Corporate Research Project

Is Corporate Greenwashing Headed for a Fall?

Imagine you are a communication technician on a planet in another solar system that is facing an ecological disaster and is looking for new solutions. One day you suddenly pick up broadcast signals from Earth that happen to include a man talking to a group of children sitting beside a hulking vehicle he is describing as a "vegetarian" because it uses a fuel called ethanol. The segment ends with the statement: "Chevy: from gas-friendly to gas-free. That's an American revolution."

Then you get a transmission from something called BP that is talking about going beyond -- beyond darkness, beyond fear, beyond petroleum. Another from Toyota shows a vehicle being put together like a grass hut and then disintegrating back into nature without a trace. The messages keep coming -- from General Electric ("eco-imagination"), Chevron (celebrating the miraculous power of "human energy") and so on.

As you receive more of these signals, you rush to your superiors and announce the good news: Planet Earth has wonderful entities call corporations that can solve all our environmental problems.

Residents of our planet may be tempted to jump to the same conclusion. These days we are bombarded with advertisements that want us to believe that major oil companies, automakers and other large corporations are solving the environmental and energy problems facing the earth. Fear not global warming, peak oil, polluted air and water -- big business will take care of everything.

In the late 1990s we saw a hyped-up dot com boom that came crashing down. In the past year or so, we have seen a hyped real estate boom turn into a credit crunch and an unprecedented number of home foreclosures. Are we now seeing a green business boom that will also turn out to be nothing more than hot air?

The "Green Con"

Today's surge of corporate environmentalism is not the first time business has sought to align itself with public concerns about the fate of the Earth. Two decades ago, marketers began to recognize the benefits of appealing to green consumers. This revelation first took hold in countries such as Britain and Canada. For example, in early 1989 the giant British supermarket chain Tesco launched a campaign to promote the products on its shelves that were deemed "environmentally friendly." That same year, Canadian mining giant Inco Ltd. began running ads promoting its effort to reduce sulfur emissions from its smelters, conveniently failing to mention it was doing so under government orders.

In 1990 the green business wave spread to the United States in time to coincide with the 20th annual Earth Day celebration. Large U.S. companies such as DuPont began touting their environmental initiatives and staged their own Earth Tech environmental technology fair on the National Mall. General Motors ran ads emphasizing its supposed concern about the environment, despite its continuing resistance to significant increases in fuel efficiency requirements.

Such exercises in corporate image-burnishing did not have a great deal of impact. For one thing, environmental groups wasted no time debunking the ads. In 1989 Friends of the Earth in Britain gave "Green Con" awards to those companies that made the most exaggerated and unsubstantiated environmental claims about their products. First prize went to British National Fuels for promoting nuclear power as friendly to the environment.

Greenpeace USA staged a protest at the 1990 corporate Earth Tech fair, denouncing companies such as DuPont for trying to whitewash their poor environmental record with green claims. Greenpeace's invented term for this practice -- greenwashing -- immediately caught on, and to this day is a succinct way of undermining dubious corporate claims about the environment.

The general public was also not taken in by the corporate environmental push of 1989-1990. It was just a bit too obvious that these initiatives were meant to deflect attention away from recent environmental disasters such as the Exxon Valdez oil spill in Alaska and Union Carbide's deadly Bhopal chemical leak. It also didn't help that many of the claims about green products turned out to be misleading or meaningless.

'Little Green Lies'

The question today is whether people have become more receptive to corporate environmental hype. One thing business has going for it in the United States is that the Bush Administration has pursued environmental policies so retrograde that even the most superficial green measures by the private sector shine in comparison. Another is that some environmental groups have switched from an outside adversarial strategy to a more collaborative approach that often involves forming partnerships with companies. Such relationships serve to legitimize business initiatives while turning those groups into cheerleaders for their corporate partners. Former Sierra Club president Adam Werbach took it a step further and joined the payroll of Wal-Mart.

On the other hand, the use of the term "greenwashing" is enjoying a resurgence and has entered the mainstream. A search of the Nexis news archive turns up more than 700 mentions of the term in the past six months alone. Even that bible of the marketing world -- Advertising Age -- recently published a list titled "The Green and the Greenwashed: Ten Who Get It and 10 Who Talk a Good Game." Among the latter were General Motors, Toyota, ExxonMobil, Chevron, Wal-Mart, General Electric and Ikea, though Toyota, Wal-Mart and Ikea were also put on the green list for other reasons.

Other business publications have also been taking a more critical approach to green claims. Last September, the Wall Street Journal looked behind GE's eco-imagination campaign and found all was not well. For one thing, there was significant resistance even within GE's managerial ranks and among many of the conglomerate's major industrial customers. Then there was the fact that GE was still pushing big-ticket products such as coal-fired steam turbines that were significant contributors to global warming. Finally, the paper pointed out that the campaign was motivated in substantial part by a desire to increase sales of existing GE products such as wind turbines that could be promoted as eco-friendly.

In October, Business Week published a cover story titled "Little Green Lies." It began with the declaration: "The sweet notion that making a company environmentally friendly can be not just cost-effective but profitable is going up in smoke." The piece featured Auden Schendler of Aspen Skiing Company, a pioneer in adopting environmentally friendly practices. After showing off his company's energy-efficient facilities, he was described as having turned to the Business Week reporter and said: "Who are we kidding?" He then acknowledged that the growth of the company necessarily means burning more power, including the ever-increasing energy needed to create artificial snow during warmer winters. "How do you really green your company? It's almost f------ impossible."

The Six Sins

Another factor working against corporate hype is that critics are becoming more systematic in their critique of greenwashing. In November, a marketing firm called TerraChoice did an analysis of more than 1,000 products bearing environmental claims. After finding that all but one of those claims were false or misleading in some respect, TerraChoice issued a paper called The Six Sins of Greenwashing that analyzed the various forms of deception.

The most common shortcoming found by TerraChoice is the "sin of the hidden trade-off," in which a single positive attribute of a product is promoted while ignoring the detrimental environmental impact of the whole manufacturing process. For example, paper that has some recycled content but is produced in a way that causes serious air and water pollution as well as entailing a large amount of greenhouse gas emissions. The other sins listed by TerraChoice are no proof, vagueness, irrelevance, lesser of two evils and fibbing.

Do-it-yourself greenwashing criticism is now possible through a website recently launched by EnviroMedia Social Marketing. Its Greenwashing Index site allows users to post ads -- usually video footage taken from YouTube -- and rate them on a scale of 1 (good ad) to 5 ( total greenwashing).

More troubling, from the corporate perspective, are signs that government regulators and industry-established watchdog groups are giving more scrutiny to green claims. Last month, the UK's Advertising Standards Authority found that a series of television ads being run around the world by the Malaysian Palm Oil Council contained misleading statements about the environmental benefits of its product. Several months ago, government regulators in Norway banned automobile ads from stating that any cars are environmentally friendly, given their contribution to global warming.

Even in the United States there are signs that regulators may be getting concerned about greenwashing. The Federal Trade Commission, which in 1992 issued national guidelines for environmental marketing claims but has done little on the subject since then, announced in November that it was beginning a review of its guidelines.

Unclean Hands and Excessive Size

Corporations, no doubt, will not give up their environmental claims without a fight. Perhaps the hardest nut to crack will be Wal-Mart. For the past couple of years, the giant retailer has depicted itself as being on a crusade to address global warming and other environmental issues -- a crusade it wants its suppliers, its workers and its customers to join. In October 2005 CEO Lee Scott gave a speech in which he embraced sweeping goals to reduce greenhouse gas emissions and raise energy efficiency. Last month he gave another speech that reaffirmed those goals and upped the ante by envisioning a future in which Wal-Mart customers would drive to the store in electric cars that could be recharged in the parking lot using power generated by wind turbines and solar panels.

Wal-Mart's greenwashing involves sins beyond those listed by TerraChoice. First there is the sin of unclean hands. It is difficult to avoid thinking that the company is using its environmental initiatives to draw attention away from its widely criticized labor practices -- both in its own stores and in the factories of its low-wage suppliers abroad. Until the company provides decent working conditions, respects the right of its employees to unionize and ceases to sell goods made by sweatshop labor, Wal-Mart cannot expect to be a paradigm of social responsibility.

Then there's the sin of size. A company as large as Wal-Mart will inevitably have a negative effect on the countries from which it obtains its goods, the agricultural areas from which it gets it food products, and the communities where it locates its big-box stores. There's a growing sense that true sustainability entails a substantial degree of localism and moderate-size enterprise. That rules out Wal-Mart, no matter what its CEO professes.

Wal-Mart's problem may be the problem of big business as a whole. As hard as they try to convince us, huge profit-maximizing transnational corporations may never be true friends of the environment. Let's hope this message also gets through to those listening in distant worlds.

Wal-Mart Short-Changes Public Schools

When Wal-Mart proposes to build another of its giant stores, local residents often raise concerns about increased car and truck traffic, a loss of open space, higher crime rates and other negative impacts that they argue will lower the quality of life in the neighborhood and thus depress property values. The company responds to these concerns by painting a different picture, claiming that its stores provide substantial benefits to communities.
Yet what Wal-Mart does not disclose in site fights--but is revealed for the first time in a new report by Good Jobs First -- is the extent to which the company later in effect concedes the point about reduced property values. Once a store has been in operation for a while, Wal-Mart frequently challenges the assessed value that local officials assign to it for tax purposes. In an effort to cut the property tax it pays to local governments--revenue that pays for public education, police and fire protection and other vital services--Wal-Mart routinely tries to belittle the value of its own facilities.

Good Jobs First discovered this behavior in a labor-intensive, nine-month investigation of Wal-Mart's property tax behavior at more than 500 stores and distribution centers around the United States. We researched local property tax records, looking at assessment appeals on both real property (buildings and land) and business personal property (fixtures and equipment), and found what appears to be a company policy of systematically challenging assessments.

While we did not explore the merits of individual appeals, the high volume of these actions suggests that Wal-Mart, rather than occasionally disagreeing with particular valuations, is engaged in a large-scale effort to roll back its assessments, lower its tax payments and thereby increase its after-tax profits. Our finding that the challenges are handled at the corporate level rather than by individual store managers reinforces this conclusion.
Our key findings:

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Is Big Business Buying Out the Environmental Movement?

In the business world these days, it appears that just about everything is for sale. Multi-billion-dollar deals are commonplace, and even venerable institutions such as the Wall Street Journal find themselves put into play. Yet companies are not the only things being acquired. This may turn out to be the year that big business bought a substantial part of the environmental movement.

That's one way of interpreting the remarkable level of cooperation that is emerging between some prominent environmental groups and some of the world's largest corporations. What was once an arena of fierce antagonism has become a veritable love fest as companies profess to be going green and get lavishly honored for doing so. Earlier this year, for instance, the World Resources Institute gave one of its "Courage to Lead" awards to the chief executive of General Electric.

Every day seems to bring another announcement from a large corporation that it is taking steps to protect the planet. IBM, informally known as Big Blue, launched its Project Big Green to help customers slash their data center energy usage. Newmont Mining Co., the world's largest gold digger, endorsed a shareholder resolution calling for a review of its environmental impact.

Home Depot introduced an Eco Options label for thousands of green products. General Motors and oil major ConocoPhillips joined the list of corporate giants that have come out in support of a mandatory ceiling on greenhouse gas emissions. Bank of America said it would invest $20 billion in sustainable projects over the next decade.

Many of the new initiatives are being pursued in direct collaboration with environmental groups. Wal-Mart is working closely with Conservation International on its efforts to cut energy usage and switch to renewable sources of power. McDonald's has teamed up with Greenpeace to discourage deforestation caused by the growth of soybean farming in Brazil.

When buyout firms Texas Pacific Group and KKR were negotiating the takeover of utility company TXU earlier this year, they asked Environmental Defense to join the talks so that the deal, which ended up including a rollback of plans for 11 new coal-fired plants, could be assured a green seal of approval.

Observing this trend, Business Week detects "a remarkable evolution in the dynamic between corporate executives and activists. Once fractious and antagonistic, it has moved toward accommodation and even mutual dependence." The question is: who is accommodating whom? Are these developments a sign that environmental campaigns have prevailed and are setting the corporate agenda? Or have enviros been duped into endorsing what my be little more than a new wave of corporate greenwash?

An Epiphany About the Environment?

The first thing to keep in mind is that Corporate America's purported embrace of environmental principles is nothing new. Something very similar happened, for example, in early 1990 around the time of the 20th anniversary of Earth Day. Fortune announced then that "trend spotters and forward thinkers agree that the Nineties will be the Earth Decade and that environmentalism will be a movement of massive worldwide force." Business Week published a story titled "The Greening of Corporate America."

The magazines cited a slew of large companies that were said to be embarking on significant green initiatives, among them DuPont, General Electric, McDonald's, 3M, Union Carbide and Procter & Gamble. Corporations such as these put on their own Earth Tech environmental technology fair on the National Mall and endorsed Earth Day events and promotions.

A difference between then and now is that there was a lot more skepticism about Corporate America's claim of having had an epiphany about the environment. It was obvious to many that business was trying to undo the damage caused by environmental disasters such as Union Carbide's deadly Bhopal chemical leak, the Exxon Valdez oil spill in Alaska and the deterioration of the ozone layer. Activist groups charged that corporations were engaging in a bogus public relations effort which they branded "greenwash." Greenpeace staged a protest at DuPont's Earth Tech exhibit, leading to a number of arrests.

Misgivings about corporate environmentalism grew as it was discovered that many of the claims about green products were misleading, false or irrelevant. Mobil Chemical, for instance, was challenged for calling its new Hefty trash bags biodegradable, since that required extended exposure to light rather than their usual fate of being buried in landfills. Procter & Gamble was taken to task for labeling its Pampers and Luvs disposable diapers "compostable" when only a handful of facilities in the entire country were equipped to do such processing.

Various companies bragged that their products in aerosol cans were now safe for the environment when all they had done was comply with a ban on the use of chlorofluorocarbons. Some of the self-proclaimed green producers found themselves being investigated by state attorneys general for false advertising and other offenses against the consumer.

The insistence that companies actually substantiate their claims put a damper on the entire green product movement. Yet some companies continued to see advantages in being associated with environmental principles. In one of the more brazen moves, DuPont ran TV ads in the late 1990s depicting sea lions applauding a passing oil tanker (accompanied by Beethoven's "Ode to Joy") to take credit for the fact that its Conoco subsidiary had begun using double hulls in its ships, conveniently failing to mention that it was one of the last oil companies to take that step.

At the same time, some companies began to infiltrate the environmental movement itself by contributing to the more moderate groups and getting spots on their boards. They also joined organizations such as CERES, which encourages green groups and corporations to endorse a common set of principles. By the early 2000s, some companies sought to depict themselves as being not merely in step with the environmental movement but at the forefront of a green transformation.

British Petroleum started publicizing its investments in renewable energy and saying that its initials really stood for Beyond Petroleum--all despite the fact that its operations continued to be dominated by fossil fuels.

This paved the way for General Electric's "ecomagination" p.r. blitz, which it pursued even while dragging its feet in the cleanup of PCB contamination in New York's Hudson River. GE was followed by Wal-Mart, which in October 2005 sought to transform its image as a leading cause of pollution-generating sprawl by announcing a program to move toward zero waste and maximum use of renewable energy.

In recent months the floodgates have opened, with more and more large companies calling for federal caps on greenhouse gas emissions. In January ten major corporations--including Alcoa, Caterpillar, DuPont and General Electric--joined with the Natural Resources Defense Council and other enviro groups in forming the U.S. Climate Action Partnership. A few months later, General Motors, arguably one of the companies that has done the most to exacerbate global warming, signed on as well.

A Cause for Celebration or Dismay?

Today the term "greenwash" is rarely uttered, and differences in positions between corporate giants and mainstream environmental groups are increasingly difficult to discern. Everywhere one looks, enviros and executives have locked arms and are marching together to save the planet. Is this a cause for celebration or dismay?

Answering this question begins with the recognition that companies do not all enter the environmental fold in the same way. Here are some of their different paths:

Defeat. Some companies did not embrace green principles on their own--they were forced to do so after being successfully targeted by aggressive environmental campaigns. Home Depot abandoned the sale of lumber harvested in old-growth forests several years ago after being pummeled by groups such as Rainforest Action Network. Responding to similar campaign pressure, Boise Cascade also agreed to stop sourcing from endangered forests and J.P. Morgan Chase agreed to take environmental impacts into account in its international lending activities. Dell started taking computer recycling seriously only after it was pressed to do so by groups such as the Silicon Valley Toxics Coalition.

Diversion. It is apparent that Wal-Mart is using its newfound green consciousness as a means of diverting public attention away from its dismal record in other areas, especially the treatment of workers. In doing so, it hopes to peel environmentalists away from the broad anti-Wal-Mart movement. BP's emphasis on the environment was no doubt made more urgent by the need to repair an image damaged by allegations that a 2005 refinery fire in Texas that killed 15 people was the fault of management. To varying degrees, many other companies that have jumped on the green bandwagon have sins they want to public to forget.

Opportunism. There is so much hype these days about protecting the environment that many companies are going green simply to earn more green. There are some market moves, such as Toyota's push on hybrids, that also appear to have some environmental legitimacy. Yet there are also instances of sheer opportunism, such as the effort by Nuclear Energy Institute to depict nukes as an environmentally desirable alternative to fossil fuels. Not to mention surreal cases such as the decision by Britain's BAE Systems to develop environmentally friendly munitions, including low-toxin rockets and lead-free bullets.

In other words, the suggestion that the new business environmentalism flows simply from a heightened concern for the planet is far from the truth. Corporations always act in their own self-interest and one way or another are always seeking to maximize profits. It used to be that they had to hide that fact. Today they flaunt it, because there is a widespread notion that eco-friendly policies are totally consistent with cutting costs and fattening the bottom line.

When GE's "ecomagination" campaign was launched, CEO Jeffrey Immelt insisted "it's no longer a zero-sum game -- things that are good for the environment are also good for business." This was echoed by Wal-Mart CEO Lee Scott, who said in a speech announcing his company's green initiative that "being a good steward of the environment and in our communities, and being an efficient and profitable business, are not mutually exclusive. In fact they are one in the same." That's probably because Scott sees environmentalism as merely an extension of the company's legendary penny-pinching, as glorified efficiency measures.

Chevron Wants to Lead

Many environmental activists seem to welcome the notion of a convergence of business interests and green interests, but it all seems too good to be true. If eco-friendly policies are entirely "win-win," then why did corporations resist them for so long? It is hard to believe that the conflict between profit maximization and environmental protection, which characterized the entire history of the ecological movement, has suddenly evaporated.

Either corporations are fooling themselves, in which case they will eventually realize there is no environmental free lunch and renege on their green promises. Or they are fooling us and are perpetrating a massive public relations hoax. A third interpretation is that companies are taking voluntary steps that are genuine but inadequate to solve the problems at hand and are mainly meant to prevent stricter, enforceable regulation.

In any event, it would behoove enviros to be more skeptical of corporate green claims and less eager to jump into bed with business. It certainly makes sense to seek specific concessions from corporations and to offer moderate praise when they comply, but activists should maintain an arm's-length relationship to business and not see themselves as partners. After all, the real purpose of the environmental movement is not simply to make technical adjustments to the way business operates (that's the job of consultants) but rather to push for fundamental and systemic changes.

Moreover, there is a risk that the heightened level of collaboration will undermine the justification for an independent environmental movement. Why pay dues to a green group if its agenda is virtually identical to that of GE and DuPont? Already there are hints that business views itself, not activist groups, as the real green vanguard. Chevron, for instance, has been running a series of environmental ads with the tagline "Will you join us?"

Join them? Wasn't it Chevron and the other oil giants that played a major role in creating global warming? Wasn't it Chevron that used the repressive regime in Nigeria to protect its environmentally destructive operations in the Niger Delta? Wasn't it Chevron's Texaco unit that dumped more than 18 billion gallons of toxic waste in Ecuador? And wasn't it Chevron that was accused of systematically underpaying royalties to the federal government for natural gas extracted from the Gulf of Mexico? That is not the kind of track record that confers the mantle of environmental leadership.

In fact, we shouldn't be joining any company's environmental initiative. Human activists should be leading the effort to clean up the planet, and corporations should be made to follow our lead.

Private Health Insurance Is Not the Answer

Healthcare reform is in the air.

Ideas for dealing with the 46 million Americans without medical insurance seem to be popping up faster than new cases of the winter flu. President Bush proposes to use tax deductions to help people buy individual plans. California Governor Arnold Schwarzenegger wants to make it mandatory for everyone in his state to obtain insurance and would force employers who don't provide coverage to pay into a fund.

Democratic Presidential candidate John Edwards would raise taxes on the affluent to pay for subsidies to help those with low incomes obtain policies. Some members of Congress are promoting insurance purchasing pools for small businesses. An odd bedfellows coalition including the Business Roundtable, AARP, the Service Employees International Union and Wal-Mart is pushing for some kind of expansion of coverage but is not saying what form it should take.

What these varied plans have in common is the assumption that, at least for the foreseeable future, most of the working population (and their dependents) will continue to receive coverage through private insurance carriers. Public officials across the political spectrum are, in effect, seeking to expand the customer base for a highly profitable industry.

Surely, it is a good thing to provide coverage to the uninsured, but it is remarkable that almost everyone assumes that coverage has to come from for-profit (or, in some cases, private non-profit) providers. Despite the overwhelming evidence from other industrial countries -- and even domestic programs such as Medicare -- that government-run health plans are much more efficient, the U.S. political class seems to be on a mission to save private insurance.

A Paternalistic Reform?

To understand the current debate, it is helpful to recall some of the tortured history of health insurance in the United States. In the late 19th Century European countries began adopting government-funded social insurance plans, but the U.S. failed to follow suit. When progressives made a push in the 1910s there was opposition not only from corporate interests but also from organized labor. AFL President Samuel Gompers denounced national health insurance as a paternalistic reform, fearing that its adoption would weaken the role of unions in improving the living conditions of workers.

Consequently, Americans both rich and poor continued to pay the vast majority of medical costs out of pocket. That began to change in the 1930s. While the Roosevelt Administration focused on retirement benefits and unemployment insurance at the expense of health coverage, physicians and hospitals struggling to survive the Depression set up private group insurance plans to bolster demand for their services. The most successful of these were the non-profit multi-hospital plans that grew under the rubric of Blue Cross. These were later followed by Blue Shield plans, which covered outpatient physician services. Once the Blues paved the way, commercial insurers also entered the field, though their coverage tended to be more restricted.

After the end of World War II, there was great momentum toward expanding the portion of the population with some form of sickness insurance. In 1945 President Harry Truman proposed a national program establishing a right to medical care and protection from the "economic fears" of illness. But once again, opposition to government involvement in healthcare emerged, this time reinforced by a Cold War hysteria about "socialized medicine" stoked by groups such as the American Medical Association.

As Truman's plan went down to defeat, what grew in its place was a system of employer-provided coverage, stimulated by aggressive bargaining on the part of unions that had come to regard improving employee benefits as a mission as important as increasing wages. This put pressure on non-union employers to follow suit, and by the mid-1950s, about two-thirds of the country was getting coverage through either their own jobs or those of spouses or parents. The Blues, which held the largest share of this booming market in the early postwar period, began to fall behind the commercial carriers by the late 1950s.

Around that same time, there was growing concern about the large number of retired workers who were left out of this workplace-oriented system. This eventually led to the 1965 creation of the federal Medicare program for seniors, along with the federal-state Medicaid program for the poor, but most of those with insurance continued to get it from the private sector.

In the wake of these significant expansions of coverage, liberals renewed calls for comprehensive national health insurance. These efforts, however, were drowned out by a rising chorus of concern about escalating health costs -- a problem that was greatly exacerbated by the growth of for-profit hospital chains. During the 1980s, Congress created a cost-control system for Medicare, while growing numbers of employers transferred their workers from traditional plans into health maintenance organizations (HMOs) -- both non-profit and for-profit. The Clinton Administration tried to reach the goal of universal coverage through a complex system that preserved the role of HMOs and other private insurers, but it was crushed by business interests and the medical establishment.

Awash In cash

The failure once again to create a system of universal care left the American people at the mercy of the market. The ranks of the uninsured swelled as many employers solved their health finance problems by eliminating coverage or by shifting premium and co-payment costs to workers to such an extent that they opted out. Many of those who tried to obtain individual coverage found themselves priced out of the market or rejected because of a pre-existing condition. Those workers who retained workplace coverage increasingly had to confront HMOs and other purveyors of "managed care," whose business plan depended on restricting the use of medical services. A 1994 Wall Street Journal article stated: "Health maintenance organizations are all about penny pinching, yet they are so awash in cash that they don't know what to do with it all."

At the forefront of these service (non)providers was U.S. Healthcare, which grew out of the first for-profit HMOs in the 1970s. By the early 1990s, it was the largest publicly traded HMO, with annual revenues of more than $1 billion. The company -- a notorious proponent of gag clauses in physician contracts that prevented doctors from giving patients a thorough description of their treatment options -- took on the mission of revolutionizing the insurance industry. In a 1992 interview with Business Week , U.S. Healthcare founder and chairman Leonard Abramson expressed scorn for traditional carriers, calling them "dinosaurs" and saying they operated in "a dying world."

Four years later, U.S. Healthcare agreed to be acquired by one of those dinosaurs, Aetna Inc., for $9 billion. It was clear from the start that Aetna was going to be adopting the style of U.S. Healthcare and not vice versa. "Strong forms of managed care, gated managed care, is really coming into its own," said Aetna chief executive Ronald Compton, who also announced that Abramson would join the board of the parent company.

Aetna's marriage with U.S. Healthcare was part of a larger consolidation of the industry and a shrinkage of the non-profit portion. Aetna itself went on to acquire healthcare operations from New York Life and Prudential Insurance, while rivals such as United Healthcare (later UnitedHealth Group) also bought various competitors to rise rapidly in the field. For-profit hospital chains such as Columbia-HCA gobbled up insurers. Even the Blues were abandoning all pretenses that their main mission was to serve the community. Some set up their own HMO subsidiaries, and by the late 1990s a bunch were preparing to take the next step: abandoning their non-profit status and becoming for-profit enterprises. A few such as Anthem Inc., formerly Blue Cross and Blue Shield of Indiana, went yet further, becoming publicly traded companies.

Meanwhile, there was a growing effort to tame HMOs through the courts. In 1999 several of the country's leading trial lawyers announced plans to bring a wave of racketeering lawsuits to pressure companies to provide better coverage. Some physician groups also sued managed-care firms over restrictions on their members. The legal assault was counting on the fact that HMOs had become the most reviled industry in the United States, but the judiciary was a harder sell.

In 2002 a federal judge in Miami hearing the consolidated cases granted class-action status to claims that managed-care plans systematically denied and delayed payments to more than 600,000 doctors, but he rejected that status on behalf of some 145 million members of the plans. Five companies ended up paying nearly $650 million in settlements with the doctors and their lawyers, while two others (including UnitedHealth) went to court and had the charges against them dismissed.

What ails private insurance

These lawsuits may have shaken the industry somewhat, but they did not put an end to the abuses that characterize managed care. Here are some of the key remaining issues that surround the business:

Consolidation has continued unabated. There are now two superproviders that increasingly dominate the for-profit healthcare field. One is UnitedHealth, which capped a long series of acquisitions with the 2005 purchase of Pacificare for some $8 billion. In 2006 United's health services revenues reached an astounding $64 billion, and its medical enrollment rose to about 28 million individuals.

The other giant is Wellpoint Inc., created through the blockbuster 2004 merger of Anthem Inc. and Wellpoint Health Network, formerly Blue Cross of California. Wellpoint later spent $6.5 billion to acquire WellChoice, the publicly traded parent of New York's Empire Blue Cross Blue Shield. By 2006 Wellpoint controlled the Blues in 14 states, had some 34 million members and took in annual revenues of about $52 billion.

The second tier consists of Aetna (2006 revenues and members, respectively: $25 billion and 15 million), Humana ($21 billion and 11 million), Cigna ($16 billion and 9 million) and Health Net ($13 billion and 7 million). The non-profit wing of the industry also has big players, led by Kaiser Permanente with 8.6 million members.

There is no evidence that the consolidation has enhanced efficiency or improved the quality of coverage. Instead, the big carriers simply accumulate more power over healthcare providers and patients, using it to their own advantage.

While millions remain uninsured or underinsured, the industry's profits swell. Last year, the top six health insurance companies had combined profits of more than $10 billion. What's amazing is that they netted so much after spending prodigious amounts on marketing and administration. In 2006 Wellpoint alone burned up nearly $9 billion in such costs -- nearly one quarter of what it paid out in actual benefits. By contrast, in Canada's government-run single-payer system, administration accounts for only about 3 percent of total costs.

Legal controversies continue to plague the industry. Lawsuits over the denial of care are still being filed against the big insurers. For example, two hospitals in Queens, NY recently sued UnitedHealth, alleging a "pattern of racketeering activity." At the same time, UnitedHealth has been the subject of a federal investigation following reports last year that the company was routinely backdating stock options awarded to executives, especially long-time chief executive William McGuire, who -- on top of annual salary and bonuses totaling $10 million -- had accumulated some 29 million shares through option awards. Thanks to the backdating scheme, McGuire had racked up paper gains of more than $1 billion on those shares. In October McGuire was forced to resign and to give up an undisclosed portion of those gains.

McGuire's excesses are emblematic of the fundamental conflict in the industry -- the clash between maximizing gains for executives and shareholders, and the need of its customers for services that are often a matter of life and death. Public officials should abandon the mission of saving commercial insurance and devote themselves instead to creating a healthcare system that substitutes the public interest for private profit.

Big Business Is Taking A Bite Out of Corporate Oversight

You'd expect now to be a time of humility and reticence for big business and its advocates. The wave of financial scandals that began with Enron five years ago shows no signs of receding, thanks to ongoing revelations about stock-option abuses. Corporate America's Republican front men in Congress just received a resounding "thumpin'" in the mid-term elections. Fraud and mismanagement among U.S. contractors have exacerbated the mess in Iraq. Recent federal investigations have shown that major energy companies have not been properly paying royalties on the oil and natural gas they have extracted from public property. Former Enron CEO Jeffrey Skilling is starting his 24-year prison sentence for fraud and other offenses.

Whether out of denial of reality or brazenness, corporate interests are not on the defensive. Instead, they have been pursuing an aggressive campaign to weaken oversight of business by revising federal securities law and easing white-collar prosecution practices. Treasury Secretary Henry Paulson and business advocates such as the U.S. Chamber of Commerce are singing from the same hymnal, complaining that U.S. business is now overregulated and thus is suffering from a competitive disadvantage in world financial markets.

These efforts are already paying off. Just this week, the Department of Justice bowed to business pressure by announcing new restrictions on federal prosecutors handling cases against corporations. The next day, the Securities and Exchange Commission issued proposed new rules that would soften one of the key regulations enacted by Congress to prevent corporate fraud.

This deregulatory thrust would seem to be in conflict with plans by the new Democratic leaders in Congress to engage in tougher oversight of the private sector as well as the executive branch. It remains to be seen how tough that oversight will be, given that top Democrats have already endorsed some aspects of the corporate agenda. No matter who is in office, business always seems to be in power.

"No Boardroom... is above or beyond the law"

A major target of the new business offensive is the Sarbanes-Oxley Act, the law that was pushed through Congress in 2002 to enable the Republicans to claim that they were being tough on corporate misconduct in the wake of Enron, WorldCom and other business scandals. During that period, even corporate executives were preaching the gospel of stronger regulation. Paulson himself, then chief executive of Wall Street giant Goldman Sachs, gave a June 2002 speech at the National Press Club in which he offered his own ten-point plan.

Sarbanes-Oxley, which President Bush signed into law while declaring that "no boardroom in America is above or beyond the law," raised penalties for securities fraud, required top managers to tighten internal financial controls and personally certify the accuracy of financial statements, barred special company loans to executives, toughened regulation of auditing firms, and increased the budget of the Securities and Exchange Commission (SEC) by 66 percent, among other provisions.

The ink was barely dry on Bush's signature when his administration began issuing interpretations of the law that critics said were meant to weaken its impact. Soon thereafter, business lobbyists began shedding their reformist cloaks and warning of dire consequences -- such as rampant shareholder litigation -- that would supposedly result from Sarbanes-Oxley (known informally as SOX or SarbOx).

Outright opposition to SarbOx was slow in coming, in part because the SEC was slow in implementing the law. Months were lost amid a dispute over the choice of the head of an accounting industry oversight board -- a dispute that led to the resignation of SEC chairman Harvey Pitt.

When Pitt's successor, William Donaldson, adopted a more aggressive stance than expected, business began to mobilize. "CEOs are now coming out of their foxholes to fight back a fresh wave of reform," Business Week wrote in early 2004. They began complaining that SarbOx compliance costs were too high, especially in connection with Section 404 of the law, which dealt with internal controls. Managers, it was claimed, were being distracted from their main responsibilities and were becoming too risk-averse. The same themes were soon being echoed by Treasury Secretary John Snow, who began speaking of the need for "balance," an apparent code word for a rollback of SarbOx.

"The Enron and Worldcom hysteria is over"

Rep. Ron Paul, a Texas Republican, did not hide behind a euphemism. In April 2005 he introduced legislation to repeal Section 404, declaring: "It's time to make public what the business community already acknowledges privately: Sarbanes-Oxley is a disaster. Now that the Enron and WorldCom hysteria is over, it's time to admit that Congress made a terrible mistake."

Paul and other critics of SarbOx tended to overlook the fact that dozens of companies were reporting to the SEC that the reviews mandated by Section 404 had revealed that their internal controls were, in fact, not effective or were otherwise deficient, thus raising the risk of fraud.

Many firms were also forced to restate their financial results as a consequence of their reviews. Earlier this year, a tally by the research firm Glass Lewis found that restatements among U.S. public companies in 2005 had reached 1,195, nearly double that of the previous year. (Last month, the Acting Chief Accountant of the SEC said he expected the 2006 total to be even higher.) Glass Lewis argued that the restatements proved the value of Section 404, writing in its report: "It's precisely because of the heightened auditing standards mandated by Sarbanes-Oxley that investors today are getting a true sense, finally, of just how much work remains to be done before they can feel confident about the accuracy of the financial statements prepared by corporate managers."

The SarbOx bashers also ignored reports that some companies were finding Section 404 to be beneficial. In November 2005, Business Week wrote: "By forcing executives to dig deeper into how their companies get work done, Section 404 is enabling business to cut costs and boost productivity." The magazine cited cases such as Pitney Bowes, whose 404-mandated review paved the way to the consolidation of four accounts-receivable offices and a savings of $500,000 in the first year alone.

The small business ploy

Over the past year, SarbOx opponents have taken two new tacks. First, they have resorted to the old big business lobbying trick of making it sound as if what's being advocated is mainly for the benefit of small business. The implication is that the risk of financial impropriety is not so great when it comes to public companies of modest size, while in fact they have historically been responsible for the vast majority of fraud cases.

The other gambit has been to sound the alarm about a supposed shift of new equity offerings to stock markets outside the United States. Critics claim that the prospect of complying with SarbOx is prompting some companies to conduct their initial public offerings (IPOs) in places such as London -- or not to go public at all. Much has been made of the fact that 19 small U.S. firms listed on London's Alternative Investment Market last year and that 24 of the 25 largest IPOs took place abroad. Rep. Tom Feeney, a Florida Republican, warned of "an outsourcing of America's 100-year lead in capital formation."

"SarBull!!! The Truth Behind IPO Imbalance" was the headline of an article in Financial Week last month that did a good job of dissecting the claims that Section 404 was driving new stock issues out of the country. The article noted that a third of the top IPOs involved former state-owned enterprises that would not be inclined to list in the U.S., whatever the regulatory situation. It was no surprise that China Construction Bank, the largest new issue of the year, chose the Hong Kong exchange. The magazine also pointed out that quite a few of the other new issuers were companies that had little or no business presence in the United States and thus could not expect much attention from domestic investors.

It is odd that business advocates who normally extol globalization adopt a nationalist position in this instance. It must be particularly amusing to the big Wall Street investment banks, which are depicted as losing out from the supposed flight of IPOs abroad, when in fact these same institutions operate in all the major foreign financial centers. If, for instance, Goldman Sachs -- which just reported a 93 percent increase in quarterly profits -- loses an IPO deal in New York it may very well gain one in Hong Kong or London. The Wall Street firms long ago realized that overseas financial markets were, quite apart from the U.S. regulatory climate, becoming more formidable.

These flaws in the arguments of the SarbOx bashers have not deterred their campaign. This fall, the effort went into overdrive. New public statements by Treasury Secretary Paulson on "excessive regulation" were followed by the publication of a report by the self-appointed Committee on Capital Markets Regulation, led by free marketeer Glenn Hubbard, former head of the Bush Administration's Council of Economic Advisors and now Dean of the Columbia Business School. The report rehashed the IPO flight argument and recommended relaxed implementation of Section 404.

It remains unclear how the new Democratic leadership in Congress will handle the debate over Section 404 and other aspects of financial regulation. Already, some Democrats have joined the ranks of those raising questions about SarbOx. In November, Sen. Charles Schumer of New York joined New York City Mayor Michael Bloomberg (a Republican) in publishing an op-ed in the Wall Street Journal in which they warned of overregulation of financial markets and argued that SarbOx "needs to be re-examined." Sen. John Kerry of Massachusetts, incoming chairman of the Committee on Small Business and Entrepreneurship, has made public statements on SarbOx that emphasize the need to "increase America's competitive edge."

Lobbying pays dividends

Corporate America's anti-SarbOx offensive is starting to pay dividends. On December 13 the SEC said it would issue new "interpretive guidance" regarding compliance with Section 404. The Commission did not give in to pressure to exempt smaller firms from the rule. Instead, it will allow companies of all sizes to use more discretion in deciding which kinds of internal controls are truly necessary to reduce the risk of fraud. As part of this, smaller firms would be able to "scale and tailor their evaluation methods and procedures to fit their own facts and circumstances."

On its face, this sounds reasonable, but the question is whether this flexibility will encourage new financial shenanigans. There is also the risk that the SEC's capitulation to corporate pressure will encourage business to seek further weakening of Section 404 or its elimination. The Commission has already indicated it is considering further relaxation of rules for "smaller" firms, which will include those with market capitalization as high as $700 million.

In another sign of business success, the Department of Justice has just announced a new set of guidelines for federal prosecutors pursuing cases against corporations. The rules were issued by Deputy Attorney General Paul J. McNulty, who acknowledged that they had been adopted "after careful review and numerous meetings with those in the business and legal communities who raised concerns about the Department's [previous] guidance." In other words, he caved in to business interests.

The new guidelines will restrict the ability of prosecutors to pressure companies under investigation to waive the confidentiality of their legal communications -- a common technique in developing evidence against an executive suspected of fraud. McNulty also put strict limits on the ability of prosecutors to pressure companies to stop paying the legal fees of executives under investigation.

We are at a crossroads. The results of the mid-term election can be interpreted, among other things, as a rejection of the Republican Party's slavish adherence to the desires of big business. The order of the day should be tougher oversight of business, yet corporate lobbyists are on the offensive and making headway. It is not surprising that the executive branch, still under Republican thrall, is going along. The question is whether the Democrats, now in control of Congress, will draw a line in the sand.

The 100 Worst Corporate Citizens

For the past 52 years, Fortune magazine has been publishing a list of the largest U.S. corporations, an annual chance for chief executives to brag that "my revenue is bigger than yours." For the past seven years, Business Ethics magazine has issued another kind of ranking -- a list of what it calls the "100 Best Corporate Citizens" -- that promotes virtue over size in the perennial game of corporate comparisons.

The Business Ethics list, the 2006 version of which appeared recently, has become a leading scorecard in the field of corporate social responsibility, or CSR (increasingly used as an abbreviation for corporate sustainability and responsibility). CSR has evolved from a rallying cry of business critics to a fashionable concern among corporate executives eager to demonstrate that high-mindedness can co-exist with the pursuit of profit. Many of the companies cited by Business Ethics consider it a badge of honor, putting out press releases touting this accomplishment.

Yet when one looks at the companies on the Business Ethics list, it is easy to be baffled at the real meaning of CSR. Some of the firms may have done laudable things, but the list is riddled with companies that have significant blemishes on their record when it comes to environmental matters, labor practices or treatment of customers. The likes of Wal-Mart and Big Oil have not yet made the cut, but that may be only a matter of time.

Not so clean

Business Ethics compiles its list using data on corporate social performance in eight categories -- community, diversity, employee relations, environment, etc. -- from the Socrates database produced by KLD Research & Analytics. That information is then processed quantitatively using methodology developed by Sandra Waddock and Samuel Graves of the Carroll School of Management at Boston College. Unfortunately, the magazine says nothing about that methodology, so the reader is confronted with a statistical black box. An article accompanying the list provides scanty details. Thus, one must essentially take the rankings at face value.

The first thing that stands out is that the list is top heavy with high-tech firms, including Hewlett-Packard (No. 2), Advanced Micro Devices (No. 3), Motorola (No. 4), Cisco Systems (No. 8), Dell Inc. (No. 9), Texas Instruments (No. 10), and Intel (No. 11). The magazine says this is, in part, because "most top tech companies do well on environmental issues." That claim would come as a surprise to groups such as the Silicon Valley Toxics Coalition (SVTC), which has for years been pointing out that high-tech industry is far dirtier than its clean image. The electronics industry is a heavy user of toxic chemicals, which have a way of seeping out into the environment, resulting in a proliferation of Superfund toxic waste sites in places such as Silicon Valley.

In recent years, SVTC has also been looking at another environmental problem caused by high tech: the growing volume of e-waste generated when obsolete computers and other devices -- with toxic material inside -- are thrown away. SVTC's Computer Take Back Campaign has been pressuring the major tech companies to take responsibility for recycling. While Dell and Hewlett-Packard have responded positively to the pressure, the campaign faults companies such as Apple (No. 25 on the Business Ethics list) for resisting.

Also difficult to accept is the other reason given by Business Ethics for the prevalence of tech firms at the top of the list: high scores on employee relations, including workplace health and safety. The same toxic chemicals that pollute communities around electronics plants have taken a toll on the health of workers inside the plants. For instance, in 2004, IBM (No. 41 on the Business Ethics list) paid an undisclosed amount to settle lawsuits brought by about 50 current and former workers who were suffering from cancer that they attributed to workplace exposure.

As for the aspect of employee relations relating to unions, Business Ethics fails to mention that the high-tech firms on its list are all largely unacquainted with collective bargaining. The electronics industry has resisted unionization of its domestic workforce for decades. A Wall Street Journal reporter once took a job incognito at a Texas Instruments plant and found workers there so intimidated that they panicked at the mere mention of unions. At the same time, these same companies have not hesitated to move much of their production to foreign sweatshops.

In recent years, the industry has also been moving high-level technical, research and design functions abroad to low-wage havens such as India -- much to the detriment of U.S. workers. IBM, now focused on computer services rather than hardware, has increased the size of its Indian workforce to 43,000. Any owner of a Dell computer knows that a call to tech support is likely to be answered by someone sitting in Bangalore.

Taking tax breaks

U.S. high-tech companies are not offshoring everything, but when they build new domestic operations they often engage in another practice that should raise questions in the minds of the ethics monitors: extorting tax breaks and other subsidies from state and local governments. Recently, the Albany Times-Union reported that New York State officials may be preparing a subsidy package worth $1 billion to persuade Advanced Micro Devices to build a new chip fabrication plant in Saratoga County.

This would be the latest in a long series of generous "incentives" that semiconductor and computer producers have taken from governments across the country. In 2004 Dell got a package worth up to $267 million when it agreed to locate a new assembly plant in Winston-Salem, North Carolina. The deal, which is being challenged in a lawsuit brought by the North Carolina Institute for Constitutional Law, mirrored a package Dell received in 1999 in connection with the construction of a plant in Nashville. When the city of Austin, Texas turned down Dell's demand for long-term property tax breaks, the company moved its headquarters to the suburb of Round Rock, which agreed to 20 years of abatements.

Intel has avoided hundreds of millions of dollars in local taxes on its facilities in New Mexico, Arizona and Oregon by using complex financing schemes involving industrial revenue bonds as well as straightforward abatements and exemptions. All these subsidies weaken the fiscal condition of local governments, making it harder for them to pay for services such as education and public safety.

Sharks and predators

High-tech is not the only industry that accounts for some questionable entries on the Business Ethics list. Take financial services. Wells Fargo & Co. (No. 16) scores high on workplace diversity, but it has been accused of mistreating its poorer customers -- many of whom are people of color. For the past several years, Wells has been the target of a campaign by the community-organizing network ACORN over its predatory lending practices. ACORN charges Wells with a slew of abusive practices, such as charging higher interest rates than a borrower's credit warrants and imposing excessive mortgage origination fees. This spring, for the third year in a row, ACORN activists -- including some carrying inflatable sharks -- demonstrated outside the Wells Fargo annual meeting. Also protesting were supporters of Rainforest Action Network (RAN), which has charged the bank with financing environmentally destructive infrastructure projects in developing countries.

RAN's Global Finance Campaign has succeeded in getting Citigroup Inc., No. 62 on the Business Ethics list, to adopt guidelines that promote more environmentally responsible projects, but the financial giant is still widely criticized for the predatory lending practices of its subsidiary Associates First Capital. More surprising is the appearance of Freddie Mac, No. 38 on the list. The mortgage finance entity has been embroiled in a major accounting scandal. In April it agreed to pay $3.8 million to settle charges relating to illegal campaign contributions.

Many other examples of companies with ethical lapses can be found on this list of supposedly exemplary corporate citizens. Johnson & Johnson (No. 12) refuses to join the 300 other companies that have signed the Campaign for Safe Cosmetics pledge not to use toxic ingredients. NIKE Inc. (No. 13) has adopted some reforms in response to years of criticism over labor practices at its overseas suppliers, but activist groups continue to cite abuses. General Mills (No. 14) sells food products with unlabeled genetically modified ingredients.

A question can even be raised about the company at the very top of the Business Ethics list: Green Mountain Coffee Roasters. The company seems to have a strong commitment to CSR, but one of its main customers is Exxon Mobil, which sells Green Mountain coffee at many of its service stations.

No company is perfect, especially Wal-Mart

The fact that the corporation dubbed most ethical does a great deal of business with a company that is widely seen as one of the least ethical -- along with the many mixed track records described above -- puts into question the legitimacy of the concept of CSR.

Wait, you may say -- no company is perfect. Maybe so, but should we be honoring some of those rather imperfect entities as "the best corporate citizens?" We certainly don't use such limited standards when it comes to real citizens. Do we honor embezzlers because they recycle their newspapers? Do we overlook child abuse because the parent contributes to the United Way? People are expected to follow all laws and ethical norms -- not only those that are convenient to obey. Why not apply the same standard to corporations?

Which brings us to Wal-Mart. Having been subjected to probably more criticism than any other single company (including two national pressure campaigns devoted exclusively to it), Wal-Mart is now changing its stripes -- or at least some of them. Last fall, the company announced a sweeping set of voluntary environmental measures that are supposed to sharply decrease its energy consumption, reduce its waste production and expand its recycling efforts. The giant retailer also said it would pressure its suppliers to adopt greener practices. More recently, there have been reports that Wal-Mart is making a big push into organic food products, sustainably fished salmon and fair trade coffee.

What the company has not announced are any significant changes in its labor practices. Wal-Mart remains adamantly anti-union and continues to offer low pay and limited benefits. It strongly opposes living wage initiatives. The fact that nearly half the children of its U.S. employees are uninsured or have to get coverage from taxpayer-funded programs is not likely to change any time soon. There is no evidence as yet that the company has eradicated the tendency of store managers to force employees to perform extra work off the clock. Slick TV ads notwithstanding, it remains to be seen whether Wal-Mart has significantly addressed charges of sex and race discrimination in its domestic workplaces. Given the company's obsession with cutting costs, there is every reason to believe that sweatshop conditions will persist in the factories of its foreign suppliers.

Resisting corporate green hype

The divergence between Wal-Mart's environmental reforms (assuming they turn out to be more than greenwash) and its retrograde labor policies symbolizes the selective business ethics that prevail today.

Like Wal-Mart, much of Corporate America claims to be going green. Sometimes this is the result of pressure, such as RAN's successful campaigns against firms such as Home Depot, Citigroup and Goldman Sachs. Sometimes it is for public relations purposes, such as General Electric's "eco-imagination" ad blitz that came after years of resisting responsibility for cleaning up PCBs in the Hudson River. And sometimes it is because companies have decided they can make money selling alternative products or technologies, such as Toyota's promotion of hybrids. While some executives may claim to be following their conscience, the fact is that corporate environmentalism today is deemed good for business.

The same cannot be said about enlightened employment practices. Most big companies still hold down wages, restrict medical coverage, downgrade retirement benefits, pay inadequate attention to workplace health and safety, engage in downsizing and offshoring, and, of course -- fight unionization or demand concessions from unions already in place. Chief executives at firms such as Wal-Mart claim they cannot afford to make major improvements in working conditions -- even if they will result in higher productivity -- yet they are now willing to spend heavily on environmental change.

It may take a major resurgence in the labor movement to get big business to give the same priority to workplace reforms that it now accords to environmental matters. In the meantime, we shouldn't get too carried away with the corporate green hype. And we certainly shouldn't be giving good citizenship awards to companies that view ethics as a menu from which to choose only that which is most palatable.


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