“It’s The People Stupid”: The Way To Stop Corporate Lawbreaking Is To Prosecute The People Who Break The Law
Today General Motors announced that it has fired 15 employees and disciplined five others in the wake of an internal investigation into the company’s handling of defective ignition switches, which lead to at least 13 fatalities.
But who’s legally responsible when a big corporation breaks the law? The government thinks it’s the corporation itself.
Wrong.
“What GM did was break the law … They failed to meet their public safety obligations,” scolded Sec of Transportation Anthony Foxx a few weeks ago after imposing the largest possible penalty on the giant automaker.
Attorney General Eric Holder was even more adamant recently when he announced the guilty plea of giant bank Credit Suisse to criminal charges for aiding rich Americans avoid paying taxes. “This case shows that no financial institution, no matter its size or global reach, is above the law.”
Tough words. But they rest on a bizarre premise. GM didn’t break the law, and Credit Suisse never acted above it. Corporations don’t do things. People do.
For a decade GM had been receiving complaints about the ignition switch but chose to do nothing. Who was at fault? Look toward the top. David Friedman, acting head of the National Highway Traffic Safety Administration, says those aware of the problem had ranged from engineers “all the way up through executives.”
Credit Suisse employees followed a carefully-crafted plan, even sending private bankers to visit their American clients on tourist visas to avoid detection. According to the head of New York State’s Department of Financial Services, Credit Suisse’s crime was “decidedly not the result of the conduct of just a few bad apples.”
Yet in neither of these cases have any executives been charged with violating the law. No top guns are going to jail. No one is even being fired.
Instead, the government is imposing corporate fines. The logic is that since the corporation as whole benefited from these illegal acts, the corporation as a whole should pay.
But the logic is flawed. Such fines are often treated by corporations as costs of doing business. GM was fined $35 million. That’s peanuts to a hundred-billion-dollar corporation.
Credit Suisse was fined considerably more — $2.8 billion. But even this amount was shrugged off by financial markets. In fact, the bank’s shares rose the day the plea was announced – the only big financial institution to show gains that day. Its CEO even sounded upbeat: “Our discussions with clients have been very reassuring and we haven’t seen very many issues at all.” (Credit Suisse wasn’t even required to turn over its list of tax-avoiding clients.)
Fines have no deterrent value unless the amount of the penalty multiplied by the risk of being caught is greater than the profits earned by the illegal behavior. In reality, the penalty-risk calculus rarely comes close.
Even when it does, the people hurt aren’t the shareholders who profited years before when the crimes were committed. Most current shareholders weren’t even around then.
Calling a corporation a criminal is even more absurd. Credit Suisse pleaded guilty to criminal conduct. GM may also face a criminal indictment. But what does this mean? A corporation can’t be put behind bars.
To be sure, corporations can effectively be executed. In 2002, the giant accounting firm Arthur Andersen was found guilty of obstructing justice when certain partners destroyed records of the auditing work they did for Enron. As a result, Andersen’s clients abandoned it and the firm collapsed. (Andersen’s conviction was later overturned on appeal).
But here again, the wrong people are harmed. The vast majority of Andersen’s 28,000 employees had nothing to do with the wrongdoing yet they lost their jobs, while most of its senior partners slid easily into other accounting or consulting work.
The truth is, corporations aren’t people — despite what the Supreme Court says. Corporations don’t break laws; specific people do. In the cases of GM and Credit Suisse, the evidence points to executives at or near the top.
Conservatives are fond of talking about personal responsibility. But when it comes to white-collar crime, I haven’t heard them demand that individuals be prosecuted.
Yet the only way to deter giant corporations from harming the public is to go after people who cause the harm.
By: Robert Reich, The Robert Reich Blog, June 4, 2014
“Unaccountable Power”: Thanks To The Roberts Court, Corporations Have More Constitutional Rights Than Actual People
The big media talk a lot about stalemate in Congress, but they are missing the real story. While representative democracy is dysfunctional, the Supreme Court has taken over with its own reactionary power grab. In case after case, the court’s right-wing majority is making its own law—expanding the power of corporations and the very wealthy, while making it harder for ordinary citizens to fight back.
Worst of all, the Roberts Court is trying to permanently inhibit the federal government’s ability to help people cope with the country’s vast social and economic disorders.
This is not a theoretical complaint. Led by Chief Justice John Roberts, the conservative Republican Court is building a barbed wire fence around the federal government—creating constitutional obstacles to progressive legislation in ways that resemble the Supreme Court’s notorious Lochner decision of 1905. That case held that property rights prevail over people and the common good.
For more than thirty years, the conservative Justices used that twisted precedent to invalidate more than 200 state and federal laws on major social and economic concerns like child labor, the minimum wage, bank regulation and union organizing. New Deal reformers were stymied by Lochner at first, and they only managed to overturn it in 1937 and only then when FDR mobilized a take-no-prisoners campaign to reform the Supreme Court by weakening its unaccountable power.
The Roberts Court has so far produced a slew of precedent-smashing decisions designed to hobble left-liberal reform movements before they can gain political traction. Citizens United opened the floodgates for corporate money; McCutcheon scrapped the dollar limits on fat-cat donors. Roberts gutted the Voting Rights Act of 1965, implicitly endorsing the GOP’s crude campaign to block racial minorities from voting. The US Chamber of Commerce and Business Roundtable have won numerous victories, large and small, expanding the rights of their corporate sponsors.
“We are in an era of very aggressive corporate litigation to expand the constitutional prerogatives of business,” Kent Greenfield, Boston College law professor, explained. “We are on the verge of going back to the Lochner era where every new regulation will be subject to numerous constitutional attacks—any regulation of content in commercial speech attacked on First Amendment grounds, anti-discrimination law or healthcare legislation attacked on religious grounds. You’ll see financial legislation challenged on due-process grounds.”
Despite his genteel manner, Justice Roberts is a “smart strategist” who plants provocative phrases in his decisions that he can cite later as false precedents, according to Law Professor Gregory Magarian of Washington University in St. Louis. “Roberts tells a story that sounds like they are not making radical change,” Magarain said. “But they are still making things up, still making up social policy. And the judgments are still pointed toward the past.”
Anxious Democrats applauded Roberts when he upheld the constitutionality of Obamacare, but many realized after-the-fact that Roberts rejected the Commerce Clause of the Constitution as the standard basis for justifying federal interventions on social and economic problems. This means the Supreme Court now has a five-vote majority in favor of shrinking federal authority. In effect, the Roberts Court was mimicking the narrow logic of the Lochner court 100 year before. The words and reasoning are there, just waiting for the right case to apply them.
Magarian sees a reactionary perspective motivating Roberts and his brethren. The Justices are trying to thwart a future of renewed activism and social rebellion, Magarian suspects, because they were rattled by political unrest they saw in their youth.
“The Court believes that corporate power is virtuous,” Magarian explained. “They are empowering corporations to help maintain a kind of political stability. The First Amendment in the view of the Roberts Court is not about people at the political margins. I think the Roberts Court wants to empower large, stable, wealthy and powerful institutions like the corporation so as to help maintain political and social order. These guys don’t want any social upheaval. They are like interesting echoes of the sixties.”
In the absence of aggressive political resistance, there is nothing to prevent this right-wing power grab from succeeding. But corporations are vulnerable in numerous ways that timid Democrats have not exploited. To stop the Roberts Court, the other side must get serious and begin to attack corporate power and air grievances that the public fully shares.
The corporation, after all, is not a “person” who possesses “inalienable rights.” The corporation is a legal artifice created by the government and given special protections and privileges. When the Supreme Court treats corporations as though they are living, breathing creatures who have constitutional rights just like human beings, they are embracing the fundamental contradiction in the nature of the corporation. Sometimes, they want to be people. Other times, they want to be treated better than people—that is, legally shielded from the consequences of their actions.
Companies and their owners want to have it both ways. The Roberts Court is helping them do so. The Hobby Lobby case now before the Supreme Court illustrates this contradiction. On one hand, the company’s conservative owners claim their religious rights under the First Amendment are violated when the federal government insists they include birth control coverage in their healthcare plans. If Roberts buys that argument, any employer can dream up religious values that exempt it for almost any regulatory law they choose.
On the other hand, the Hobby Lobby owners are not about to surrender their own “limited liability” protection from lawsuits against the company or criminal liability for the company’s violations of law or its failure to pay its debts. You can’t sue the shareholders for wrongful actions by their company. That is a cornerstone of American capitalism. It is also a principal source of corporate irresponsibility.
What we need now is a ferocious counterattack against these corporate owners—a campaign that demands they surrender these special privileges the government has given them. Why protect shareholders from blame when they claim the same constitutional rights—free speech, freedom of religion—that people possess? Human beings are held responsible for their debts, they go to prison for their crimes. Perhaps the owners of corporations should be made to take responsibility for theirs.
A similar contradiction is embedded in the Roberts Court decisions that have effectively destroyed the laws on campaign finance. The billionaires and their mammoth companies, banks and investment houses have been granted unlimited power to influence elections or, as we might say, buy the candidates. The Supreme Court has unilaterally unhinged the standard meaning of elections. Elections are no longer collective decisions among citizens choosing their governors. They have become bidding wars among fat cats and powerful economic interests, choosing representatives for the rest of us and thereby choosing our laws.
“We don’t let people stand up and shout in town meetings and drown out everyone else,” Greenfield observed. “When we come to elections where we make collective decisions, an equality norm comes into play, especially when the money comes from corporations. Corporations are creatures of the state; their purpose is not to affect the state and change. A reasonable thing to say to corporations is we are not going to let you skew the political process that created you.”
Magarian expands the point. “The limited liability corporation,” he observed, “owes its form and existence to a particular act of government, then the corporation turns around and says, ‘We are going to use our advantages and leverage them to influence the political process.’ Given the advantages corporations gain from government largesse and protections, the society should not have to suffer the loss of its influence. We want to sever their corporate influence from the decisions we the people make about economic questions.”
“In the long view,” Greenfield said, “we are in this bind because of the nature of corporations, not the nature of constitutional law. Over the last generation, the rise of shareholder primacy has meant that managers manage the company to maximize the share price. Willing to serve Wall Street, the corporation has really become the tool for the 1 percent. We need to rethink the nature of corporations. Rather than be a servant of a tiny sliver of the American people, the corporation should have a much more robust public obligation and should be managed in a more pluralistic way.”
Meanwhile, angry citizens do not need to wait on reform. They should get out their pitchforks and spread the message to those corporate lawyers who are corrupting democracy and to those cloistered right-wing justices who have such great solicitude for the privileged minority.
By: William Greider, The Nation, May 20, 2014
“Sad But True”: The Only Way To Save The Open Internet Requires Sucking Up To Corporate Titans
The Internet as we know it will permanently change if new rules proposed this week by the Federal Communications Commission (FCC) allow Comcast or AT&T to create a “fast lane” on the Web for companies that pay a fee. Content providers who buy off telecoms for faster speeds would simply outmuscle their counterparts, stifling innovation from startups that can’t afford to compete. If my local McDonald’s opened a special lane to their register that was closed to all competing traffic, while reaching the Burger King down the street required hacking through a mile of jungle, I’ll probably just get a Big Mac instead of a Whopper.
The FCC had to act, because of an appellate court ruling in January blocking their previous open Internet rules. But net neutrality advocates wanted the agency to reclassify broadband Internet as a common carrier service, as they do with telephones, preventing discrimination on whatever passes through the pipe. Instead, FCC Chair Tom Wheeler, a former cable industry lobbyist, opted for an alternative that will enrich Internet service providers (ISPs) and lead to a permanent digital divide. Wheeler’s justification, that no content would face discrimination, but telecoms can charge for faster service, has been roundly criticized, and with good reason. But will anyone be able to mobilize against the powerful interests pushing through the proposed rules?
There’s a recent precedent for Internet-based mobilization actually bringing down a corporate giveaway that initially looked inevitable. In 2011, Congress appeared close to sneaking through the Stop Online Piracy Act (SOPA) just before the Christmas holidays. The bill would have empowered the government to compel ISPs to shut down websites based on subjective audio or video copyright claims. It was a giant wet kiss to the movie and music industries, a bill that would have effectively eliminated user-generated content on the Web (could Facebook be expected to police their entire site minute-by-minute for copyright infringement?) and allowed media conglomerates to take over. You won’t be surprised that the staffers in House Judiciary Committee chair Lamar Smith’s office who wrote the bill left right afterward to become entertainment industry lobbyists.
But the Internet, in a coordinated pushback, beat SOPA, amid virtual silence from broadcast media, whose parent companies supported the bill. Web users of all political stripes bombarded Congress. At one point, Tumblr announced they were generating 3.6 calls per second. On January 18, 2012, hundreds of websites, including Wikipedia, participated in the largest Internet strike in history, redacting their content and posting links to help people register constituent complaints. Lawmakers walked away from the bill in droves; in the end, it never even got a vote.
The net neutrality fight shares some common elements with the SOPA battle. The universe of people affected—everyone who uses the Internet—is sufficiently big to enable a mass coalition. Demand Progress, a group active in the SOPA fight, has already begun to mobilize in conjunction with RootsAction, gathering 26,000 signatures on a petition in a matter of hours.
But the SOPA fight was truly trans-partisan, as conservatives made common cause with progressives against censorship of their websites. That potential doesn’t exist on net neutrality, as Republicans have rejected what they consider government regulation of the Internet. So the fight already begins with a narrower base. In addition, it’s easier to target individual members of Congress over proposed legislation, than rules from independent regulatory agencies (although, considering that the Obama Administration reaffirmed their commitment to net neutrality just two months ago, activists can try to hold them accountable).
Most important, net neutrality advocates likely need buy-in from corporate America. In a recent political science study, Martin Gilens of Princeton and Benjamin Page of Northwestern found that economic elites and organized business interests can have significant impact over public policy, while ordinary citizens just don’t. When the government acts in the interest of citizens at all, it’s often an accidental by-product of public preferences coincidentally matching those of business groups.
Many took this study to mean that the United States now functionally operates as an oligarchy rather than a democracy. It may actually mean that in America, citizens are typically disorganized on most public policy questions, particularly in an age of labor union decline, but can reverse that through mass organizing. Whatever your perspective, the SOPA fight offers a perfect case study. That effort really took off when Google, Reddit, and other major websites decided to join the fight, counterbalancing pressure on the other side from Hollywood. Tech giants knew that their businesses would be damaged by onerous copyright restrictions. The public interest and the interests of at least one set of elites aligned.
It’s not yet clear whether the same coalition will materialize to fight the FCC. The larger incumbent content providers, like Yahoo and Google, may well like paying for a faster Internet pipe, because it narrows competition to those who are already established. Netflix has already started paying for priority speeds, in a deal with Comcast for better back-end transit. In addition, Google is both a content producer and, through Google Fiber, an Internet service provider, and can reap profits by charging tolls for their fast lane. The company has been veering away from net neutrality for quite some time. Notably, the Internet Association, a coalition featuring Google, eBay, Netflix and other tech bigwigs, has said nothing about the FCC’s proposed rules yet, despite nominally supporting net neutrality. Google did not respond to a request for comment for this article.
This transformation by Google and others is common. As formerly upstart companies mature, they suddenly grow comfortable with regulations that favor incumbency—as long as they’re the incumbents. For a movement-based response to the FCC to succeed, activists must peel off companies willing to stay true to their word, and essentially rebuild a new corporate coalition that can engage their user base.
Netflix seems like an obvious choice. Despite their previous dealings, the streaming video giant has lashed out against Comcast for “arbitrary interconnection tolls,” and publicly opposed the merger between Comcast and Time Warner. Surely Netflix executives understand that a telecom industry freed to charge for faster broadband speeds will be able to raise prices over the years, and gouge incumbents. Netflix can go along with the arms race, or help to end it before it begins. Their leadership will attract smaller Internet players that can take more risks, because a pay-to-play Internet really does threaten their survival.
In this case, you can easily recognize the seeds of mass mobilization, which may provide enough political cover for a Netflix or Twitter to act. Tech communities with big audiences have responded to the FCC announcement with outrage. People intuitively know and resist the concentration of power controlling the tools they use every day. Several Democrats have criticized the proposal, from Cory Booker to Bernie Sanders to Nancy Pelosi, who actually urged people to contact the FCC with their criticisms. The ferocity of the backlash may have rocked the FCC back on their heels a bit, but time is short, with a May 15 meeting to move forward on the proposal looming.
But the sad fact of modern political life is that democratic action requires more than mere expressions of dissent, or the expectation that politicians who share our tribal sympathies will work on our behalf. To reach the critical mass necessary to succeed, savvy political organizing in the 21st century now includes convincing the business sector to recognize their interests and when they’re imperiled.
By: David Dayen, The New Republic, April 24, 2014
“Meet The American Oligarchy”: “Americans For Self-Prosperity”, Grasping Barbarians Exercising Crude Political Power
Let’s put it this way: If the Koch Brothers were Russians, we’d call them oligarchs: grasping barbarians exercising crude political power.
But this is America, where tycoons can buy respectability by throwing money at their wives’ favorite ballet companies and museums. Also by funding “think tanks” staffed by “resident scholars” keen to enhance the boss’s fondest delusion: that great wealth invariably conveys great wisdom.
Hence “Americans for Prosperity,” the group funded by billionaire brothers David H. and Charles G. Koch that’s spending untold millions in 2014 on TV commercials attacking the Affordable Care Act as a government boondoggle that “just doesn’t work.”
The deeper strategy, AFP president Tim Philips told the New York Times, is to present the law as “a broader cautionary tale” crafted “to change the way voters think about the role of government for years to come.”
Or as the sloganeering sheep in Orwell’s Animal Farm might have put it, “Big government bad, big business good!”
Elsewhere, however, big business hasn’t been looking entirely benign of late. Consider three episodes currently in the news: General Motors, the Toyota Motor Corporation, and Duke Energy, the nation’s largest electrical utility.
As so often happens with corporate malfeasance, the details can be hard to believe. Documents turned over to the National Highway Traffic Safety Administration by General Motors show that company engineers knew about problems with an ignition switch in Chevy Cobalts as long ago as 2001.
That it could be a fatal flaw wasn’t immediately recognized.
The problem appears to have been a defective part manufactured by a GM supplier. Sometimes triggered by a too-heavy keychain swinging from the ignition, it caused the engine to shut off while driving — resulting in immediate loss of power steering, power brakes, and the failure of the vehicle’s air bags to deploy.
By 2009, however engineers concluded that the faulty switch played a causal role in several fatal accidents — although some drivers had been drinking, texting or otherwise distracted — and that while Cobalts were going out of production, hundreds of thousands were still rolling.
Nevertheless, GM did nothing, while company lawyers fought off or stonewalled lawsuits alleging product liability.
Twenty-three fatal accidents and 26 deaths later, GM finally issued a recall notice for 1.6 million vehicles last month. The company’s recently-appointed CEO Mary Barra has been doing public penance and vowing to do everything possible to restore consumer confidence in the GM brand, which will definitely take some doing.
Published accounts of how separate divisions of GM’s giant bureaucracy communicate badly or not at all read like episodes of Catch-22. Customer complaints and warranty claims aren’t shared with safety engineers, who in turn have no communication with company lawyers. Meanwhile, nobody was talking to the National Highway Traffic Safety Administration, the federal agency that belatedly promises a criminal investigation.
Meanwhile, the auto industry press contrasts GM’s “unusually proactive and candid approach” to Toyota’s, which last week admitted criminal guilt and paid a $1.2 billion fine—the largest against an automaker in U.S. history.
Announcing a settlement, Attorney General Eric Holder said the company had “intentionally concealed information and misled the public” and shamefully showed “blatant disregard for systems and laws.”
At issue were faulty accelerator pedals which caused the cars to rocket out of control. Toyota has recalled as many as 10 million vehicles worldwide, and has been forced to pay tens of millions in fines and lawsuit settlements. Hundreds more civil lawsuits await litigation. What the settlement makes clear is that Toyota’s top management deliberately lied to government investigators both about the mechanical issue and their knowledge of it.
Which brings us to the Tea Party paradise of North Carolina and Duke Energy’s massive coal ash spill into the Dan River—spreading as many as 82,000 tons of toxic sludge along 70 miles of scenic river bottom. According to the Associated Press, “coal ash contains arsenic, lead, mercury and other heavy metals highly toxic to humans and wildlife.”
In addition to the “accidental” spill, caused by a collapsed corrugated pipe seemingly uninspected since 1986, environmental activists photographed Duke employees pumping an estimated was 61 million gallons of coal ash-contaminated water into the Cape Fear River further east.
The resulting uproar has persuaded GOP governor Pat McCrory, a 28-year Duke Energy employee (and recipient of some $1.1 million in Duke-sponsored campaign donations) to change his mind about burdensome federal regulation. His state’s toothless regulators will now “partner” with the U.S. Environmental Protection Agency to pursue joint enforcement against the utility.
Previously, McCrory had scorned the feds as an impediment to efficient business practices, and made a great show of turning down EPA grant money. Meanwhile, arguing strenuously against stricter regulation of coal ash has been an industry front group called ALEC (the American Legislative Exchange Council) largely financed by — you guessed it — those well-known philanthropists, David and Charles Koch.
Americans for Prosperity, indeed.
By: Gene Lyons, The National Memo, March 26, 2014
“The Winds Are Shifting”: How Corporate America Is Losing The Debate On Taxes
If there is one clear loser in President Obama’s budget this year, it’s U.S. multinationals.
With six new ideas designed to plug some major leaks in the tax code, the 2015 budget proposes a total of more than $276 billion in higher taxes on overseas earnings for U.S. multinationals over the next decade, about $120 billion more than last year’s budget. (A sample of the policy just to give you an idea of how deep in the guts the administration is going: “Create a new category of Subpart F income for transactions involving digital goods or services.”)
So much for the White House’s attempts to strike common ground with big company chief executives, who have been howling for years about paying too much in taxes with the federal corporate tax rate at 35 percent. The companies have also poured money into an endless parade of coalitions with names like ACT, RATE, WIN, TIE AND LIFT.
The trouble with the executives’ complaints is that many companies don’t pay nearly the 35 percent rate. GE, for instance, in its most recent annual filing said it paid an effective tax rate of 4.2 percent. (See this graphic we ran last year showing taxes paid by companies in the Dow 30.) These firms insist that the high rate is merely forcing them to find complex ways to lower their tax bills. But with this budget, it’s clear the administration isn’t buying it.
“The problem is not an international tax system that unacceptably handicaps U.S. businesses,” said Ed Kleinbard, a professor at the University of Southern California’s Gould School of Law who has done extensive research on the way companies shuffle their income overseas to lower their tax bills. “Instead the problem is an international tax system both in the United States and other countries that U.S. multinational firms have demonstrated they are highly skilled at gaming.”
The president’s budget is the latest sign for corporate tax lobbyists that the winds are perhaps shifting against them. Last month’s tax reform plan from House Ways and Means Chairman Dave Camp (R-Mich.) also included a number of ideas unpopular with business, including a bank tax. His section on international tax reform was somewhat more generous to big firms, giving them a lower rate on overseas earnings with anti-abuse measures that Kleinbard says don’t go far enough.
Of course, expectations are low that either the president or Camp’s policies will ever make the leap to reality. But after spending hundreds of millions of dollars on lobbyists, corporate America is not exactly seeing its worldview reflected in these blue prints.
By: Jia Lynn Yang, WonkBlog, The Washington Post, March 5, 2014
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