Making Honeywell Feel the Heat

How would you describe the situation of a corporation involved in union-busting, mishandling of radioactive waste, production of nuclear weapons and the effort to lower corporate tax rates while cutting Social Security and Medicare? If you are Barron’s, you’d say the firm is “in its sweetest spot in more than a decade.”

That’s the way the investment weekly describes Honeywell International in a recent article that gushes over the company’s financial results and predicts that its stock is “poised for liftoff.” Honeywell, a $33 billion transnational, is viewed differently in Metropolis, Illinois, where some 230 members of the United Steelworkers union have been locked out of their jobs for more than nine months.

Apologists for the attacks on public employees often try to disavow anti-union motivations by saying they have no problem with collective bargaining in the private sector. Honeywell is a glaring reminder that challenges to worker rights can be found among employers of all types these days.

The dispute in Metropolis—which calls itself the hometown of the fictional character Superman—brings together a variety of current hot-button issues, including unions, nuclear power, environmental protection, healthcare coverage and pensions. Honeywell’s plant is the sole facility in the country that converts uranium ore into the uranium hexafluoride gas used in the production of both nuclear power and nuclear weapons. This is a risky process that involves highly toxic materials.

These dangers were highlighted in December 2003, when an accidental release of toxic gas forced the evacuation of nearby residents and the shutdown of the plant for four months. The U.S. Nuclear Regulatory Commission (NRC) issued two violations relating to the way the company handled the incident.

Given such hazards, the members of Steelworkers Local 7-669 have long focused on safety issues, both for themselves and for the surrounding community. The union has been particularly concerned about the high rate of cancer among the workforce and thus has sought to negotiate good health coverage for active workers and retirees. During contract renegotiations last year, Honeywell sought to eliminate retiree health benefits, reduce pensions for new hires, cap severance pay and contract out maintenance. When the union balked but declined to strike, the company abruptly locked out the workers in June. And in a move made all the more reckless by the dangerous nature of the work, the company brought in poorly trained replacements to keep the plant operating.

In September, a loud explosion was heard at the plant but there were no reports of toxic releases. A Steelworkers report notes that the company was cited by the NRC for improperly coaching replacement working during on-site job evaluations by federal inspectors. Honeywell’s safety image was further tarnished just a few weeks ago, when the U.S. Justice Department and the EPA announced that the company had paid a criminal fine of $11.8 million to resolve a charge of illegally storing hazardous and radioactive materials in Metropolis.

The $11 million is the latest addition to the more than $650 million in fines and damages Honeywell has paid since 1995 in connection with 32 instances of misconduct collected by the Project On Government Oversight in its Federal Contractor Misconduct Database (the company ranks 17th in amount paid out).

Honeywell’s record of corporate irresponsibility goes back even farther. From the late 1960s through the late 1980s, the old Honeywell (prior to its 1999 takeover by AlliedSignal, which adopted the name) was targeted by antiwar activists because of its production of cluster bombs and land mines that were widely used in Vietnam and later because it was unwilling to take responsibility for clearing munitions that remained after the war was over.

Despite this checkered history, Honeywell has remained a large federal contractor. It is involved, for example, in both the clean-up of the Cold War-era Savannah River nuclear weapons complex in South Carolina and the construction of a new nuclear arms production facility in Kansas City.

And if all the above is not enough controversy, Honeywell CEO David Cote was named by President Obama (before the lockout) to the National Commission on Fiscal Responsibility and Reform, which issued a report in December that, among other things, proposed cuts in corporate tax rates. Cote issued a personal statement complaining that the report did not take a harder line on Medicare and Medicaid, and he recently called for cuts in Social Security. He also just told Bloomberg Television that he would love to see corporate income taxes entirely eliminated.

For many people, the Honeywell name is still associated with thermostats. But today, it is a poster child for much that is wrong with corporate America—mistreatment of workers, environmental recklessness, military profiteering, and unwillingness to pay a fair share of taxes. It should be made to feel more of the heat itself.

A Good Merger for a Change

AT&T’s proposed $39 billion acquisition of its smaller cell-phone rival T-Mobile has been widely criticized as anti-competitive and bad for consumers. Normally, I would be joining in such a chorus, but this is a special case.

Giant mergers are usually bad news not only for consumers but also for workers, especially if they happen to be unionized. Acquisitions are typically followed by layoffs and sometimes by efforts to bust unions at the firm being purchased. This was seen, for instance, after the acquisition of Northwest Airlines by Delta, which has been accused of intimidating flight attendants and other Northwest workers into decertifying their unions last year.

A very different dynamic is at work in the T-Mobile/AT&T deal. This is a rare instance in which the acquiring company has a vastly better labor relations record than the target.

Let’s start with T-Mobile. The cell phone provider, owned by Deutsche Telekom, has aggressively opposed an organizing drive launched by the Communications Workers of America (CWA) after the German company entered the U.S. market a decade ago. The company’s anti-union crusade, not widely reported in the mainstream media, has employed the usual techniques of targeting workers with propaganda, misinformation, captive meetings and warnings that unionization would lead to job losses.

What makes T-Mobile’s practices all the more egregious is that Deutsche Telekom has good relations with unions in Germany. It is one of numerous European companies that operate under a global double standard: cooperating with unions at home while fighting them tooth and nail in the United States. It was one of those firms singled out in a report issued last year by Human Rights Watch with the title A Strange Case: Violations of Workers’ Freedom of Association in the United States by European Multinational Corporations.

The report charges that “T-Mobile USA’s harsh opposition to workers’ freedom of association in the  United States betrays Deutsche Telekom’s purported commitment to social responsibility, impedes constructive dialogue with employee representatives, and in several cases, has violated ILO and OECD labor and human rights standards.”

These findings reinforced the conclusions of an earlier report written by John Logan for the American Rights at Work Education Fund.

Consider, by contrast, the case of AT&T, which in its current incarnation is the result of the 2006 recombination of various parts of the old Bell system that had been broken up in 1984. Its mobile phone business is what was previously known as Cingular Wireless.

Before the creation of the new AT&T, Cingular had adopted a policy of strict neutrality with regard to union organizing drive—the stance that the law requires but which is rarely adhered to by U.S. employers. That policy carried over into AT&T, which in 2007 was honored by American Rights at Work for its enlightened labor practices. A report issued by the group at the time quoted an AT&T executive as saying that the company “has long taken pride in our cooperative and respectful relationship with the unions that represent our employees.”

In keeping with this position, AT&T recently told a reporter from BNA’s Labor Relations Week (subscribers only) that it would maintain strict neutrality regarding union organizing after acquiring T-Mobile. This means that an estimated 23,000 T-Mobile employees would have an excellent chance of finally gaining union representation.

It is thus no surprise that CWA and the AFL-CIO have voiced support for the merger. This should not be viewed as a matter of narrow self-interest. The remarkable response to Wisconsin’s attack on union rights has revived the old labor solidarity principle that an injury to one is an injury to all. A corollary to that is that a boon to the rights of one group of workers is a boon to all.

The achievement of collective bargaining rights by 20,000-plus T-Mobile employees would be one of the largest labor gains in the U.S. private sector in many years and could serve as an important lesson about the willingness of workers to embrace unions when management thuggery is taken out of the picture.

Also keep in mind that if AT&T does not acquire T-Mobile, it might end up in the hands of the other industry giant, Verizon Wireless, which also has a dismal record on labor relations.

All this is not to discount the concerns of consumer groups. The fact that AT&T is union-friendly does not give it a pass in other areas. It wouldn’t hurt if the CWA works with consumer groups to be sure that AT&T does not abuse its bigger position in the market.

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Nuclear Deception

After hearing the term “meltdown” used so often as a metaphor for the financial crisis, it is shocking to confront the prospect of a literal meltdown at some of Japan’s nuclear reactors in the wake of the devastating earthquake and tsunami. There is something the two situations have in common: corporate misconduct.

The company that operates the heavily damaged reactors, Tokyo Electric Power (TEPCO), is one of the most unethical large corporations that I have ever examined. It has an astounding history of deceptions and cover-ups made all the more egregious by the grave risks inherent in the business of generating nuclear power in a country prone to earthquakes.

TEPCO’s transgressions first came to light in 2002, after Japan’s nuclear regulatory agency belatedly began to investigate whistleblower allegations that the company had regularly falsified repair reports and inspection data concerning its nukes. The agency found evidence that the company had engaged in the deception for some 15 years, in some cases concealing the existence of cracks in the steel plates surrounding reactor cores as well as other defects.

The uproar over the revelations forced TEPCO’s president and chairman to resign. This was not just a matter of higher-ups taking responsibility for the misdeeds of underlings. There were reports that the top executives were aware of what was going on. The scope of the subterfuge also continued to grow, prompting some observers to liken the situation to the big U.S. corporate scandals involving companies such as Enron and WorldCom. TEPCO, which was forced to shut down its reactors for extended periods, later admitted that the data falsifications went back as far as the late 1970s.

In 2007 the company admitted that it had concealed incidents involving the emergency shutdowns of its Fukushima reactors—those involved in the current crisis—back in the mid-1980s. A few months after the admission, TEPCO had to apologize for delays and errors in announcing the extent of the damage at its nuclear plant in Kashiwazaki following an earthquake in the northwestern part of the country. When the whole story became known, local officials ordered TEPCO to shut down the plant.

The incident also prompted criticism of TEPCO for building the plant on top of an active seismic fault. It was unclear whether the company had been unaware of the fault or had ignored its presence; in either case, TEPCO looked highly irresponsible. It was later reported that the company had understated the intensity of the earthquake. The Kashiwazaki plant remained offline for more than two years.

TEPCO’s dishonesty is not limited to its nuclear operations. In 2007 it was one of ten utility companies cited by the Japanese government for falsifying data on the large quantities amounts of river water they used for power generation. TEPCO was found to have submitted bogus information on one of its hydroelectric plants for 13 years.

The mendacity of TEPCO is not just a matter of concern for the Japanese. In May 2010 the company announced it would purchase a 10 percent interest in the South Texas nuclear project, one of a slew of proposed new nukes that hope to receive a share of the billions of dollars in federal assistance promised by the Obama Administration to encourage a nuclear renaissance in the United States, where a new nuclear plant hasn’t opened in decades.

Japan’s disaster is already casting a very dark cloud over the prospects for that renaissance.  Debate over new U.S. nukes should not be limited to the technical safety issues. The example of TEPCO raises the question of whether a corporation can be trusted with a technology that has the potential to do such massive harm.

Billionaires, Blowhards and Bribery

Billionaire Sheldon Adelson

The bond between David Koch and Scott Walker is not the only relationship between a reactionary billionaire and a rightwing politician contaminating the U.S. political scene. Attention also needs to be paid to what’s going on between Sheldon Adelson and Newt Gingrich.

Adelson — the fifth wealthiest person in the United States, with a net worth estimated by Forbes at $23 billion — has made a major bet on Gingrich. Since 2006 he has contributed $7 million to Gingrich’s fundraising entity American Solutions for Winning the Future. Through this 527 vehicle (and a regular political action committee with the same name), Gingrich is raking in loads of cash as he teases the country about whether he plans to run for President while mouthing off with a variety of reckless policy pronouncements.

The American Solutions website has a section labeled Corruption. In January a post there announced a new feature called Corrupt Report that was supposed to monitor news of misbehavior “regardless of political party.” Somehow the site has failed to cover the recent disclosure by Adelson’s company, Las Vegas Sands, that it is being investigated by both the Securities and Exchange Commission and the U.S. Justice Department for possible violations of the Foreign Corrupt Practices Act. The Nevada Gaming Control Board is also said to be looking into the matter.

The investigations presumably involved Adelson’s four casinos in Asia — three in China-controlled Macao and one in Singapore — where Las Vegas Sands has branched out from its U.S. gambling operations.

It will be interesting to see how a gambling-related bribery scandal affects the political prospects of Gingrich, who already has the burden of reconciling his “family values” rhetoric with the fact that he has been twice divorced.

Adelson’s support for Gingrich is far from his only foray into conservative politics. Like a number of other billionaires, he seems to have built his reactionary views on a foundation of anti-union animus. This began in the late 1990s, after Adelson purchased the Sands hotel and casino in Las Vegas — the former hangout of Frank Sinatra and the Rat Pack — and tore it down to make way for the gargantuan Venetian gambling emporium.

The Sands had been a unionized operation, but Adelson refused to recognize the Culinary Workers at the Venetian. When union supporters picketed in front of the casino, he tried to have them arrested, setting off a legal battle that lasted for a decade. More recently, Adelson was an outspoken foe of the Employee Free Choice Act, and today the Las Vegas Sands brags in its 10-K filing that none of the workers at its casinos are covered by collective bargaining agreements.

In 2007 Adelson founded  Freedom’s Watch, an advocacy group that tried to build support for the Bush Administration’s surge strategy in Iraq, beat the drum on what it called the “Iranian Threat” and which in 2008 was being touted as the right’s answer to MoveOn.org — a claim that somehow missed the distinction between a group funded by large numbers of small contributions and one bankrolled mostly by a single multi-billionaire. Despite that money, Freedom’s Watch was a short-lived flop.

Adelson also became active in Israel, where he started a conservative newspaper and became a leading backer of rightwing politicians, especially Prime Minister Benjamin Netanyahu. He has also been an apologist for the repressive Chinese government, which allowed him to build his lucrative casinos in Macao.

At times Adelson has been called the Right’s answer to George Soros. The difference is that Adelson’s political views serve his financial self-interest, especially when it comes to paying taxes. According to a 2008 profile of the gambling magnate in The New Yorker, Adelson once said to an associate: “Why is it fair that I should be paying a higher percentage of taxes than anyone else?”

It’s amazing that Adelson, whose only higher education came from a stint at the tuition-free City College of New York, can forget that progressive taxation (or what’s left of it) is what pays for the public institutions and infrastructure that help people like him succeed.

Even more dismaying than billionaires’ deluding themselves into thinking that they are completely self-made is the fact that they can now use large amounts of their undertaxed wealth to promote policies that make life ever more harsh for the rest of us.

Challenging Corporate America’s Hiring Freeze

You would never know it from the preoccupation with budget deficits and the attack on public unions, but there is still a severe jobs crisis in the United States.

The focus on the state and federal fiscal situation has deflected attention from what should be a major scandal: the failure of big business to accelerate hiring in step with the emerging recovery in overall economic activity.

In recent weeks the dimensions of that scandal have become increasingly apparent as corporations report lush earnings for 2010 while hiring remains depressed. To highlight this incongruity, I looked at the top 50 companies on the most recent Fortune 500 list. Twenty-nine of them have recently reported their annual profits while also disclosing the size of their payroll as of the end of the fiscal year.

On the earnings side, it is truly fat city. The 29 posted aggregate net income of $239 billion, a whopping 48 percent increase from the year before. Oil companies, of course, are raking it in. Exxon Mobil was up 58 percent and Chevron 81 percent. Service sector giants are also reporting much richer bottom lines. UPS showed an increase of 62 percent and AT&T 63 percent. Some blue chip industrials more than doubled their earnings. Boeing soared 152 percent and Ford Motor 141 percent.

By contrast, the employment figures are pitiful. Together, the 29 corporations reported a decline of about 3,500 positions in their aggregate head count of some 4.6 million. While most of the companies showed little change—and some banks increased their hiring a bit—a few of the corporate giants slashed payrolls. Telecommunications behemoth Verizon Communications reduced its workforce by 28,500 jobs while boosting its profits more than 13 percent. General Electric, whose CEO Jeff Immelt is advising the Obama Administration on job creation, got rid of 17,000 net positions during 2010 while enjoying a 6 percent rise in earnings. (GE is one of the few companies that provide a geographic breakdown of their workforce. In the U.S. GE’s head count was down by 1,000.)

It’s interesting that the percentage decrease in head count at Verizon and GE is almost identical to the percentage increase in profits at each of the companies.

Given these numbers, why is big business facing little criticism for its hiring freeze? There is a tendency to regard even large corporations as helpless in the face of economic conditions, and they are not expected to resume hiring until the market mandates it. Yet the overall economy is picking up and still there is a resistance to hiring.

Corporate apologists such as the U.S. Chamber of Commerce would have us believe that the reason is excessive workplace regulation. The Chamber has just come out with a report making the preposterous claim that if state governments would only curtail their employment rules to the lowest common denominator, 746,000 new jobs would magically materialize.

A major reasons hiring is anemic is that workplace rules—and union presence—are too weak rather than too strong. Companies can do more business and garner more profits without increasing their head count largely because there is nothing stopping them from squeezing more work out of the same number of employees. Stricter protections and more collective bargaining would result in higher employment levels.

One of the favorite policy prescriptions for high joblessness is to offer tax credits to companies to hire more people. The existence of those programs at the state and federal levels is, however, contributing little to job creation.

Rather than thinking up more incentives, perhaps there we should create a disincentive for corporations to continue their hiring boycott. There is a growing awareness these days that big business is not paying its fair share of taxes.  We could begin to address this problem by creating tax penalties for profitable companies that refuse to use their earnings to alleviate understaffing.

Pressuring corporations to do more hiring would not only improve life for the overworked employed and reduce the ranks of the unemployed. The additional tax revenue that comes in—whether from the penalties or the withholding paid by the newly hired—would also alleviate the state and federal fiscal crunch and make it easier for us to ignore those who insist that cutting the size of government is the solution to everything.

Public Employees and the Public Interest

Chicago Tribune, January 29, 1900

Well before Wisconsin Gov. Scott Walker began his unholy crusade, the Right was heavily promoting its claim that public employee unions are a threat to the public. The title of a 2009 book by conservative ideologue Steven Greenhut said it all: Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.

What the union bashers are trying to obscure is that public employees have a long history of supporting policies that promote the broad public interest. This goes back to the very roots of the public employee union movement.

In the 1890s teachers in Chicago created a federation that became the first real teachers union and one of the pioneers of public employee unionism in general. When the federation, led by Margaret Haley and Catherine Goggin (illustration), was confronted with a move by the board of education to cut teacher salaries because of a purported fiscal crisis, the teachers responded to the claim of a revenue shortfall in a creative way. They launched an intensive investigation of tax dodging by some of the largest corporations in the city, finding that property tax underpayments amounted to some $4 million a year (serious money back then).

Tax officials were reluctant to crack down on powerful business interests, so the teachers sued, eventually winning a favorable ruling in the Illinois Supreme Court (though the U.S. Supreme Court later went the other way).

A cynic might say that the teachers were simply acting in their self-interest by finding a new revenue source that would help restore their lost wages. Yet their goal was also to find funds that could improve conditions in the schools—and those conditions were truly abysmal. In his 1975 history of the American Federation of Teachers, William Edward Eaton writes that in the 1890s:

The teachers of Chicago daily faced the horrors of overcrowded, unsanitary buildings stuffed with too many children and controlled by an impersonal bureaucratic structure. This they did with poor pay, no job security, and no pension system.

The efforts of teacher organizations to address these problems, through collective bargaining as well as tax justice campaigns, also redounded to the benefit of the students and their families.

The Chicago teachers were also an important force in the passage of the Illinois Child Labor Law of 1903. That cynic might say this was aimed at boosting school enrollment and increasing the demand for teachers. Maybe so, but can anyone deny that banning child labor was also a boon for society as a whole, aside from sweatshop proprietors?

In the decades that followed, unions of teachers and other government employees have been among the strongest advocates of a vibrant public sector. They have continued to be leading critics of corporate tax dodging and opponents of efforts to gut public services. Unions such as AFSCME have been at the forefront of campaigns to stop the contracting out of government functions and the privatization of public assets such as highways—practices that usually work to the detriment of taxpayers as well as public employees.

The state and local public employee unions accomplished this against all odds. Denied the protection of the National Labor Relations Act, they had to get states one-by-one to recognize their right to organize—the right that is at risk in Wisconsin and elsewhere. It took a period of remarkable militancy in the 1960s and 1970s—including defiance of laws banning strikes by public employees—before they made significant progress. Among those strikes was the 1968 walkout by sanitation workers in Memphis, where Martin Luther King Jr. was visiting to show his support when he was assassinated.

And even then there were often severe fiscal limits on the ability of public employees to bargain for substantial wage gains. To compensate, many public unions put more emphasis on securing better retirement benefits for their members. These pension rights—in effect, deferred wages—are now under attack as if they were some giant giveaway.

The real giveaways are the lavish business tax cuts and corporate subsidies that the likes of Gov. Walker promote at the same time that they are demanding severe concessions from government workers. The great confrontation of 2011 comes down a question of whose interests are more closely aligned with those of the public at large: those who teach our children, drive our buses and put out fires in our homes—or superwealthy individuals and large corporations that are reluctant to create new jobs.

With each passing day, the momentum is moving in favor of the descendants of the 1890s Chicago teachers who are fighting for their rights and for the public interest in Madison, Columbus and other capitals across the nation.

Note:  A new movement called US Uncut is organizing actions around the country calling for a crackdown on corporate tax dodging as an alternative to harmful cuts in government programs such as education.

The Selective Sanctity of Contracts

Along with the rule of law and private property rights, the sanctity of contracts is considered fundamental to “economic freedom.”  Yet certain kinds of contracts, namely the collective bargaining agreements of U.S. public sector workers, are now starting to be regarded as dispensable.

In Wisconsin, newly elected Gov. Scott Walker – whose official website is emblazoned with the slogan “Wisconsin is Open for Business” – is trying to strip state employees of their right to bargain collectively on the full range of workplace issues and force them to pay a much larger portion of the cost of their pension and healthcare benefits, sparking unprecedented protests (photo).  Similar attacks on public bargaining rights are under way in states such as Ohio, and a wide array of public officials are talking about the possibility of reneging on state and local government pension benefits negotiated over many years.

These assaults on the contract rights of public workers are said to be necessitated by the dire fiscal condition of many states. Yet it is telling that those assaulting public unions are not also questioning the viability of other expensive government obligations, for which the beneficiary is business rather than labor.

State and local governments spend an estimated $70 billion a year on economic development subsidies – corporate income tax credits, property tax abatements, direct cash grants, etc. – to lure large companies to invest in their jurisdiction or to retain those already there. They do so despite extensive evidence that such subsidies are often immaterial in corporate site selection decisions and that their costs—which for some tax deals can last for decades—often far outweigh the economic benefits of the investment.

The current fiscal crisis is a perfect opportunity for states to abandon these self-defeating subsidy practices. Yet aside from a small number of places such as California, where Gov. Jerry Brown is seeking to eliminate the highly ineffective enterprise zone program, and a few other states where film production tax credits have been reduced or suspended, surprisingly little is being done to end the corporate giveaways.

Shutting down or cutting back the boondoggle programs would limit new obligations, but if states are truly facing a fiscal emergency perhaps they should also look for ways to escape from expensive financial commitments that are already in place. Why are state and local governments not looking for ways to abrogate existing subsidy agreements?

Some might say that companies would lay off workers if they had to return subsidies. That’s debatable, but the problem could be addressed by limiting the revocations to large and profitable companies. For example, why shouldn’t Google (2010 profits: $8.5 billion) be required to give back the big subsidy packages it has extracted for its data centers, including $200 million for a facility in Lenoir, North Carolina and about $50 million for one in Council Bluffs, Iowa?

The same goes for the big Wall Street firms. Should Goldman Sachs (2010 profits: $8.4 billion) be allowed to keep the $175 million in subsidies (and $1.7 billion in tax-exempt financing) it received for its new headquarters in lower Manhattan—or the $164 million it got for an operation across the river in New Jersey?

What about Boeing ($2.1 billion in profits for the first three quarters of 2010): Should it retain the estimated $900 million subsidy package it received for its new Dreamliner production line in Charleston, South Carolina?  Must Procter & Gamble ($12.7 billion in profits for the fiscal year ending June 2010) retain the $85 million tax break it got for a plant in Utah?

And, of course, there is Wal-Mart (which will soon announce annual profits expected to exceed $14 billion). Over the years it has received what my colleagues and I at Good Jobs First estimate at more than $1.2 billion in subsidies at hundreds of stores and around 90 percent of its 100 or so distribution centers—including at least five facilities in Wisconsin. Couldn’t it afford to give some of that back in a time of need for many of the communities in which it operates?

Business advocates would no doubt scream bloody murder if subsidy abrogation were ever seriously considered by state or city governments. They would accuse officials of breaking solemn promises and poisoning the business climate. They would mobilize small business owners to defend the rights of their larger brethren. And they would waste no time bringing suit against public officials for breach of contract.

On what basis can subsidy agreements be considered sacrosanct while public sector collective bargaining agreements and pension obligations are torn to shreds? The failure of those seeking to undermine commitments to public workers to also call for sacrifices by business suggests that their real objective may have more to do with ideology than fiscal relief.

Note: For more details on the subsidy deals cited above and many more, see the Accountable USA state pages of the Good Jobs First website (index by company name here). And see our Subsidy Tracker database as well.

Putting Off Corporate Absolution

I was just beginning to recover from President Obama’s dismaying speech at the U.S. Chamber of Commerce when I found myself in the middle of another effort to gloss over the misdeeds of big business. This occurred at the annual conference of the BlueGreen Alliance, which brought together some 1,600 labor and environmental activists to discuss the prospects for a sustainable economy but also invited representatives of some supposedly enlightened corporations.

When we gathered for lunch on the first day we first had to listen to a presentation by David Kiser, a vice president at International Paper, which is listed in the conference program as one of the “Platinum Sponsors” of the event. Kiser went on about IP’s commitment to “environmental stewardship” and “caring for employees.”

I had to restrain myself from laughing out loud. IP has one of the worst track records of any major corporation when it comes to both labor and environmental practices. Some of the earliest anti-corporate research I ever did was to assist a campaign launched by the Paperworkers union (now part of the Steelworkers, which co-founded the BlueGreen Alliance) to resist company demands for contract concessions in the 1980s.

After workers at an IP mill in Mobile, Alabama voted against the concessions, they were locked out by the company. The Mobile workers then made a coordinated bargaining pact with their counterparts at three other IP mills—in Jay, Maine, Lock Haven, Pennsylvania, and De Pere, Wisconsin—where contracts were expiring and the rank and file had decided to strike rather than concede.

IP responded by bringing in replacement workers from around the country, many of them recruited by BE&K, an Alabama-based construction company that had diversified into strikebreaking. The campaign by the striking and locked-out locals was eventually crushed by the company.

Yet during that campaign, workers at the mill in Jay, Maine (photo, from 1973) drew national attention to the environmental hazards of IP’s operations, which were a major contributor to the dioxin problem due to chlorine used in the paper bleaching process. The labor and environmental issues intersected in February 1988, when unskilled strikebreakers hired by the company accidentally broke the valve on a tank containing chlorine dioxide gas in pressurized liquid form. About 112,000 gallons of the liquid poured out and vaporized into a huge green cloud that floated out from the mill, forcing the evacuation of some 3,000 people from homes, schools and businesses. If the weather had been warmer and the winds weaker, many could have died.

Paperworker union members helped enact local ordinances in Jay that cracked down on IP’s emissions and pressured Maine state officials to file suit against the company for environmental violations. IP paid $885,000 to settle the charges. Later, the U.S. EPA also brought action against the company, which in 1991 pleaded guilty to five felony charges and paid a fine of $2.2 million. Over the following decade, IP was implicated in state and federal environmental violations in states such as New York, Massachusetts, Wisconsin, Mississippi, Florida, California, Georgia and Virginia.

Since the early 2000s the company has been trying to rehabilitate its environmental image by actions such as donating land to conservation groups and appointing the head of one such group to its board of directors.  Yet the company remains a heavy polluter. In the EPA’s most recent Toxics Release Inventory, IP mills rank first and second among all paper facilities in the total volume of releases and account for 15 of the industry’s top 50 polluters, with total toxic releases of more than 43 million pounds.

IP’s labor relations are a lot less tumultuous these days, but in the last decade the company has slashed its U.S. hourly workforce from 45,000 down to 24,000.

The International Paper of 2011 is not the same as the IP of 1988, but I still find it difficult to regard the company as an ally in the effort to shape the green economy of the future. It takes a long time for the impact of past transgressions to dissipate.

This was brought home to me at another session at the BlueGreen Alliance conference. An official of the EPA was talking about how Recovery Act money is being used to help clean up a Superfund hazardous waste site in New Jersey where a long-defunct company had dumped large quantities of radioactive thorium once used in the production of gas lamps. Thorium, the EPA guy noted, has a half life of 14 billion years.

When the impact of business misbehavior can endure for eons, it will take more than a few social responsibility gestures to redeem corporate sinners.

Mubarak’s Foreign Corporate Backers

Pro-Mubarak thugs charged into Tahrir Square on horses and camels in an effort to save the embattled Egyptian dictator. It was not long ago that the regime was being propped up by a different breed of supporter: foreign investors arriving on corporate jets with billions of dollars in capital.

Long overdue attention is being paid to the foreign arms contractors that have equipped the Egyptian military with weapons funded by U.S. aid programs. Also deserving of close scrutiny are the major U.S. and European corporations that have invested heavily in Egypt, thereby shoring up the regime. Here are some of the main culprits.

BP. Formerly known as British Petroleum, BP has a long history in the Middle East in general and Egypt in particular. The company’s website makes no bones about its huge involvement in Egypt during the Mubarak regime: “BP Egypt has been a significant part of the Egyptian oil and gas industry for more than 44 years. During this time, we’ve been responsible for almost half of Egypt’s entire oil production and we are the single largest foreign investor in the country…Over the years we’ve established strong relationships with the Egyptian Government and the Ministry of Petroleum.” In July 2010 BP agreed to sell some of its Egyptian assets to Apache Corporation as part of a divestment effort to raise funds to pay for the cleanup of its massive oil spill in the Gulf of Mexico.

Nestlé. Just a week before protests broke out in Cairo, this Swiss food giant announced that it would invest some $170 million to expand its existing factories and distribution centers in Egypt, adding 500 new jobs to its 3,000-person workforce. After the announcement, the country’s Ministry of Investment put out a press release quoting Nestlé’s CEO as saying that the move was based on studies “that had proven Egypt to be a promising market with security, stability and high profitability in the long term.”

Procter & Gamble. In June 2010 P&G laid the cornerstone on a huge new diaper manufacturing plant outside Cairo. The $176 million facility would nearly double the value of P&G’s operations in Egypt, which currently involve the production of products such as detergents, soaps and other personal care products.

Electrolux. The Swedish appliance company announced last October that it would spend about $475 million to buy a controlling interest in Egypt’s Olympic Group, the largest producer of household appliances in the Middle East and North Africa.

Saint-Gobain. In July 2010 the large French construction materials firm opened a $100 million glass production plant in Ain El Sokhna on Egypt’s Red Sea coast.

PepsiCo. In December 2009, International Dairy and Juice Limited, a joint venture between PepsiCo and Almarai, announced that it had acquired Egypt’s International Company for Agro-Industrial Projects (Beyti).

Deals such as these – some of which are now on hold – helped to make Egypt the second largest recipient of foreign direct investment among African nations (behind Angola). In 2008 the U.S.-based National Outsourcing Association named Egypt its “Outsourcing Destination of the Year.”

The appeal of Egypt for foreign investors is not just better access to a market of 80 million consumers. As in China, a repressive political environment has weakened the power of labor and kept down wages to the advantage of major employers, both foreign and domestic.

Egyptian workers have been attempting to build a movement that would help raise their standard of living. A series of labor protests helped pave the way for the current uprising. The group that is credited with sparking the revolt, the April 6 Movement, takes its name from the effort to support workers who launched an aborted general strike in 2008. Hundreds of workers took to the streets of Cairo last May to call for an increase in the country’s pitiful minimum wage while also calling for an end to Mubarak’s rule. And amid the current revolt, Egyptian workers formed a new independent labor federation.

Large corporations try to have it both ways. They promote the view that the expansion of “free” markets goes hand-in-hand with the growth of free societies, yet they do not hesitate to do business in the most repressive societies. And they are quick to take advantage of repression’s side effects, above all weak unions.

However the uprising in Egypt turns out, it has served to highlight the hypocrisy not only of the U.S. government but also that of big business when it comes to selective support for democracy. And like the Obama Administration, major corporations will have to scramble to avoid ending up on the wrong side of history.

An Indictment of the Financial Sector

The purpose of the traditional blue-ribbon government panel has to been to study a serious problem and issue a report with vague explanations of causes and mushy policy prescriptions. The new report from the federal government’s Financial Crisis Inquiry Commission is a refreshing exception to the rule.

In the place of such nebulous prose, the 600-page-plus document is filled with pointed analyses of who did what wrong when. In other words, it names names. The FCIC acknowledges that it needed to delve into arcane subjects such as securitization and derivatives, but the report’s preface states:

To bring these subjects out of the realm of the abstract, we conducted case study investigations of specific financial firms—and in many cases specific facets of these institutions—that played pivotal roles. Those institutions included American International Group (AIG), Bear Stearns, Citigroup, Countrywide Financial, Fannie Mae, Goldman Sachs, Lehman Brothers, Merrill Lynch, Moody’s, and Wachovia. We looked more generally at the roles and actions of scores of other companies.

To get a sense of the scope of the rogues’ gallery of financial players, take a look at the report’s index, which, interestingly, is not in the official PDF but can be found on the website of the publisher that is issuing the commercial version.  There are dozens of entries for specific firms and even more for specific individuals. Goldman Sachs and Lehman Brothers, for instance, each have listings for about 40 different pages.

The FCIC does not just mention names; it assigns responsibility and soundly rejects the notion—expressed at commission hearings by major financial industry executives—that the crisis came as a complete surprise:

The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public.

It is satisfying that the report acknowledges the culpability of figures in both the private and the public spheres. Along with Wall Street villains, it fingers government institutions and officials, especially those with regulatory responsibilities:

The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe.

Figures such as current Fed Chairman Ben Bernanke, former Treasury Secretary Henry Paulson and former SEC chair Christopher Cox are singled out for making misleading statements in 2008 about the gravity of the situation just before the crisis erupted. The report goes on to state:

Our examination revealed stunning instances of governance breakdowns and irresponsibility. You will read, among other things, about AIG senior management’s ignorance of the terms and risks of the company’s $79 billion derivatives exposure to mortgage-related securities; Fannie Mae’s quest for bigger market share, profits, and bonuses, which led it to ramp up its exposure to risky loans and securities as the housing market was peaking; and the costly surprise when Merrill Lynch’s top management realized that the company held $55 billion in “super-senior” and supposedly “super-safe” mortgage-related securities that resulted in billions of dollars in losses.

Finding that “a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis,” the FCIC cites the high leverage ratios at the leading investment banks and the fact that “the leverage was often hidden—in derivatives positions, in off-balance-sheet entities, and through ‘window dressing’ of financial reports available to the investing public.”

The report continues: “When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans, and the risky assets all came home to roost. What resulted was panic. We had reaped what we had sown.” One chapter, covering the explosion of risky financial instruments such as collateralized debt obligations is entitled “The Madness.”

Perhaps most damning is the FCIC’s finding of a “systemic breakdown in accountability and ethics” that “stretched from the ground level to the corporate suites.” For example, the report cites the case of the subprime lender Countrywide (later taken over by Bank of America):

As early as September 2004, Countrywide executives recognized that many of the loans they were originating could result in “catastrophic consequences.”  Less than a year later, they noted that certain high-risk loans they were making could result not only in foreclosures but also in “financial and reputational catastrophe” for the firm. But they did not stop.

All in all, the FCIC report paints an incriminating picture of the U.S. financial industry as well as the government regulators and private entities such as credit rating agencies that are supposed to put some checks on the unbridled pursuit of profit. In fact, the document in many ways reads like a criminal indictment. We would all be better off if some actual prosecutors pursued these leads.

Note: The report, dominated by a section of more than 400 pages endorsed by a majority of commissioners, also contains a 125-page dissent from the minority as well as 80 pages of endnotes. But that’s not all. The document indicates that it is not the sole repository of what the FCIC found:

A website—www.fcic.gov—will host a wealth of information beyond what could be presented here. It will contain a stockpile of materials—including documents and emails, video of the Commission’s public hearings, testimony, and supporting research—that can be studied for years to come. Much of what is footnoted in this report can be found on the website.

A critical researcher’s dream.