Thursday, May 23, 2013

Chairman _and_ CEO? Or Chairman _or_ CEO?

If I were the chief executive officer of a major financial institution, I would want to be chairman, too. Not just for the extra pay -- tho' I probably wouldn't turn it down -- but mostly for the extra power. No one checking over my shoulder except those pesky board members (and I can usually keep them quiet).

If I were a shareholder of a major financial institution? You bet that I'd want an independent chairman overseeing operations.

For a few years now, some JP Morgan Chase shareholders have wanted to split the offices of chairman and chief executive officer, held by Jamie Dimon. In 2012, 40% of shareholders voted to have the offices split. This year? In a victory for Dimon, the support for splitting the offices fell to 30%.

As noted by Jessica Silver-Greenberg in yesterday's New York Times, the (non-binding) shareholder resolution was positioned as a way to improve the bank's governance, but "it soon became tangled up in how Mr. Dimon handled last year’s trading blowup. The surprising loss at the chief investment office unit in London felled some of Mr. Dimon’s top lieutenants and helped lay bare broad risk and control weaknesses throughout the vast bank." (Full article, here)

Dimon's victory didn't come easily -- a lot of intense lobbying was involved, according to an earlier New York Times article by Silver-Greenberg and Susanne Craig:
At its Park Avenue headquarters, JPMorgan assembled a war room where executives kept close tallies as shareholder votes began streaming in, according to two people briefed on the matter. To sway investors, these people said, influential board members were paired with large shareholders....

Reports say, however, that as little as two weeks ago, the resolution was on the verge of winning. The bank lobbying swung into high (fear) gear, warning that Dimon might leave, that the bank stock price would therefore be deeply damaged, and so on. The real turning point, Silver-Greenberg and Craig reported, came when "an influential shareholder advisory firm" recommended that shareholders blame the bank's directors:
In a scathing 33-page report, the firm faulted three directors, saying they lacked risk expertise. By zeroing in on the board members, several people close to the bank said, the advisory firm effectively gave shareholders an alternative. They could register their dissatisfaction with JPMorgan without going after Mr. Dimon....

I don't blame Dimon for pulling out all the stops to hold onto the power base he's built. I don't even really blame the shareholders for falling for the scare tactics.

But the victory for Dimon wasn't just that; it was a defeat for good corporate governance.


Tuesday, May 21, 2013

"Legal" is Not a Synonym for "Ethical"

It appears that we need a refresher course in the difference between "legal" and "ethical", at least from reading a lead story in today's New York Times by Nelson Schwartz and Charles Duhigg on the "web of tax shelters" that allowed Apple to escape from billions of dollars in US tax payments.

The US tax code may have Byzantine rules that encourage gaming the system, and I'm sure that Apple will argue that keeping its taxes as low as possible was the responsible thing for the company to do for its shareholders.

But if I am going to pick one of two short-hand phrases about taxation by which to live, I'll go with the late Supreme Court Justice Oliver Wendell Holmes ("Taxes are the price we pay for a civilized society") over the also-late but unlamented Leona Helmsley ("Only the little people pay taxes"). Apple apparently went with the Queen of Mean.

Schwartz and Duhigg explained:
Even as Apple became the nation’s most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen, Congressional investigators disclosed on Monday....

... [They] found that some of Apple’s subsidiaries had no employees and were largely run by top officials from the company’s headquarters in Cupertino, Calif. But by officially locating them in places like Ireland, Apple was able to, in effect, make them stateless — exempt from taxes, record-keeping laws and the need for the subsidiaries to even file tax returns anywhere in the world. 

The investigators are not claiming that Apple broke any laws, nor is it the only major corporation using all kinds of arcane schemes to keep its tax bill as low as possible. But Apple's "gimmicks" and "schemes" (words used by US lawmakers) were on a whole new scale. The Times journalists quote a University of Southern California law professor on the Apple strategy: "There is a technical term that economists like to use for behavior like this: Unbelievable chutzpah." I might have used a stronger term.

Corporate tax avoidance on this scale encourages those of us who pay our own fair share -- willingly or not! -- to feel like chumps.

Meanwhile, technology companies like Apple are lobbying hard for changes in immigration legislation to permit them to hire more foreign engineers and computer scientists due to the (alleged) lack of sufficient US talent. But it is taxes that pay for long-term research and development, that support the colleges and universities that train engineers and other scientists, that underwrite the infrastructure that delivers products from the port (since most while designed in the US, are built elsewhere) to the retail stores.

Legal, sure (although I'd like to see these rules changed!). Ethical? Not hardly.

Monday, May 20, 2013

A Possible Breakthrough on Global Garment Worker Safety

The news media have continued to run stories about garment worker safety in Bangladesh and other minimal-wage countries, but despite outrage, little real change seemed likely.

It's still a long ways from certain, but there are glimmers of hope. Last Friday's New York Times carried a Steven Greenhouse article on the coalition of religious groups and investors who were "pressing major American retailers to join a sweeping plan to improve safety in Bangladesh apparel factories".

A letter, drafted by the Interfaith Center on Corporate Responsibility, called on "brands and retailers to collectively pledge to implement the internationally recognized core labor standards of the International Labour Organization (ILO)."

Specifically, according to a statement released through Inside Investor Relations, "the investors are calling on companies to commit to strengthening local trade unions, publicly disclose the identities of all of their suppliers and divulge the health and safety programs they have in place, as well as their progress in meeting health and safety objectives. They also call on companies to ensure a living wage for workers, to make sure their suppliers have the means in place to address worker grievances and to join the Accord on Fire and Building Safety sponsored by the ILO and others."

Fire killed 112 Bangladeshi garment workers last November, and a building collapse outside the capital, Dhaka, killed more than 1,100 workers last month.

Swedish retailer H&M, which has made its name with "fast fashion" which relies on rapid turnaround from order to delivery and continual downward pressure on costs, was one of the first major signatories to the plan that will require companies to invest in improving worker safety. How much they will have to invest will depend on the relative size of the company.

To date, only two US-based firms have signed on, Abercrombie & Fitch, and PVH, parent company to Calvin Klein and Tommy Hilfiger.

According to today's New York Times, "the American retail giants Wal-Mart Stores and Gap have declined to endorse the pact, citing legal concerns. Both say they will continue pursuing their own worker safety programs." (Full article, by Liz Alderman, here) Nor have other major retailers like Target and J.C. Penney signed on.

Without pressure from consumers, those retailers may continue to resist, saying that their own efforts will be plenty. But they won't be.

So it's up to us to stick to our guns. Read the labels. Demand accountability. No dress, no matter how flattering, is worth a worker's life.

Friday, May 3, 2013

When is Inexpensive Too Inexpensive?

I've been pleased to see how much coverage the recent Bangladesh clothing factory collapse has gotten, and how it has raised important questions about protections for workers in developing nations, and about how cheap is too cheap.

In my post last week, I reiterated my promise to read clothing labels more carefully, but honestly: it's hard.

How do I know whether the Pakistani factory that made this pair of jeans is run more carefully than the Malaysian factory that made that pair of jeans? The manufacturer's label won't tell me much, and it's possible that the manufacturer doesn't even know, as many items will be subcontracted through many times. (Yes, this provides plausible deniability.)

The simple solution is to refuse to buy anything from, say, Bangladesh, until working conditions improve there.

The Walt Disney Company, "considered the world’s largest licenser with sales of nearly $40 billion, in March ordered an end to the production of branded merchandise in Bangladesh," according to Steven Greenhouse's article in yesterday's New York Times. "Less than 1 percent of the factories used by Disney’s contractors are in Bangladesh." Other companies are said to be considering pulling out of the country also.

But -- and I know I've used my favorite H. L. Mencken quote before -- "For every complex problem, there is a solution that is simple, neat, and wrong."

In today's New York Times, Greenhouse wrote about concerns in Bangladesh that more Western companies will decide to leave. He quoted a Bangladeshi legislator (and factory owner) who pointed out that many factories in the country do comply with safety regulations, and noted:
The whole nation should not be made to suffer. This industry is very important to us. Fourteen million families depend on this. It is a huge number of people who are dependent on this industry.

So if the labels can't be entirely trusted, and there's no easy solution, should I just throw up my hands and say, Never mind?

Of course not.

In an article for The Nation, Elizabeth Cline, the author of recently-published Overdressed: The Shockingly High Cost of Cheap Fashion, has some suggestions:
Eileen Fisher has introduced a labeling system that marks whether an item of clothing is fair trade, made in the USA or certified organic. Knights Apparel, which produces clothing for American colleges, owns a successful, unionized factory in the Dominican Republic that pays a living wage.... Get that? The company is not subcontracting. It actually owns and takes full responsibility for the factory that makes its products. And its products cost the same as those of its rivals (Nike and Adidas). I hope in the coming months we see major fashion brands adopting similar practices, or coming up with their own innovative and ethical alternatives to the cheap-fashion juggernaut. 

There are other options, too. Interviewed by Terry Gross on her NPR program, Fresh Air (highlights of the show here; podcast and transcript of the complete 39-minute interview also available there), Cline acknowledged that not every consumer buys cheap clothes because they're fun or disposable; some buy cheap because they can't afford better.

...When we don't support domestically made clothes, that, you know, translates into a loss of jobs here. All these things are very tied together. But, you know, and that's also why I say if people can't afford better, shop where you're going to shop. Sometimes it's about how you shop and not where you shop. So if you buy something cheap, that doesn't mean you have to have a disposable attitude about it or a disposable relationship to it. 

She also mentioned fast-fashion powerhouse H&M, which has developed a "Conscious Collection, which is made out of organic, cotton and recycled polyester and other eco-friendly materials." (It's not clear, however, whether the materials are made in an equally "eco-friendly" factory.)

All of these are positive moves. But it's up to us, as consumers, to keep the pressure on. We need to ask for labels that give more information and to make it clear that we're willing to pay the small additional price to know that the workers who make our clothes have a safe workplace and a living wage.