Category Archives: Corporate Governance

The Political Strategies and Unity of the American Corporate Inner Circle: Evidence from Political Donations, 1982-2000

Source: Jennifer A Heerwig, Joshua Murray, Social Problems, Advance Access, August 21 2018

From the abstract:
Recent work has offered competing explanations for the long-term evolution of corporate political action in the United States. In one, scholars have theorized that long-term structural changes in the American political and economic landscape may have radically transformed inter-corporate network structures and changed the political orientation of corporate elites. In another, a small group of corporate elites continues to dominate government policy by advocating for class-wide interests through occupying key positions in government and policy planning groups. We offer new evidence of patterns in and predictors of political strategies among the nation’s elite corporate directors. We utilize an original dataset (the Longitudinal Elite Contributor Database) linked with registries of corporate directors and their board memberships. We ask: (1) has the political activity, unity, or pragmatism of the corporate elite declined since 1982; and (2) are individuals who direct multiple firms more pragmatic in their political action? Evidence suggests that corporate elites are more politically active and unified, and continue to exercise pragmatic political strategies vis-à-vis their campaign donations. Using random- and fixed-effects models, we present evidence to suggest that becoming a member of the inner circle has a significant moderating effect on elite political behavior. We offer an alternative mechanism of elite coordination that may help explain the continued political cohesion of the corporate elite.

Curbing Stock Buybacks: A Crucial Step to Raising Worker Pay and Reducing Inequality — An Analysis of Three Industries — Restaurant, Retail, and Food Manufacturing

Source: Irene Tung and Katy Milani, National Employment Law Project (NELP) and the Roosevelt Institute, July 2018

From the summary:
In a joint publication of the National Employment Law Project (NELP) and the Roosevelt Institute, Irene Tung and Katy Milani expose the extent of stock buyback spending across the U.S. economy from 2015 to 2017—finding that companies spent almost 60 percent of net profits on buybacks. At a time of growing economic inequality, with millions of workers in low-wage industries struggling to make ends meet, that is money that corporations could instead use to improve worker pay.

This report is a crucial addition to any effort to address today’s high-profit, low-wage economy, in which corporate executives and shareholders extract value from corporations rather than creating a cycle of continuous productivity growth, through which workers, consumers, and the economy at large benefit.

One of the primary strategies used to extract profits up and out of companies is the stock buyback—a practice in which corporations repurchase their own stocks from the open market to artificially drive up share prices. Stock buybacks greatly benefit corporate executives, but they leave companies with fewer resources available to invest in workers, business expansion, and long-term economic growth.

By highlighting three core industries—restaurant, retail, and food manufacturing, in which millions of our nation’s workers struggle to make ends meet in low-wage, economically insecure jobs—Tung and Milani demonstrate how workers, and thus the economy at large, could benefit if CEOs chose to redirect money spent on stock buybacks toward worker compensation.

Key findings from the report include:
– The restaurant industry spent more on stock buybacks than it made in profits, funding buybacks through debt and cash reserves. Buybacks totaled 136.5 percent of net profits.
– Companies in the retail and food manufacturing industries spent 79.2 percent and 58.2 percent, respectively, of their net profits on share buybacks.
– McDonald’s could pay all of its 1.9 million workers almost $4,000 more a year if the company redirected the money it spends on buybacks to workers’ paychecks instead.
– If Starbucks reallocated money from share repurchases to compensation, every worker could get a $7,000 raise.
– With the money currently spent on buybacks, Lowes, CVS, and Home Depot could give each of their workers raises of at least $18,000 a year.

Relate:Are Stock Buybacks Starving the Economy?
Source: Annie Lowrey, The Atlantic, July 31, 2018

A new report finds that big companies could have given their workers thousands of dollars’ worth of raises with the money they spent on their own shares.

Shareholder Bargaining Power, Debt Overhang, and Investment

Source: Emmanuel Alanis, Sudheer Chava, Praveen Kumar, The Review of Corporate Finance Studies, Early View, Published: 21 July 2018
(subscription required)

From the abstract:
Using a dynamic model of strategic bargaining between equity and debt holders following default, we analyze the impact of shareholder bargaining power and debt overhang on optimal investment and strategic default. Our empirical tests utilize a new measure of the debt overhang wedge based on default probabilities generated from a hazard model for bankruptcy. Consistent with the theoretical predictions, bondholder (shareholder) ownership concentration ceteris paribus enhances (weakens) the overhang wedge and dampens (increases) capital investment. We identify novel ownership-structure-related factors in firm-level capital investment and document how post-default shareholder bargaining power alleviates the underinvestment problem caused by debt overhang.

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.