Friday, July 16, 2010

The Oxymoron of "Corporate Responsibility"

July 16, 2010, 9:00 a.m.

[For BP disaster see, "Uncanny Prediction of BP Disaster & Response," June 10, 2010; "BP's Commercial: Shame on Media," June 9; "Big Oil: Calling Shots, Corrupting Government," May 26, 2010; "Obama As Finger-Pointer-In-Chief," May 18, 2010; "Big Oil + Big Corruption = Big Mess," May 10, 2010; "P&L: Public Loss From Private Profit," May 3, 2010.]

Corporate Risk Assessment and Inevitable Disaster
(bought to you by*)

Sat next to a business consultant on a recent flight. Got to talking about Massey and BP. His contention: It's all just about risk assessment. However conscious and precise we may be about the process (whether we're driving a car or drilling miles beneath the ocean's surface), it goes something like this: What are the potential rewards from our risky behavior? What are those risks? How serious would it be if the worst occurred? What is the likelihood it will occur? (Perception of risk -- or more often mis-perception -- is another matter, as when someone fears flying (despite the relatively slight risk) but continues smoking (despite its almost inevitable risks).) Anyone in business is under enormous pressure to both increase profits and decrease costs; in other words to gradually assume ever increasing risks of harm -- to employees, customers, the environment, or the global economy -- until the inevitable disaster occurs.

Goldman Sachs. "Goldman Sachs has agreed to pay $550 million to settle federal claims that it misled investors in a subprime mortgage product as the housing market began to collapse . . .." Notwithstanding the payment, "Goldman did not formally admit to the S.E.C.’s allegations . . .." Now, how credible is that stance? You don't admit to any wrongdoing, but you pay the $550 million fine anyway? Even if you earned over $13 billion, $550 million is a little more than one normally pays to settle a nuisance suit. Moreover, Goldman Sachs "agreed to a judicial order barring it from committing intentional fraud in the future . . .." What a concession from a Wall Street firm! That really stings, and should substantially cut into their future profits. Wow, agreeing to forgo the ability to engage in "intentional fraud." Sewell Chan and Louise Story, "S.E.C. Settling Its Complaints With Goldman," New York Times, January 16, 2010, p. A1.

When grief or anger become seemingly unbearable, we sometimes redirect it into humor. So it is with Harry Shearer's catchy, bouncy, "Mr. Goldman and Mr. Sachs" ("spinning gold out of flax, Mr. Goldman and Mr. Sachs"). Give it a listen; available from Amazon and iTunes.

Massey Coal. It's now come to light that Massey Coal (in whose mine 29 miners died last April) has deliberately applied its risk assessment analysis to miners' safety.
An NPR News investigation has documented a dangerous and potentially illegal act at the Upper Big Branch mine in West Virginia two months before a massive April explosion killed 29 mine workers.

On Feb. 13, an electrician deliberately disabled a methane gas monitor on a continuous mining machine because the monitor repeatedly shut down the machine.

Three witnesses say the electrician was ordered by a mine supervisor to "bridge" the automatic shutoff mechanism in the monitor.

Methane monitors are mounted on the massive, 30-foot-long continuous miners because explosive gas can collect in pockets near the roofs of mines. Methane can be released as the machine cuts into rock and coal. The spinning carbide teeth that do the cutting send sparks flying when they cut into rock. The sparks and the gas are an explosive mix, so the methane monitor is designed to signal a warning and automatically shut down the machine when gas approaches dangerous concentrations.
Howard Berkes, "Massey Mine Workers Disabled Safety Monitor," NPR, July 15, 2010.

There was a risk. But it would result in greater production -- and profits. A worst case scenario was possible, but not inevitable. Sometimes they got away with it. This time they didn't.

BP. BP didn't get away with its cost-saving risk either. By now, everyone's familiar with BP's risk assessment process. The prior blog entries on that one are linked at the top of this blog entry. That company has so often weighted potential cost savings over risks to worker safety and environmental disaster that it amasses hundreds of safety violations (including the Artic spill and Texas City) when other oil companies have less than a handful.

GlaxoSmithKline's Avandia (rosiglitazone). Public Citizen's Health Research Group reports,
3.1 million prescriptions [for Avandia] were filled in 2008. But Avandia is associated with heart failure, heart attacks, liver toxicity, bone fractures, low red blood cell count and macular (retinal) edema with vision loss.

Public Citizen petitioned the FDA to revise the labeling for Avandia due to multiple safety issues in 2000. In 2007 a study published in the New England Journal of Medicine associated the drug with a 43 percent increase in the risk of heart attacks.
"Avandia," Public Citizen Health Research Group.

As an indication of the ties between the FDA and the pharmaceutical industry, as well as the complexities of risk assessment, an FDA advisory panel recently voted 20 to 12 to recommend that GlaxoSmithKline should be permitted to continue to profit from the millions of pills. A vote of 20-12 on such a death risk reminds me of my days on the seven-person FCC, when we would vote 4 to 3 to send a colleague a get-well card. Bear in mind, this same FDA committee, by a vote of 21 to 4, agreed not only that Avandia carries a risk of death from heart attack, but that the risk is much higher from Avandia than from alternative medicines that could be used instead. Matthew Perrone, "FDA Panel Votes to Keep Avandia On the Market," AP/MSNBC, July 14, 2010.

Have you seen the latest commercial for Avandia? The list of side effects goes on seemingly forever. I don't think a diabetic should "ask your doctor if Avandia is right for you," I think if a doctor recommends it diabetics should "ask yourself if your doctor is right for you."

Other examples. These are only the most recent examples. There are hundreds of others. A couple that spring immediately to mind are Bhopal (Union Carbide chemical spill; 500,000 exposed, 15,000 killed) and Three Mile Island (partial core meltdown of Babcock & Wilcox nuclear reactor).

That the U.S. electric utilities chose to save money by managing the nation's electric grid through the Internet, rather than a more secure system, is a monumental calamity just waiting to happen. Siobahn Gorman, "Electricity Grid in U.S. Penetrated by Spies," Wall Street Journal, April 8, 2009, ("Cyberspies have penetrated the U.S. electrical grid and left behind software programs that could be used to disrupt the system, according to current and former national-security officials.").

And see generally, Nicholas Johnson, "'The Corporation' and the Search for Agreement," October 1, 2004 (a commentary prompted by the film "The Corporation").

Obama as "socialist."

Meanwhile, the Tea Party has TPed a Mason City billboard as the organization's own Mount Rushmore, likening President Obama to Hitler and Lenin and indicting the three of them as socialists. Jennifer Jacobs, "Iowa Politics Insider: More Fallout From Obama/Hitler Tea Party Billboard," Des Moines Register, July 15, 2010.

As for "Leaders Prey on the Fearful & Naive" slug at the bottom of their billboard, I'd suggest the TP folks take a look in the mirror, and a second look at those they follow on radio and TV, and as speakers at their rallies.

I won't write at length about the TP's choice and characterization of Hitler and Lenin. Obviously, they have been chosen as characters to despise, in the Republican/TP's efforts to do everything they can to make Obama fail (as they have openly acknowledged). Never mind that if he fails, America fails.

Frankly, each of the disasters noted above have involved not socialism -- government ownership of means of production -- but a form of fascism, fascist corporatism, or more simply put, political corruption, the domination of political and regulatory institutions by large corporations. "Agency capture," to a lesser or greater degree, was a factor in each of the noted disasters.

Indeed, if only Obama were a socialist we would have long since clawed our way out of the global economic collapse brought on by Goldman Sachs and others. When 80 percent of our economy is driven by consumer spending, unemployment (including that which is not reported) runs closer to 20 than 10 percent, and consumers are, not irrationally, saving rather than spending, you can't create an economic turn-around by giving money to corporate executives and calling it a "jobs program."
Darkening consumer confidence and plunging prices combined with a generally dismal outlook to dampen hopes for a quick economic recovery. . . . "Consumers are facing three major hurdles," Art Hogan, chief market strategist at Jefferies & Co., said in an interview. "They are paying down their debt, their houses are not worth as much as they were two years ago and they're staring down the barrel of 10 percent unemployment." . . . Taken together, the week's economic data suggest that a global recovery will be staggered and sluggish in getting off the ground. Consumers -- the engine of the U.S. economy -- are catching few breaks.
Frank Ahrens, "Drops in Consumer Confidence, Prices Temper Recovery," Washington Post, July 15, 2010.

Businesses won't provide additional employment until they see a reason to increse production. There's no reason to increase production unless consumers are going to spend. Consumers aren't going to spend if they're concerned they, too, may soon be unemployed.

"Trickle down" never works, but especially not at this time. What we need is trickle up.

If Obama were a socialist he would have created a federal, employer-of-last-resort, jobs program that would have immediately (FDR's programs were in place in a month) put everyone on a payroll. Give the unemployed a job, the confidence they won't be fired, and the money that goes with it, and they'll use the money to buy stuff they need, not increase their savings accounts. Their purchases will require increased production; increased production will increase private sector employment. Gradually those on the federal payroll will be picked up by private employers.

Now that's a real jobs program. Recession reversed; global economic collapse averted. Corporations profiting from their business sense, not their political dollars -- and our taxpayer bailouts of the wealthy. See generally, "Unemployment Answer is Jobs Not Bailouts," February 6, 2010.

What the TPers ought to get angry about (and, in fairness, to some extent do) is a "capitalism" in which successful businesses keep all of their profits, and unsuccessful businesses pass their losses on to the taxpayer. "Heads I win, tails you lose."

"Socialism" is the Interstate highway system, public schools, libraries, museums, local police and fire protection, the military, and a national, state and local system of parks. I kind of like that socialism, and feel that it often provides me a greater return on my investment of taxes than what I sometimes end up with from the capitalists.

How ironic that the TPers would choose "socialist" as one of their favorite pejoratives for Obama, when he is, apparently, one of the few Americans who appears to be even more frightened of the word than they are.

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself.
-- Nicholas Johnson
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Anonymous said...

Commentators say that Goldman's return on 550 million was substantial. The stock jumped 8% or so, which is an 8 billion dollar increase in capitalization.

16 to 1 on an investment is about as good as it gets.

Anonymous said...

There appears to be a deep-rooted hatred of Obama, fueled by certain groups. Sen Corker of Tenn, with his very slender career achievements and a pretty face, simply outright attacks Pres Obama for not understanding leadership.

Corker, who ran racially charged negative ads against his opponent in the primary, is well aware of his manipulation of the hatred factor.

However people who hear his hatred are not as wise to his demography. I worry about the smoldering hatred stirred up by wing nuts like Corker, in some unstable people out there....

Corker would love to see the North and the Unions, and Democrats, and anyone who doesn't look like him simply go belly up.

commoncents said...

Just wanted to say I really like your blog - keep up the great work!!

Common Cents

sajohnson said...

It's a shame that most of those who really need to read this blog entry never will -- instead, they'll continue making donations to pay for billboards similar to the one pictured here.

Nick said...

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-- Nick