest. It pulls business leaders like you into a radical ideological crusade involving issues that have nothing to do with your company.

Yet many of the companies listed above continue to support ALEC precisely because it is pursuing a radical ideological crusade that does have something to do with their interests.  The anti-ALEC campaign will have to put more emphasis on the core issues that attract companies to the organization: business tax reduction, deregulation, privatization and other “fundamental principles of free-market enterprise, limited government, and federalism at the state level,” as the ALEC mission statement puts it.

ALEC’s identification with “stand your ground” and voter suppression opened an extraordinary opportunity to put the organization on the defensive, but in the end it is this broader corporate agenda that has to be confronted.

Sins of the Other Bain

Those seeking to defend Mitt Romney’s track record at Bain Capital argue that private equity is a special kind of business. The firms that are taken over, they tell us, are often in bad shape, and restoring them to health may involve some painful surgery.

Turnaround situations, they insist, cannot be judged by customary job creation benchmarks.

The problem with this claim is that the harsh remedies applied at supposedly sick companies have often been used at healthier ones as well—and this practice is exemplified by the career of none other than Mitt Romney. Prior to his tenure at Bain Capital, Romney spent a decade as a management consultant, mostly at the firm of Bain & Co., which launched Bain Capital.

When the young Romney joined Bain & Co. in the late 1970s, management consulting was starting to be regarded with the same kind of mistrust today directed toward private equity and hedge funds. Sure, the consultants were celebrated by some as wizards of the corporate world, yet their magic frequently involved getting large companies to embark on radical restructuring that resulted in the elimination of many jobs and the multiplication of the workload of those workers who remained. Although their advice was frequently dressed up in strategic jargon, firms such as McKinsey were essentially perpetuating Frederick Taylor’s time-and-motion studies of the 1920s.

Bringing in an outside consulting firm enabled corporate managers to carry out drastic measures that would otherwise face insurmountable internal resistance. And the results could be disastrous, as seen in the retrenchment plan that Booz Allen cooked up for supermarket chain A&P in the 1970s.

Consultants fueled the manic business restructuring of the 1980s by making corporate executives think that joining in was a matter of survival. “If a chief executive officer isn’t thinking of restructuring, he’s not doing his job,” Jim Farley of Booz Allen insisted to the Wall Street Journal in 1985.

Bain & Co. was not satisfied with simply giving aggressive advice to companies; the firm wanted to be involved in implementing the changes. That could lead to trouble. During the 1980s, when Bain had some 60 of its staffers in its London office working on the Guinness account, it became embroiled in a scandal over illegal stock manipulation by the brewer during the takeover of a rival beverage company.

The creation of Bain Capital was a vehicle by which Bain’s principals could not only help implement restructurings but also profit from them in ways that were even more lucrative than consulting fees. Romney, who was tapped to run the offshoot, admitted to a Forbes interviewer (11/30/87) that his outfit worked very closely with Bain & Co., often hiring partners from the consulting firm to run the companies it was buying. Bain Capital also did deals involving companies that had been clients of Bain & Co. One of Romney’s first big scores involved the buyout of Accuride, a truck wheel unit of Firestone, which had been a long-time user of Bain’s consulting services.

Romney’s ties to Bain & Co. remained so close that when the consulting firm ran into financial problems of its own—exacerbated by a huge cash-out by founder Bill Bain and other senior executives—Romney was called in to complete a rescue that included the internal use of downsizing and restructuring measures it had so often executed at client firms.

The continuity between Romney’s work at Bain & Co. and his slash-and-burn activities at Bain Capital is suggested by the track record of his clients during his consulting years, which at Bain lasted from 1977 to 1984. It’s been reported that those clients included Monsanto, Corning, Burlington Industries and Outboard Marine.

Using the handy Fortune 500 online archive, I tracked the total headcount at the four companies during Romney’s Bain & Co. years. Each one of them had a dramatic drop: 14 percent at Monsanto, 17 percent at Corning, 25 percent at Burlington Industries and 33 percent at Outboard Marine. Together, they shed more than 36,000 workers from the end of 1976 to the end of 1984. Undoubtedly, there were other factors at work, but Romney and his Bain & Co. colleagues must have played a significant role in bringing about that job destruction.

Private equity can be a ruthless business, but its methods are not entirely unknown to the rest of the corporate world, especially when management consultants get into the act. Mitt Romney, whose business experience is supposed to qualify him for the White House, should answer for his actions at both Bains.

Banking on Boeing

Recent passage of a piece of federal legislation on a broadly bipartisan basis was considered unusual enough for the Washington Post to treat it as front-page news. Yet what was most significant about the measure to extend the life of the U.S. Export-Import Bank was not its bipartisanship but rather the way it revealed a profound confusion on the part of both major political parties about how the federal government should relate to big business.

The fate of the Ex-Im Bank, which for decades has served mainly as a tool to promote exports by large U.S. manufacturers, had come into question after it was targeted by tea party types in Congress. While conservatives are usually inclined to do everything possible (short of bailouts) to assist corporations, many had come to accept the view that the Ex-Im Bank was an unjustified form of government intervention. Utah Senator Mike Lee denounced the bank’s operations as “corporate welfare that distorts the market and feeds crony capitalism.”

Supposedly anti-corporate Congressional Democrats joined with the likes of the U.S. Chamber of Commerce and the National Association of Manufacturers to defend the Ex-Im Bank. House Democratic Leader Nancy Pelosi said that Congress had to send “a strong signal to American businesses: we will help them get their products into markets abroad, and in doing so, we will create jobs here at home.” Independent Vermont Senator Bernie Sanders, on the other hand, maintained his long-time opposition to the bank.

In the end, the corporatist wings of the two major parties prevailed, but not before the Ex-Im Bank had been pummeled by conservatives who had begun denouncing the institution as “Boeing’s Bank.” They have a valid point. A huge portion of the agency’s resources have long been devoted to that one company. If you look at the list of loans and long-term guarantees in the bank’s annual report, Boeing’s name shows up repeatedly—more than 40 times last year, far more than any other company. The company got assistance in its deals to sell planes to airlines in more than 20 countries such as Angola, Indonesia and Tajikistan.

The right has assumed the role of Ex-Im Bank critic once occupied by the left. Back in 1974 the anti-imperialist magazine NACLA’s Latin America & Empire Report published a critique of the bank that concluded with the following statement: “Confronted by a world increasingly hostile to U.S. imperialism, strategists will employ the credit levers of the Eximbank in the coming years to punish countries that nationalize American corporations, and to reward those nations that cater to U.S. commercial interests.”

Eliminating Ex-Im Bank’s credit assistance was high on the list of programs proposed for elimination in the Aid for Dependent Corporations reports issued by the Ralph Nader group Essential Information in the 1990s. By that point libertarian groups such as the Cato Institute were also speaking out against the bank and other forms of corporate welfare. Also lining up against the bank were environmental groups concerned about its role—along with that of the Overseas Private Investment Corporation—in enabling hazardous projects such as the Three Gorges Dam in China.

The contemporary right’s misgivings about the Ex-Im Bank have nothing to do, of course, with anti-imperialism or environmental protection—and everything to do with absolutist ideas about the role of government. The problem these conservatives face is that the actual behavior of large corporations frequently bears little resemblance to pure free-market principles.

Boeing, for instance, is not only perfectly willing to accept federal export assistance but has also sought and obtained billions of dollars in state and local economic development subsidies for its U.S. plants. Its decision to locate a Dreamliner production facility in South Carolina garnered a subsidy package estimated to be worth more than $900 million. The company’s hold over the Palmetto State is so strong that it drove a wedge between South Carolina’s two paleo-conservative U.S. Senators during the Ex-Im debate, with Jim DeMint holding to laissez-faire principles while Lindsey Graham warned that eliminating the bank would jeopardize aerospace jobs.

When it comes to labor relations issues, Boeing suddenly turns into an ardent opponent of government. When the National Labor Relations Board took seriously an allegation by the Machinists that the company’s investment in South Carolina was a form of anti-union retaliation, Boeing screamed bloody murder and got support from all of the state’s leading politicians—and most of the corporate world.

It will be interesting to see how conservatives handle this tension between lionizing large corporations and demonizing them. The outcome of the Ex-Im debate suggests that, for now, corporatists retain the upper hand across the mainstream political spectrum.

Will Big Pharma Remain Above the Law?

The recent announcement that a corporation agreed to pay $1.6 billion to settle regulatory violations would normally be considered significant news, but because the company involved was a drugmaker there was not much of a stir. That’s because Abbott Laboratories is only the latest in a series of pharmaceutical producers to pay nine- and ten-figure amounts to settle charges that they engaged in illegal marketing practices.

Abbott’s deal with federal and state prosecutors involves Depakote, which was approved by the Food and Drug Administration to treat seizures but which Abbott was charged with promoting for unauthorized uses such as schizophrenia and for controlling agitation in elderly dementia patients. The company admitted that for eight years it maintained a specialized sales force to market Depakote to nursing homes for the latter unauthorized use. In other words, it systematically violated FDA rules and encouraged doctors and nursing homes to use the drug in potentially unsafe ways.

Abbott follows in the footsteps of other industry violators:

  • In November 2011 GlaxoSmithKline agreed to pay $3 billion to settle various federal investigations, including one involving the illegal marketing of its diabetes drug Avandia.
  • In September 2010 Novartis agreed to pay $422 million to settle charges that it had illegally marketed its anti-seizure medication Trileptal and five other drugs.
  • In April 2010 AstraZeneca agreed to pay $520 million to settle charges relating to the marketing of its schizophrenia drug Seroquel.
  • In September 2009 Pfizer agreed to pay $2.3 billion to settle charges stemming from the illegal promotion of its anti-inflammatory drug Bextra prior to its being taken off the market entirely because of concerns that it was unsafe for any use.
  • In January 2009 Eli Lilly agreed the pay $1.4 billion—then the largest individual corporate criminal fine in the history of the U.S. Justice Department—for illegal marketing of its anti-psychotic drug Zyprexa.

The wave of off-label marketing settlements began in 2004, when Pfizer agreed to pay $430 million to resolve criminal and civil charges brought against Warner-Lambert (which Pfizer had acquired four years earlier) for providing financial inducements and otherwise encouraging doctors to prescribe its epilepsy drug Neurontin for other unapproved uses.

Soon just about every drugmaker of significance ended up reaching one of these agreements with prosecutors and shelled out what appeared to be hefty penalties. In fact, the amounts were modest in comparison to the potential revenue the companies could rake in by selling the drugs for uses far beyond what the FDA review process had deemed safe. A 2009 investigation by David Evans of Bloomberg noted that the $2.3 billion penalty Pfizer paid in connection with Bextra was only 14 percent of the $16.8 billion in revenue it had enjoyed from that drug over the previous seven years.

The company’s 2004 settlement should have been a deterrent against further off-label marketing, but, according to Bloomberg, Pfizer went right on doing it. Seeking maximum sales, regardless of restrictions set by the FDA, was an ingrained part of the company’s modus operandi. When the 2009 settlement was announced, John Kopchinski, a former Pfizer sales rep turned whistleblower, was quoted as saying: “The whole culture of Pfizer is driven by sales, and if you didn’t sell drugs illegally, you were not seen as a team player.”

Compared to other forms of corporate misconduct, such as securities violations, the drug companies are much more likely to have to admit to criminal violations in the off-label marketing cases. And the penalties are far larger than those imposed for most environmental and labor violations.

Yet these seemingly harsher enforcement practices appear not to have been very effective in putting an end to the illegal activity. In fact, the willingness of the drug industry to flout the drug safety laws raises serious questions about the effectiveness of FDA regulations and the federal criminal justice system in general. If a group of companies know that they can repeatedly break the rules and face consequences that fall far short of the potential gains from the illegal behavior, enforcement has little meaning.

What makes the situation even more outrageous is that off-label market is just one of numerous ways that the drug industry regularly violates the law—whether by defrauding federal programs such as Medicare or by covering up safety risks related to the approved uses of certain drugs.

The one thing that makes drug industry executives a bit nervous is that federal prosecutors have begun to show interest in reviving what is known as the responsible corporate officer doctrine, a provision of U.S. food and drug laws that could be used to hold executives personally and criminally responsible for violations. So far, the doctrine has been applied to only a few small fish. But if Big Pharma CEOs start appearing in perp walks, the industry may finally realize it is not above the law.

Will Discredited Murdoch Get His U.S. Comeuppance?

The recently released UK parliamentary report on the phone hacking scandal involving News Corporation is destined to become a classic exposition of corporate misconduct.

Its authors appear to have exhausted their thesaurus in coming up with various ways of accusing the company and its top executives, including CEO Rupert Murdoch, of deceit. The company’s long-time claim that the hacking was the work of a single “rogue reporter” is described as “false” (p.7) and “no longer [having] any shred of credibility” (p.67). Various assertions made by the company are said to have been “proven to be untrue” (p.9). Company officials are portrayed as having acted “to perpetuate a falsehood” (p.84), “failing to release to the Committee documents that would have helped to expose the truth” (p.14) and as having “repeatedly stonewalled, obfuscated and misled” (p.68).

The report does not come out and directly call Rupert Murdoch a dirty rotten liar, but it makes the same point in a more biting way when it says of the media mogul’s official testimony: “Rupert Murdoch has demonstrated excellent powers of recall and grasp of detail, when it has suited him” (p.68).

In language rare for a government document to use about a powerful corporation and its top executive, the report declares:

On the basis of the facts and evidence before the Committee, we conclude that, if at all relevant times Rupert Murdoch did not take steps to become fully informed about phone-hacking, he turned a blind eye and exhibited wilful blindness to what was going on in his companies and publications. This culture, we consider, permeated from the top throughout the organisation and speaks volumes about the lack of effective corporate governance at News Corporation and News International. We conclude, therefore, that Rupert Murdoch is not a fit person to exercise the stewardship of a major international company (p.70).

As satisfying as this statement is to read, my primary reaction is: what took so long? Murdoch has been the CEO of News Corp. for more than 30 years, and during that time he has done untold damage to the integrity and quality of the media industry worldwide. The phone hacking scandal was not an aberration in the history of the company or the career of its leader.

Murdoch has been unfit to lead at least since the 1970s, when he began acquiring major publications in the United Kingdom and the United States and infusing them with an insidious combination of sensationalism and Neanderthal politics. In the UK he also declared war on the newspaper unions.

Once he was firmly established as a print baron, Murdoch moved into broadcasting and film through the acquisition of Metromedia’s U.S. TV stations and the Twentieth Century-Fox movie studio. In the process he ran roughshod over federal newspaper/broadcasting cross-ownership regulations and played a major role in the decision by the feds to undermine those rules. Murdoch used his U.S. broadcasting empire not just to make money but to exercise a toxic influence on political discourse, especially through the Fox News Channel launched in 1996.

For Murdoch there has never been a clear dividing line between business and politics. He’s used his properties to promote his political views, and he’s used his political connections—even in a place such as China—to advance his business interests.

This practice has extended into the realm of book publishing, in which Murdoch has played a major role since the acquisition of HarperCollins (previously Harper & Row) in 1987. Murdoch has been accused of using Harper to curry favor with key political figures via lavish book deals. The most notorious of these cases involved none other than Newt Gingrich, who was revealed in 1994 to have received a $4.5 million advance on a two-book deal at a time when he was Speaker of the House and thus in a position to influence legislation to the benefit of News Corp.

It came out that Gingrich met with Murdoch personally shortly before signing the deal was struck. Although Gingrich called the criticism “grotesque and disgusting,” the controversy forced him to forgo the advance. HarperCollins also offered generous advances to other public figures such as Supreme Court Justice Clarence Thomas.

While the legal troubles of Murdoch and News Corp. continue in the UK, the question is whether there will be consequences on this side of the Atlantic, where the company is headquartered. The bribery aspects of the phone hacking call out for prosecution under the Foreign Corrupt Practices Act, and there has been speculation about such as investigation since last summer.

For too long, Murdoch has sidestepped U.S. law to build his empire, even going so far as to become an American citizen to get around restrictions on foreign media ownership. There would a delicious irony if what finally brought his comeuppance is misbehavior outside the country.

Wal-Mart and Watergate

Wal-Mart has been probably been accused of more types of misconduct than any other large corporation. The latest additions to the list are bribery and obstruction of justice. In an 8,000-word exposé published recently in the New York Times, top executives at the giant retailer are reported to have thwarted and ultimately shelved an internal investigation of extensive bribes paid by lower-level company officials to expand Wal-Mart’s market share in Mexico.

While Wal-Mart’s outrageous behavior is often in a class by itself, the bribery aspects of the allegations are far from unique. In fact, Wal-Mart is actually a late arrival to a sizeable group of major corporations that have found themselves in legal jeopardy because of what in corporate circles are politely called questionable foreign payments.

That jeopardy has grown more significant in recent years as the Securities and Exchange Commission and the Department of Justice have stepped up enforcement of the Foreign Corrupt Practices Act, or FCPA, which prohibits overseas bribery by U.S.-based corporations and foreign companies with a substantial presence in the United States.

It is often forgotten that the Watergate scandal of the 1970s was not only about the misdeeds of the Nixon Administration. Investigations by the Senate and the Watergate Special Prosecutor forced companies such as 3M, American Airlines and Goodyear Tire & Rubber to admit that they or their executives had made illegal contributions to the infamous Committee to Re-Elect the President.

Subsequent inquiries into illegal payments of all kinds led to revelations that companies such as Lockheed, Northrop and Gulf Oil had engaged in widespread foreign bribery. Under pressure from the SEC, more than 150 publicly traded companies admitted that they had been involved in questionable overseas payments or outright bribes to obtain contracts from foreign governments. A 1976 tally by the Council on Economic Priorities found that more than $300 million in such payments had been disclosed in what some were calling “the Business Watergate.”

While some observers insisted that a certain amount of baksheesh was necessary to making deals in many parts of the world, Congress responded to the revelations by enacting the FCPA in late 1977. For the first time, bribery of foreign government officials was a criminal offense under U.S. law, with fines up to $1 million and prison sentences of up to five years.

The ink was barely dry on the FCPA when U.S. corporations began to complain that it was putting them at a competitive disadvantage. The Carter Administration’s Justice Department responded by signaling that it would not be enforcing the FCPA too vigorously. That was one Carter policy that the Reagan Administration was willing to adopt. In fact, Reagan’s trade representative Bill Brock led an effort to get Congress to weaken the law, but the initiative failed.

The Clinton Administration took a different approach—trying to get other countries to adopt rules similar to the FCPA. In 1997 the industrial countries belonging to the Organization for Economic Cooperation and Development reached agreement on an anti-bribery convention. In subsequent years, the number of FCPA cases remained at a miniscule level—only a handful a year. Optimists were claiming this was because the law was having a remarkable deterrent effect. Skeptics said that companies were being more careful to conceal their bribes, and prosecutors were focused elsewhere.

Any illusion that commercial bribery was a rarity was dispelled in 2005, when former Federal Reserve Chairman Paul Volcker released the final results of the investigation he had been asked to conduct of the Oil-for-Food Program in Iraq. Volcker’s group found that more than half of the 4,500 companies participating in the program—which was supposed to ease the impact of Western sanctions on Iraq—had paid illegal surcharges and kickbacks to the government of Saddam Hussein. Among those companies were Siemens, DaimlerChrysler and the French bank BNP Paribas.

The Volcker investigation, the OECD convention, and the Sarbanes-Oxley law (whose mandates about financial controls made it more difficult to conceal improper payments) breathed new life into FCPA enforcement during the final years of the Bush Administration and after President Obama took office.

The turning point came in November 2007, when Chevron agreed to pay $30 million to settle charges about its role in Oil-for-Food corruption. Then, in late 2008, Siemens agreed to pay the Justice Department, the SEC and European authorities a record $1.6 billion in fines to settle charges that it had routinely paid bribes to secure large public works projects around the world. This was a huge payout in relation to previous FCPA penalties, yet it was a bargain in that the big German company avoided a guilty plea or conviction that would have disqualified it from continuing to receive hundreds of millions of dollars in federal contracts.

In February 2009 Halliburton and its former subsidiary Kellogg Brown and Root agreed to pay a total of $579 million to resolve allegations that they bribed government officials in Nigeria over a ten-year period. A year later, the giant British military contractor BAE Systems reached settlements totaling more than $400 million with the Justice Department and the UK Serious Fraud Office to resolve longstanding multi-country bribery allegations. In April 2010 Daimler and three of its subsidiaries paid $93 million to resolve FCPA charges. Other well-known companies that have settled similar bribery cases since the beginning of 2011 include Tyson Foods, IBM, and Johnson & Johnson. In most cases companies have followed the lead of Siemens in negotiating non-prosecution or deferred prosecution deals that avoided criminal convictions.

A quarter century after the Watergate investigation revealed a culture of corruption in the foreign dealings of major corporations, the new wave of FCPA prosecutions suggests that little has changed. There is one difference, however. Whereas the bribery revelations of the 1970s elicited a public outcry, the cases of the past few years have generated relatively little comment in the United States—except for the complaints of corporate apologists that the FCPA is too severe. Among those apologists are board members of the Institute for Legal Reform (a division of the U.S. Chamber of Commerce), whose ranks have included the top ethics officer of Wal-Mart.

The Wal-Mart case could turn out to be a much bigger deal than previous FCPA cases—for the simple reason that the mega-retailer appears to have forgotten Watergate’s central lesson that the cover-up is often punished more severely than the crime. A company that has often avoided serious consequences for its past misconduct may finally pay a high price.

Employers Stand their Ground

These are heady days for the corporate accountability movement. Threats of consumer boycotts prompted half a dozen major companies to drop out of the American Legislative Exchange Council, which in turn forced ALEC to cease its efforts to get states to enact “stand your ground” laws like the one in Florida at the center of an uproar over the shooting of an unarmed teenager.

At the same time, institutional investors humiliated Citigroup by rejecting a board-approved compensation package for its senior executives. Although the “say on pay” resolution is non-binding, it will in all likelihood result in smaller paydays for top officers of an institution that epitomizes financial sector misconduct. This comes on the heels of an announcement by Goldman Sachs that it would change its board structure in response to pressure from the capital strategies arm of the public employee union AFSCME.

Environmentalists have succeeded in stalling and perhaps killing the disastrous Keystone XL pipeline . The past few months have also seen a surge in protest over working conditions at the Chinese plants that produce the wildly popular Apple iPad tablets. Apple’s manufacturing contractor Foxconn was forced to boost pay for factory workers, while Apple itself faced demonstrations at many of its normally idolized retail stores. The Apple campaign and others are being propelled by new online services such as Sum of Us and Change.org that mobilize online pressure for a variety of anti-corporate initiatives.

Missing from all this positive momentum is a significant victory for the U.S. labor movement. While major corporations have bowed to pressure from consumers and shareholders, they are standing their ground against unions.

Rather than making concessions, large private-sector employers are looking to further roll back labor’s power. Companies such as American Airlines and Hostess Brands (maker of Twinkies and Wonder Bread) have filed for Chapter 11 and are using the bankruptcy courts to decimate their collective bargaining agreements and gut pension plans.

Verizon continues to stonewall in negotiations with members of the Communications Workers of America, who struck the company for two weeks last summer in the face of unprecedented concessionary demands from management but then went back to work without a new contract. CWA is also facing difficult negotiations with AT&T, even though the union went out on a limb to support the company’s ultimately unsuccessful bid to take over T-Mobile.

There have been a few relatively bright spots for labor. For example, after being locked out for three months, Steelworkers union members at Cooper Tire and Rubber managed to negotiate a new contract that excluded the company’s demand for a five-tier wage structure with no guaranteed pay increases.

Yet organized labor has not been able to take the offensive in a significant way, and employers continue to feel emboldened. This comes through loud and clear in the results of the latest Employers Bargaining Objectives survey conducted by Bloomberg BNA (summarized in the April 11 edition of Labor Relations Week).

“Employers are fairly brimming with confidence as they head into 2012 talks,” Bloomberg BNA writes. “Nine out of 10 of the employers surveyed are either fairly confident or highly confident of obtaining the goals they have set for their labor agreements.”

Those goals, of course, do not include hikes in pay and improvements in working conditions. In fact, only 11 percent of respondents said they expected to have to negotiate significant wage increases, while 27 percent said they planned to bargain for no improvements at all in wage rates. Many employers expect to shift more health care costs to workers, and few expect to agree to stronger job security provisions.

Employers are prepared to play hardball in seeking their objectives. For example, one-quarter of manufacturing-sector respondents told Bloomberg BNA they would be likely to resort to a lockout of workers if they did not get their way in negotiations. Corporations have little fear of strikes, which are all but extinct, and if workers do dare to walk out, employers are confident of prevailing—or at least maintaining the kind of impasse that exists at Verizon.

Such arrogance is not surprising at a time when unemployment levels remain high and private-sector unionization rates are abysmally low. The question is what it will take to shatter employer intransigence.

One piece of the solution is greater cooperation between unions and the rest of the broader corporate accountability movement, and that’s exactly what seems to be emerging from the 99% Spring offensive.

Strong private sector unions in the United States are an essential check on the power of large corporations and one of the most effective vehicles for raising living standards. Corporate accountability will mean much more when big business is running away not only from ALEC but also from union-busting.

Paying Taxes to the Boss

From Howard Jarvis, father of California’s notorious Proposition 13, to Grover Norquist, the superlobbyist who pressures politicians to sign a Taxpayer Protection Pledge, conservative ideologues have spent the past few decades poisoning the attitude of Americans toward the payment of taxes. Norquist in particular has been blunt about his ultimate goal: radical reduction in the size of government.

That crusade assumes that taxes are actually going to government. Yet it turns out that a growing portion of state tax revenue is being diverted to corporations, in the name of job creation or job retention. Nearly $700 million a year in withholding taxes paid by workers is being turned over to their employers.

This startling fact comes from Paying Taxes to the Boss, a report my colleagues and I at Good Jobs First have just published.  We found 22 programs in 16 states under which companies are allowed to retain payroll taxes that they deduct from worker paychecks and would normally pass along to state revenue departments. Companies can keep up to 100 percent of the state withholding for designated workers for periods as long as 25 years. The most expensive program, New Jersey’s Business Employment Incentive Program (BEIP), disbursed $178 million in FY2011.

It should come as no surprise that the biggest windfalls are going to major corporations rather than small businesses. Among the largest recipients we found are: Nissan ($160 million in Mississippi), Sears ($150 million in Illinois), General Electric ($115 million in Ohio), Procter & Gamble ($85 million in Utah), Fidelity ($72 million in North Carolina) and Goldman Sachs ($60 million in New Jersey).

Apart from being unseemly, the whole practice is a threat to the fiscal stability of state governments. Payroll and other personal income taxes (PIT) represent a much bigger pot of money than corporate income taxes, so economic development officials can offer larger giveaways to companies and thus do escalating damage to state budgets.

To make matters worse, many of the PIT-based subsidy deals go to companies that don’t really create any new jobs. States frequently offer fat packages to firms that simply relocate existing jobs from a facility in another state. In fact, the diversion of withholding taxes was first adopted in Kentucky as a way to lure companies from neighboring states; the politician credited with originated the idea called it “the atomic bomb of economic development incentives.” Ohio and Indiana responded with their own withholding tax diversions, setting off a PIT-based subsidy arms race.

In recent years, withholding tax diversions have been used, for example, by South Carolina to get Continental Tire to move its North American headquarters from North Carolina; by Georgia to lure NCR from Ohio; and by Colorado to get Arrow Electronics to move its corporate headquarters from New York. In 2011 Kansas provided a reported $47 million in withholding-tax subsidies to AMC Entertainment to get the movie theater chain to move its headquarters from downtown Kansas City, Missouri about 10 miles across the state line to Leawood, a suburb of Kansas City, Kansas.

Along with this interstate job piracy, PIT awards are being given to firms that use the threat of an interstate move to extract big payments to simply stay put. This use of jobs blackmail has been most pronounced recently in Ohio and Illinois.

In 2011 Ohio forked over a $93 million subsidy package—including PIT-based tax credits worth $75 million—in response to a threat by greeting-card giant American Greetings to move its headquarters out of state. A few weeks later, the administration of Gov. John Kasich responded to a similar threat by security services provider Diebold Inc. with a $56 million package, including $30 million in PIT-based credits.

Meanwhile in Illinois, Sears got $150 million in PIT-based credits along with $125 million in local property breaks to keep its headquarters in the distant Chicago suburb of Hoffman Estates. And Motorola Mobility, now part of Google, was given a $100 million withholding-tax deal to keep its headquarters in the Chicago suburb of Libertyville.

At Good Jobs First we normally frame our critique of subsidy programs in terms of the need for greater accountability. In the case of withholding-tax diversions, we decided that the negative impacts are so serious that the best policy recommendation is to call for their abolition.

I wonder if Grover Norquist would support the idea of getting state politicians to pledge that they will not support any increases in taxes going to employers?

Neither Social Darwinism Nor Paternalism

President Obama’s critique of the Republican budget plan as “thinly veiled social Darwinism” is a refreshingly blunt statement about the retrograde features of contemporary conservative thinking.

The efforts of House Budget Chair Paul Ryan and his colleagues to accelerate the upward redistribution of income and the unraveling of the social safety net deserve all the scorn that Obama served up.

While invoking a phrase that has a grand history in the critique of laissez-faire ideology, Obama failed to mention how social Darwinism was originally embraced not just by philosophers such as Herbert Spencer but also by leading industrialists such as Andrew Carnegie and John D. Rockefeller (a fact noted by Richard Hofstadter in his seminal work on the subject, Social Darwinism in American Thought).

Rather than pointing out how social Darwinist ideas can still be found in corporate boardrooms (especially those of Koch Industries) as well as in House hearing rooms, the purportedly socialist Obama went out of his way to sing the praises of business: “I believe deeply that the free market is the greatest force for economic progress in human history.”

Obama also used his speech to extol Henry Ford, specifically for the auto magnate’s policy of paying his workers enough so that they could afford to buy the cars they were assembling. Higher wages are a good thing, but it is misleading to cite Ford without putting his practices in some context.

Henry Ford gained fame as the man who instituted the Five Dollar Day for his workers in the 1910s. The facts were somewhat more complicated: not all workers at Ford Motor qualified for that amount, which in any event was not the base pay. A large part of the $5 consisted of a so-called “profit-sharing” bonus that had to be earned — by working at a high level of intensity on the job, and by living in a style that Ford considered appropriate off the job.

To enforce the lifestyle regulations, Ford created a Sociological Department with inspectors who visited the homes of workers and interviewed family members and neighbors. The company wanted to be sure that workers were not spending their share of Ford profits in a frivolous or irresponsible manner.

Ford’s practices were also designed to discourage unionization. When workers nonetheless tried to organize, Ford’s paternalism quickly dissolved. In 1932 a protest march to the company’s River Rouge plant in Dearborn, Michigan was met with tear-gas and machine-gun fire, which killed four persons. Dearborn police officers were supplemented by members of the Service Department, Ford’s own security force. Headed by Harry Bennett, the Service Department became notorious for its surveillance of workers both on and off the job. In a 1937 confrontation known as the Battle of the Overpass (photo), union organizers were attacked by Bennett’s security force and freelance thugs when they attempted to distribute leaflets outside the Rouge plant. Ford was the last of Detroit’s Big Three to give in to unionization.

It is telling that the word “unions” was not uttered a single time during Obama’s speech. Instead, Obama seems to want us to believe that the alternative to deregulation and trickle-down economics is a return to some kind of government and big business paternalism.

The first problem is that big business, despite giving frequent lip service to corporate social responsibility, has almost completely abandoned paternalism in favor of the human resources principles of Wal-Mart. As for government paternalism, Obama himself felt compelled to say in his speech that “I have never been somebody who believes that government can or should try to solve every problem.”

Even if the prospects for paternalism were more promising, it would not be the most effective way of responding to neo-social Darwinism. As the story of Henry Ford illustrates, paternalism is simply another form of social control by the powerful, and when necessary it is quickly abandoned in favor of repression and austerity. Collective action of the type that was put aside after Obama took office and recently revived by the Occupy Movement is the only real way forward.