Category Archives: Corporate Governance

The Dark Side of the “World’s Most Admired” Companies

Source: Neil Gordon, Project On Government Oversight (POGO), January 26, 2018

Fortune magazine recently released its 2018 list of the World’s Most Admired Companies. From a pool of roughly 1,500 candidates, Fortune picked the 50 “best-regarded companies in 52 industries.” Apple topped the list for the eleventh year straight. General Electric plummeted in the last year from number 7 to number 30. Lockheed Martin and Adidas both cracked the top 50 for the first time.

Of course, Fortune’s ranking is somewhat skewed and self-serving. It is based on a survey of corporate executives and financial analysts. “Admiration” is measured according to criteria that emphasize companies’ financial shape over their track record of integrity and business ethics.

So, we took it upon ourselves to document the dark side of the world’s 50 most admired companies. Ten of the companies are in our Federal Contractor Misconduct Database (FCMD), which includes civil, criminal, and administrative misconduct instances dating back to 1995 for 220 of the federal government’s largest contractors. All but 3 of the top 50 are in Good Jobs First’s Violation Tracker corporate misconduct database, which includes enforcement data from the federal regulatory agencies and the Justice Department dating back to 2000 for over 2,800 companies. Both databases show that most of the companies have multiple instances of misconduct for which they paid millions of dollars in fines, penalties, judgments, and settlements…..

Debt as Threat: Evidence from Union-Sponsored Shareholder Proposals

Source: Alberta Di Giuli, Arthur Petit-Romec, Last revised: December 22, 2017

From the abstract:
This paper uses data on shareholder proposals to study how leverage affects the interaction between firms and labor unions. We find a negative association between financial leverage and shareholder proposals sponsored by unions. Our results are consistent with the idea that capital structure affects labor unions’ behavior and suggest that debt deters labor unions from engaging in negotiation tactics. Additional tests indicate that the negative association between debt and union proposals is driven by governance proposals and more pronounced in firms in poorer financial condition. Our results also suggest that union proposals in firms with low level of debt are value destroying.

How to explore networks and entity metadata in the Offshore Leaks Database

Source: Cecile S. Gallego, International Consortium of Investigative Journalists blog, January 16, 2018

This is the second part of a three-part series on ways to search our Offshore Leaks Database that now includes more than 680,000 entities from 55 secrecy jurisdictions. The first installment was How to search the Offshore Leaks Database by location.

The Offshore Leaks database displays networks of entities and individuals that can be challenging to navigate. Here are a few tips on how to make sense of those networks and all the information you can get out of the data we have made public.

The 2017 CPA-Zicklin Index of Corporate Political Disclosure and Accountability – Sustained Growth Among S&P 500 Companies Signals Commitment to Political Disclosure and Accountability

Source: Bruce F. Freed, Center for Political Accountability (CPA), September 26, 2017

The CPA-Zicklin Index benchmarks the political disclosure and accountability policies and practices of leading U.S. public companies. Issued annually, it is produced by the Center for Political Accountability in conjunction with the Zicklin Center for Business Ethics Research at The Wharton School at the University of Pennsylvania.

The indicators used to score companies are available here, and the detailed Scoring Guidelines can be downloaded here. To see the raw data used to compile this report, see this spreadsheet.

Related:
Your favorite companies may be political black boxes
Source: Lateshia Beachum, Center for Public Integrity, September 26, 2017

Violation Tracker – September 2017 update

Source: Good Jobs First. September 19, 2017

From the press release:
An expansion of Violation Tracker, the first public database of corporate crime and misconduct in the United States, now makes it possible to access details of cases ranging from the big business scandals of the early 2000s during the Bush administration through those of the Trump administration to date. …. The expansion nearly doubles the size of Violation Tracker to 300,000 entries, which together account for more than $394 billion in fines and settlements. As a measure of how corporate crime is concentrated within big business, 95 percent of those penalty values were assessed against only 2,800 large parent companies whose subsidiaries are linked together in the database. Approximately 200,000 smaller businesses account for the remaining five percent of the dollar total. ….

Related:
Agency Data Sources
User Guide and Webinar
Update Log

Pointing Out: How Walmart Unlawfully Punishes Workers for Medical Absences

Source: A Better Balance, June 2017

From the summary:
Walmart is proud of its heritage as a family-founded company. Ironically, while the Walton family touts its family values, Walmart’s absence control program punishes workers who need to be there for their own families. Walmart disciplines workers for occasional absences due to caring for sick or disabled family members and for needing to take time off for their own illnesses or disabilities. Although this system is supposed to be “neutral,” and punish all absences equally, along the lines of a “three strikes and you’re out” policy, in reality such a system is brutally unfair. It punishes workers for things they cannot control and disproportionately harms the most vulnerable workers.

Punishing workers for absences related to illness or disability is not only unfair, it’s often against the law. Based on our conversations with Walmart employees as well as survey results of over 1,000 current and former Walmart workers who have struggled due to Walmart’s absence control program, Walmart may regularly be violating the federal Family and Medical Leave Act (FMLA) by failing to give adequate notice to its employees about when absences might be protected by the FMLA and by giving its employees disciplinary points for taking time to care for themselves, their children, their spouses or their parents even though that time is covered by the FMLA.

Similarly, we allege that Walmart’s policies and practices of refusing to consider doctors’ notes and giving disciplinary points for disability-related absences is a violation of the Americans with Disabilities Act (ADA). The ADA protects workers with disabilities from being disciplined or fired because of their disabilities. It also requires employers to engage in a good faith interactive process to determine an appropriate accommodation for workers with disabilities. Unfortunately, as detailed in this report, this is too often not Walmart’s practice. Other federal, state and local laws such as pregnancy accommodation protections, and sick time laws, could also be at play. Walmart’s policies and practices are not in compliance with many of these laws.

Simply put: Giving a worker a disciplinary “point” for being absent due to a disability or for taking care of themselves or a loved one with a serious medical condition is not only unfair, in many instances, it runs afoul of federal, state and local law.
Related:
Press release

Corporate Prosecution Registry

Source: Brandon L. Garrett and Jon Ashley, University of Virginia School of Law, 2017

The Corporate Prosecutions Registry is a project of the University of Virginia School of Law. The goal of this Corporate Prosecutions Registry is to provide comprehensive and up-to-date information on federal organizational prosecutions in the United States, so that we can better understand how corporate prosecutions are brought and resolved. We include detailed information about every federal organizational prosecution since 2001, as well as deferred and non-prosecution agreements with organizations since 1990.
We aim to provide accurate, timely, and accessible information for policymakers, researchers and litigators alike. All of the information contained on this website is publicly available, and was gathered from federal docket sheets, press releases, prosecutor’s offices, as well as from FOIA requests.

Violation Tracker – April 2017 update

Source: Good Jobs First, April 18, 2017

From the press release:
Good Jobs First today announced a large new addition to Violation Tracker, the country’s first public database of corporate crime and misconduct: more than 34,000 cases brought by the Wage and Hour Division of the U.S. Department of Labor since the beginning of 2010 for violations of overtime, minimum wage and other provisions of the Fair Labor Standards Act.

The largest violators captured by the new data are oilfield services company Halliburton, which in 2015 agreed to an $18 million settlement of alleged overtime violations, and CoreCivic (the new name of private prison operator Corrections Corporation of America), which in 2014 agreed to an $8 million settlement….

Private Equity Wins Even When It Loses, Thanks to Debt Markets

Source: Nabila Ahmed and Sridhar Natarajan, Bloomberg, March 20, 2017

The Payless shoe company was already on its way to becoming another retail victim of the internet when the private equity guys showed up.

That the firms — Golden Gate Capital Inc. and Blum Capital Partners — weren’t able to turn Payless around after acquiring them in 2012 isn’t so surprising. That they’ve still made out so handsomely is.

As Payless shutters hundreds of stores and struggles to repay $665 million of debt, Golden Gate and Blum turned a profit on the deal. How? By having Payless borrow millions in the financial markets, a move that’s pushing the company to the brink. The firms have collected $350 million from Payless through debt-funded special dividends. Golden Gate and Payless declined to comment and Blum didn’t respond to requests.

Private equity firms have always borrowed to buy companies. But now, with debt so cheap, they’re layering on subsequent borrowing at an unprecedented clip to pay themselves, putting an additional, and at times fatal, financial strain on their newly acquired companies. From the start of 2013, private equity owners have taken out more than $90 billion in debt-funded payouts, according to data compiled by LCD, part of S&P Global Market Intelligence…..

Strategic Silence: Withholding Certification Status as a Hypocrisy Avoidance Tactic

Source: W. Chad Carlos, Ben W. Lewis, Administrative Science Quarterly, OnlineFirst, First Published February 1, 2017
(subscription required)

From the abstract:
We examine why organizations that obtain prominent certifications may at times elect not to publicize them. Drawing on the impression management literature, we argue and show that concerns about being perceived as hypocritical may cause organizations to strategically withhold their certification status. Using a longitudinal panel of corporations that were members of the Dow Jones Sustainability Index, a prominent environmental certification, we show that in the face of reputational threats, organizations are less likely to publicize their certification status when the threat appears to directly contradict the claims implied by the certification. Our findings suggest that the threat of hypocrisy is amplified for firms with stronger reputations in the same domain as the certification and when audience members better understand and value the certification. Our findings delineate new boundary conditions under which firms will make prosocial claims and inspire reconsideration of long-held assumptions about the process of decoupling the implementation and communication of socially valued practices. This study also provides insights for scholars of nonmarket strategy on how corporations strategically communicate with external constituents about their sustainability initiatives.