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Monday, December 09, 2019

Trump’s Carrier Deal Is A Complete Scam

IMAGE: U.S. President-Elect Donald Trump speaks at an event at Carrier HVAC plant in Indianapolis, Indiana, December 1, 2016. REUTERS/Chris Bergin

The Secret Swipe At Obamacare — And You

By Michael Hiltzik, Los Angeles Times (TNS)

Underscoring how much mischief can result when Congress acts in haste and in secret, hidden away in the year-end omnibus spending bill being acted on this week is an attack on a key provision of the Affordable Care Act long targeted by the GOP.

The provision involves risk corridors, which are designed to stabilize insurance premiums in the first few years of the law. The year-end spending bill quietly erodes funding for the provision.

Republicans have chosen to label the provision a “bailout” for insurance companies. I’ve labeled that position the most cynical attack on Obamacare, because those who advance it — notably Sen. Marco Rubio (R-FL) — obviously know it’s a lie. They know it’s actually a consumer protection feature, so calling it “corporate welfare,” as Timothy P. Carney did this week in the Washington Examiner, is a neat bit of disinformation. Adding to the cynicism, the same provision is an essential part of Medicare Part D, which the GOP enacted in 2003.

Here’s another sick irony: One of the raps on the risk corridor provision is that it was “buried deep” in administration explanations of the bill, as Rubio put it. But in fact, the ACA was extensively debated and available for scrutiny by any legislator who chose. The attack on the provision, however, actually is “buried deep” in the year-end spending bill: it’s on page 892 of the 1,603-page bill, which has barely been debated at all.

Let’s see how risk corridors work, and how they’re undermined by the spending bill.

It was well understood that health insurers would have difficulty pricing their plans in the individual market in the first years of the ACA, starting in 2014. Not only would some insurers be entering that market in volume for the first time, but the market itself would be dramatically altered by the flood of new customers and such ACA rules as the prohibition on exclusions for pre-existing conditions. Some insurers will end up setting their premiums too low, and therefore will have to pay out benefits higher than they expected; others will set their rates too high, and will capture a windfall.

Without a safety valve, these miscalculations could have an impact on premiums the following year, as insurers tried to adjust. So insurers that set prices more than 3 percent below a set target get a reimbursement from the government, and those that overprice by the same margin have to pay some of the windfall to the government. Importantly, the arrangement is temporary: it expires after 2016, by which time it’s assumed that insurers will know what they’re doing.

Obviously, this isn’t a “bailout,” since it protects underpricing insurers only on the margins, while also providing a check on profiteering. The Congressional Budget Office, moreover, has projected that over time, the risk-corridor program will produce an $8-billion profit for the government, because overpricing insurers will be paying back more than underpricing insurers collect.

Some smart conservatives acknowledge that risk corridors are a good idea. As Yevgeniy Feyman of the Manhattan Institute informed Forbes readers in January, “Any conservative reform plan for universal coverage will have to use similar methods of risk adjustment. … If you want insurers to participate more broadly in the individual market, you’ll need to offer a carrot to offset the unavoidable uncertainties.”

Nevertheless, Congressional Republicans couldn’t resist taking a swipe at this little-understood provision in the ACA, and Democrats weren’t sufficiently attentive, or caring, to call them out on it. The year-end spending bill forbids the Dept. of Health and Human Services to use any outside government funds to pay out adjustments to insurers. On the face of it, the government can only use surplus coming in from overcharging insurers for that purpose. (That’s the interpretation healthcare expert Tim Jost gives to Dylan Scott of Talking Points Memo.)

For the moment, that makes the provision little more than a symbolic swipe at Obamacare. But that could change, and the CBO projections could be wrong. In that event, the Republicans’ little act of vandalism could end up costing ordinary citizens money. Nice work, GOP. Extra points for pulling it off in the dark.

Photo: Gage Skidmore via Flickr

A Reckless ‘Repair’ To Obamacare

By Michael Hiltzik, Los Angeles Times (MCT)

The GOP manifesto published by the Wall Street Journal last week over the names of Republican leaders John Boehner (R-OH) and Mitch McConnell (R-KY) included a tweak to the Affordable Care Act they say would provide Americans with “more hours and better pay.”

Don’t believe it.

Their proposed change would threaten the livelihoods of as many as 81 million workers. It would have precisely the opposite effect they claim. The bottom line is that it would be a handout to cheeseparing employers, not a gain for their workers. If the two GOP leaders really want to fix Obamacare, the Supreme Court last week gave them a path to do so.

And their rationale is specious, too. Boehner and McConnell say their overall plan involves “renewing our commitment to repeal Obamacare, which is hurting the job market along with Americans’ healthcare.” Their focus is on raising the definition of full-time work in the Affordable Care Act from 30 hours to 40.

Because employees working less than 30 hours don’t have to be covered by health insurance under the act, Boehner and McConnell say that restoring the “traditional” definition of full-time employment would remove an “arbitrary and destructive government barrier” to full-time job creation.

This idea is based on the notion that employers are gaming the part-time rule to escape their health coverage obligations. Paul Van de Water of the Center on Budget and Policy Priorities raises a couple of pertinent points about this.

First, there’s nothing to say that employers inclined to cut their workers’ hours to evade the act wouldn’t do the same whether the employees work 30 hours or 40. And here’s the key: There are a lot more of the latter than the former.

In 2013, according to the Bureau of Labor Statistics, there were 10.2 million workers notching 30 to 34 hours a week, or 7.4 percent of the workforce; that’s the class most vulnerable to having their work hours shaved to become ineligible for coverage.

But 60.9 million Americans worked exactly 40 hours — 43.8 percent of all workers. It wouldn’t take much to cut many of them to 39 hours or below, removing them from the jurisdiction of the Affordable Care Act. People already working 30 to 39 hours a week — about 20 million more — would still be excluded from coverage.

Not all those workers would be vulnerable. Most people working 40 hours or more already get health coverage from their employer, but about 9 percent don’t, according to a study by the Commonwealth Fund. The study finds that raising the full-time threshold to 40 hours would more than double the number of workers at risk of a reduction in hours.

What makes the rationale of Boehner and McConnell specious is that the idea that Obamacare has triggered a rise in part-time work is nothing but a cherished myth of anti-Obamacare conservatives. Month after month, the myth is disproved — most recently by the employment report released Friday.

That report showed that workers employed part time for “economic reasons” — at their employers’ choice, not their own — fell again in October, to 7.03 million on a seasonally adjusted basis, down an additional 76,000 from the month before. The figure now is lower than it’s been at any time since October 2008.

Is there an Obamacare effect? The figures simply don’t show it. Anti-Obamacare dead-enders such as Charles Koch and Mortimer Zuckerman made much of the spike in part-timers last June; as we and others explained, that had nothing to do with the Affordable Care Act but reflected the usual flood of students taking summer jobs.

If Boehner and McConnell really want to do the right thing by American voters, the Supreme Court last week gave them an opening by accepting the infamous King/Halbig issue for review. These are the cases that questioned whether Americans who get their coverage through the federal insurance exchange, rather than state exchanges, are entitled to federal premium subsidies. Most experts, including the legislators who drafted the ACA, say they are, but a clutch of conservative opponents have relied on an ambiguous phrase in the law to say those 7 million Americans should be denied premium assistance.

Now that the GOP controls the House and the Senate, the outlines of a deal to make the Supreme Court case moot are easy to find. The GOP dearly wants to eliminate the ACA’s medical device tax and its employer mandate. Neither change would fundamentally harm the ACA’s ability to bring affordable insurance to the uninsured masses, and both are favored by many Democrats. So give them to the Republicans — in return for a legislative fix to the subsidy language. President Obama won’t sign anything that undermines the ACA, but here’s betting that this is a deal he’d make.

But by trying to tweak the full-time definition, Boehner and McConnell are heading back in the direction of obstructionism. They’re using nonexistent statistics to justify a change in policy that will hurt scores of millions of Americans.

Michael Hiltzik is a columnist for the Los Angeles Times. Readers may send him email at

AFP Photo/Alex Wong

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Chevron Swamps A Small Town With Campaign Money And Bogus News

By Michael Hiltzik, Los Angeles Times (MCT)

A few weeks ago, we described how the giant oil company Chevron was barraging little Richmond, California (pop. 107,000), the site of one of its major refineries, with corporate PR disguised as community “news.” Its instrument was an objective-looking website, known as the Richmond Standard, purporting to be a news portal for residents of Richmond.

Now Chevron (2013 revenue: $21.4 billion) is trying to influence the upcoming municipal elections in Richmond, which pit a pro-Chevron bloc of City Council members against an anti-Chevron bloc.

So far this year, Chevron has poured an astounding $2.9 million into three campaign committees in Richmond. Of that, at least $1.4 million has gone to a committee supporting the pro-Chevron candidates and $500,000 to a committee opposing the candidate critical of Chevron, including the current mayor, Gayle McLaughlin. The figures suggest that Chevron is preparing to spend at least $33 for every voting-age resident of the city.

We know this largely because of the superb reporting of Harriet Rowan of the website Richmond Confidential. Rowan, 26, is a first-year student at UC Berkeley’s Graduate School of Journalism, which operates Richmond Confidential to provide practical experience for its students while creating a counterweight to the pap emanating from Chevron’s Richmond Standard.

Richmond Confidential may be one of the most important news-gathering enterprises in the country right now. The site runs on a relative shoestring — a Ford Foundation grant that funded its launch ran out some years ago — but it demonstrates how important it is to balance corporate PR in what is, essentially, a company town.

Richmond Confidential has established a very solid identity, and its credibility is not questioned,” said Robert Rogers, its faculty advisor. “The students are learning while practicing journalism that has a real impact in the community.”

Richmond Confidential performs a crucial service because the city receives only spotty coverage from the mainstream Bay Area dailies: the San Francisco Chronicle, Oakland Tribune and Contra Costa Times. But its ability to compete is necessarily limited; the students are unpaid, and the site shuts down during the summer, when school is out.

It’s true that there’s sometimes a downside to such one-sided corporate political influence. In 2010, Pacific Gas & Electric spent more than $40 million to pass a ballot initiative that it drafted, to undermine municipal public power systems. It went down to defeat. Justin Levitt, an election law expert at Loyola Law School in Los Angeles, says disclosure of corporate spending “may be a signal to voters to vote the other way. Chevron may not be doing its preferred candidates a favor.”

Still, leaving coverage of the election to Chevron’s PR organ could be disastrous for Richmond’s residents. For example, you won’t find a peep about Chevron’s political spending in the Richmond Standard. That’s par for the course: The website’s entire staff, an employee of Chevron’s PR firm named Mike Aldax, told me last month that “if you’re looking for a story that’s critical of Chevron, you’re not going to find it in the Richmond Standard.

Give Aldax a point for candor. But maintaining utter silence about the source of the largest block of campaign spending in the entire city is a bit extreme, even for an openly bogus community news website. There’s no mention of Chevron’s contributions to the election even in the Standard’s section devoted to Chevron corporate announcements, which is titled “Chevron Speaks.” (“That doesn’t surprise me,” Rowan of Richmond Confidential says, “but it does point out what they are and are not interested in covering.”)

What the Richmond Standard does provide, along with its customary fare of police blotter items and announcements from community groups, are nasty stories about Chevron’s critics on the City Council.

One leading target of the Standard is the Panama-born and openly gay Vice Mayor Jovanka Beckles, who long has been the target of vitriolic heckling from the audience at City Council meetings. She’s also a frequent critic of Chevron.

When the heckling boiled over at a council meeting in July, the Standard implied that she instigated the fracas — its headline read “Jovanka Beckles’ drama-filled night in council chambers leads to call to police.”

In fact, as other reports suggested, the heckling started from the audience, and it was Beckles herself who called police — to walk her safely to her car after the meeting. For more complete, and fairer, reports placing the event in the context of four years of frequently obscene harassment of Beckles, you’d have to read reports from the San Francisco Chronicle and Contra Costa Times. You can come to your own conclusion about who’s at fault, but Richmond Standard’s take is essentially indistinguishable from that of a Chevron-funded anti-Beckles campaign website.

Chevron says its campaign activities reflect its support for “city leaders who share our commitment to policies that foster an economic environment where business can thrive and create jobs to make Richmond an even more attractive place to live and work.”

And more inviting for Chevron. The oil company’s contributions surely overwhelm all other candidate spending in the city this year. Chevron’s independent expenditure committee, Moving Forward, fashions itself as “a coalition of labor unions, small businesses, public safety and firefighters associations.” But as Rowan documented, 99.7% of its funding comes from the oil company.

For a corporation to manipulate a municipal election on this scale should be illegal. Chevron may pose as a company enjoying its free speech rights, as secured through the Supreme Court’s 2010 Citizens United decision, but a pincer movement employing pantsfuls of money and misleading, manipulative “news” demonstrates the potential of a big company’s speech to drown out every other voice.

Loyola’s Levitt may be right that disclosure laws sometimes signal voters to steer clear of candidates supported by big money. But when a company controls the bulk of election spending and a major community news source too, as Chevron does in Richmond, voters may not even hear the signal.

Michael Hiltzik is a columnist for the Los Angeles Times. Readers may send him email at

Photo: Michael Moore via Flickr

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Big Business Should Be Saying Thanks To Obama

By Michael Hiltzik, Los Angeles Times

It was widely noticed two weeks ago that the Standard & Poor’s 500 index, the most important stock market indicator, had hit a milestone by crossing 2,000 for the first time.

It was less widely noticed that on that day, you would have notched a 148 percent gain if you had bought stocks on the day of President Barack Obama’s inauguration. In other words, the 2,000-point S&P was another manifestation of the Obama bull market — but nobody seems to call it that.

Big business continues to grouse about the White House, as it has done pretty much nonstop since Jan. 20, 2009. The very day after the S&P record close (the index closed Tuesday at 1,988.44) came yet another attack on Obama’s policies by the U.S. Chamber of Commerce — this one a largely evidence-free assertion that the Affordable Care Act “has incentivized employers to hire part-time workers over full-time ones.” Neither the Bureau of Labor Statistics nor the Congressional Budget Office has found signs of this effect, which is a favorite right-wing shibboleth.

The hostility of business and industry to Obama has become a byword over the years, from plutocrats complaining about being disrespected to bankers complaining that they’re woefully misunderstood. Yet judging by the stock market’s performance, no president has been as good for the capital markets since Bill Clinton (who also was detested by the business community). By some measures Obama also handily outranks that beacon of Republican business-friendliness, Ronald Reagan.

Here are some rough figures to ponder: After their full eight years in office, Clinton had presided over a run-up in the S&P 500 of about 210 percent; Reagan 118 percent. Obama hasn’t served his full term yet, of course, but as of Tuesday’s close the S&P is showing a gain of about 147 percent. If the market remains flat from here or gains, Obama will also have outrun Dwight Eisenhower, who notched a 129 percent gain during his term.

Obama beats Reagan and trails only Clinton among postwar presidents in many partial-term measures too. At Day 2,000 of his term, as was calculated by Russ Britt of MarketWatch in July, the stock market had gained 142 percent; for Reagan it was up about 88 percent and for Clinton 176 percent at the same stage.

The booby prize belongs to George W. Bush, down about 39 percent during his term.

In many ways, of course, this is a misleading exercise. Presidents have much less influence over the economy, not to mention the stock market, than they’re typically given credit for. But since they’re invariably blamed by the opposition party for market slumps that occur on their watch, it’s only proper to ask why this president, in particular, isn’t getting credit for a substantial bull run.

Occasionally a commentator will begrudgingly award Obama props for the economy’s performance, even in conservative publications, but on the whole he seems to get poor marks for economic stewardship.

Consider a curious recent piece by Daniel Gross in the Daily Beast: Gross says most of the credit for the stock market should go to the Federal Reserve and to U.S. corporations’ ability to tap foreign markets — but he also acknowledges that Obama was able to “reverse the free fall of late 2008 and early 2009, stop the panic, and create the conditions for growth.” Those are pretty significant policy achievements for which the Obama administration receives almost no credit. As for the Fed, let’s not forget that Obama did appoint Janet Yellen as chairwoman, in part because of the understanding that she would continue the policies of her predecessor, Ben Bernanke.

One frequently overlooked point is that, although presidents can’t always do much to push the economy or stock market higher, their mistakes can do much more to push both lower. George W. Bush is the gilt-edged example: His tax cuts, debt-fueled spending on military adventures and indifference to regulation all helped drive the U.S. economy off the cliff in 2008. He deserves every scrap of blame that can be mustered for the 40 percent decline in the S&P 500 during his term, and for the years of hangover since.

None of this means that the U.S. economy is doing as well as it should, or that businesses don’t have some reason for unhappiness with the Obama White House. Obama’s housing policies have been ineffective. Job growth has been steady but too slow — thank a recalcitrant Congress for that. Business doesn’t like regulation, which it has been getting plenty of, at long last.

More to the point, the stock market run-up in some ways underscores the structural problems of the U.S. economy, which really demand more attention from policymakers in the White House. Those gains have been concentrated among the upper echelons of the income pyramid, very much at the expense of the working class. (Don’t tell me that “workers are shareholders too” — the effect on their wealth and income from pension fund holdings is minuscule compared with the ground they lost through wage stagnation.)

One of the most persistent phenomenons in American history is that big business never recognizes when it’s getting a break. In 1934, when Franklin Roosevelt watered down the Securities Act that created the Securities and Exchange Commission, progressives were outraged.

Wall Street should remember FDR “with gratitude,” wrote an infuriated progressive in the New Republic. But he knew that wouldn’t happen — the stock exchange, he predicted, “will turn upon Roosevelt with fury.” So it did, even though FDR did more than any other individual to save Wall Street from extinction.

The pattern still holds today.

Michael Hiltzik is a columnist for the Los Angeles Times. Readers may send him email at

Photo: Sebastian Alvarez via Flickr

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Warren Buffett Is ‘Betting Against America’ On Burger King. Or Is He?

By Michael Hiltzik, Los Angeles Times

Back in February, in his annual message to shareholders in his company Berkshire Hathaway, Warren Buffett said this: “Who has ever benefited during the past 237 years by betting against America? … America’s best years lie ahead.”

You can expect these words to be thrown back in Buffett’s face this week (as we’re doing), as word spreads of his investment in a corporate “inversion” deal, in which Burger King will relocate its tax home to Canada.

But it’s worthwhile to take a closer look at Buffett’s involvement, and about his opinion of corporate taxation — indeed, of taxes in general. Here’s a spoiler: He doesn’t think U.S. corporate taxes are too high, and he’s not really in favor of the inversion loophole.

First, some background.

Inversion deals involve U.S. companies buying smaller foreign firms to take advantage of the latters’ lower tax rates and other opportunities for financial manipulation. (We outlined the issues here and here, citing Ed Kleinbard of USC, author of the definitive analysis of inversions.) Buffett’s investment is in an especially high-profile example, the purchase by Burger King of the Canadian restaurant chain Tim Hortons; Berkshire Hathaway reportedly will be putting up about 25 percent of the financing for the merger.

Inversions are controversial because they often appear to be paper transactions undertaken as a tax dodge — and one that leaves U.S. taxpayers stuck with the bill. Typically, managements don’t relocate and the workforce and manufacturing plants aren’t moved abroad.

The deals have acquired a noxious political odor. President Obama has denounced their participants as “corporate deserters,” which isn’t far from the truth.

Pfizer attempted an inversion by acquiring the British drug company AstraZeneca, but the deal fell through, and political headwinds might keep Pfizer from seeking another partner. Walgreens, which contemplated an inversion this month via the purchase of the Switzerland-based retailer Alliance Boots, dropped the idea after it provoked a public uproar.

Obama and Democrats in Congress propose forbidding a U.S. corporation to move its tax domicile abroad unless more than 50 percent of the shareholders of the corporation are foreigners after the merger, up from 20 percent. Kleinbard suggests that by ending a policy that “rewards tax perversity over commercial reality,” such a change, along with a few other alterations in tax law, would stop most inversions in their tracks.

As a familiar street-corner name, Burger King might face the same reaction as Walgreens. So Buffett’s participation in the Burger King deal has some people scratching their heads.

That’s especially so since he’s become a spokesman for the idea of improving the fairness of the tax system. His observation that his personal tax rate was lower than his secretary’s led to the “Buffett Rule” proposal, which would produce a minimum tax rate for the 1 percent. The rule has never been enacted, but it probably helped Buffett get the Presidential Medal of Freedom from President Obama in 2011.

That’s why people are saying that Buffett’s attachment to the Burger King deal is an embarrassment for the White House. (“Looks awkward” is the Wall Street Journal’s uncharacteristically charitable description of the optics.) But is it?

To begin with, Buffett is taking pains to downplay the tax aspects of the Burger King deal. In a statement to the Financial Times, he portrayed it more as a political compromise, designed to quell Canadian sensitivities about the fate of an emblematic Canadian brand. “I just don’t know how the Canadians would feel about Tim Hortons moving to Florida,” he said. “The main thing here is to make the Canadians happy.”

Investment experts don’t necessarily buy that; the deal is likely to provide the merged company with a way to shift reported earnings from the U.S. to lower-tax jurisdictions around the world where it has restaurants, cutting its U.S. taxes.

More to the point, Buffett may feel the need to minimize the tax implications of the merger because they’re at odds with his own pronouncements about corporate taxes. Consider what he said during an extended interview with CNBC on May 5, after Berkshire Hathaway’s annual shareholder meeting.

There he scoffed at claims that American corporations are significantly disadvantaged by their U.S. tax burden. “Pfizer is a very profitable company,” he said. “They’d like to make even more money by not paying taxes. But they have a wonderful business paying U.S. corporate tax rates.”

He observed that as a percentage of gross domestic product, since World War II corporate taxes have “come down from 4 percent to about 2 percent…. That’s while corporate profits have been hitting record levels. So if you look at the budget of the United States, individuals have paid more taxes, corporations have come down from 4 percent of GDP to 2 percent of GDP. No other group has come down as much percentage-wise as corporations. Corporations are doing fine in the United States.”

(If you want to amuse yourself, watch the CNBC anchors try to goad him into taking the fleeing companies’ side. He doesn’t bite.)

Of the inversion loophole, he said: “I would personally change that part of the law. … It’s probably a mistake to have that part of it. … But American business, I will tell you, whether it’s Berkshire Hathaway or Pfizer or Apple, are doing wonderfully under this tax code and are not short of capital in any way, shape or form, or are having any trouble competing.”

Finally, he recognized that the surge in high-profile U.S. companies pursuing inversions would provoke Congress to “address” the loophole. But he warned that “will cause one hell of a fight in corporate America.”

So why would Buffett invest in the Burger King deal? Leaving aside his assertions about international politics, one reason may be his relationship with Burger King’s majority owners, 3G Capital Management, a Brazilian private equity firm.

Berkshire Hathaway joined with 3G in the acquisition of HJ Heinz Co. last year, and Buffett has expressed admiration for its managing partners. He told the Financial Times that 3G offered him a chance to invest in its original acquisition of Burger King in 2010, and he considers it a “mistake” that he turned it down.

So this may be a chance for him to get in on a company he thinks 3G may yet turn around. But it doesn’t look like he’s changed his mind much on inversions in general. He thinks the inversion loophole is a bad idea, and he doesn’t buy the argument that skipping out on American taxes is the only way for a corporation to make money in America.

Michael Hiltzik is a columnist for the Los Angeles Times. Readers may send him email at

Photo: Mike Mozart via Flickr

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Big Business Takes Aim At Corporate Activists

By Michael Hiltzik, Los Angeles Times

“Shareholder democracy” long has been derided as an oxymoron, like “military intelligence” or “jumbo shrimp.” Yes, corporate managements bow endlessly to the mandate that they act exclusively in the shareholders’ interest, but in real life they treat the poor sap with a few hundred shares as hardly more important than the night janitor.

So it’s proper to ask why big business has been aiming its heavy artillery at a small clutch of shareholders who have the temerity to try to obtain for their fellows the right to vote at annual meetings on issues that might affect the value of their stock. Issues such as the structure of their companies’ boards of directors, oversight of their chief executives’ actions, the right to call special meetings — of shareholders — and so on.

The shareholders include John Chevedden, 68, a former employee of Honeywell and Hughes Aircraft who lives modestly in Redondo Beach, California and submits about 20 or 30 shareholder resolutions for annual meetings per year; and James McRitchie, 66, a Sacramento, California-area small investor who sometimes teams up with Chevedden.

In recent years, major corporations have started to file lawsuits, with limited success, to knock their resolutions off the agendas of their annual meetings. Recently the campaign seems to have stepped up. The conservative Manhattan Institute this year issued a lengthy report placing Chevedden, McRitchie and New York-based investor William Steiner among the leading “corporate gadflies” engaged in shareholder activism — calculating that the three are responsible for 70 percent of all shareholder proposals this year, and questioning their motives and success.

(The Manhattan Institute’s board of trustees comprises a pretty fair cross section of hedge fund and corporate aristocracy, starting with its chairman, the hedge fund executive Paul Singer.)

The institute’s report became the basis of an essay critical of the three last week in the New York Times by Steven Davidoff Solomon, a former corporate attorney now teaching law at UC Berkeley. His theme: “Corporate America is being held hostage by three people you have probably never heard of.”

This triumvirate is accused, implausibly, of holding multibillion-dollar corporations “hostage,” causing big companies to be “irreparably harmed” (as EMC Corp. complained in a lawsuit against Chevedden and McRitchie this year), and acting out of “personal pique” (the Manhattan Institute). So it’s only proper to place in perspective what they actually are doing and what they’ve achieved.

“This is how companies are held accountable,” Chevedden told me.

Shareholder activism began with Lewis and John Gilbert, wealthy siblings who started agitating for a voice for the individual investor in the 1930s and kept at it for more than six decades. (Lewis died in 1993 at age 86, John in 2002 at 88.) Their 1946 battle forced Transamerica Corp. to move its annual meeting from Delaware to California (where most of its business was located) and allowed shareholders to elect the company’s independent auditors. The fight led to the Securities and Exchange Commission’s codifying the rules for placing shareholder resolutions on the corporate proxy statement, which in effect is the agenda for the annual meeting.

Like Chevedden, McRitchie and Steiner, the Gilberts were responsible in their day for a sizable proportion of all shareholder proposals — 65 percent of those filed in 1955. Like their present-day heirs, the brothers focused on issues of corporate governance, such as the election of auditors, executive compensation and the elimination of staggered terms for board members, which helped entrench managements.

Of course, it’s not unusual in any democracy for the vanguard to consist of a small group acting in the larger interest. And the SEC itself forbids shareholder proposals to deal with ordinary business decisions.

“They can’t say, ‘You’re making too many blue widgets and you should make more red ones,'” observes Nell Minow, an expert on corporate governance and a veteran investor-rights advocate.

As a result, shareholder proposals primarily deal with corporate governance issues such as who oversees the chief executive and how, executive compensation, and the rights of shareholders to be heard. Almost all such shareholder proposals are advisory only, meaning that managements don’t have to comply even with a strong majority vote.

Shareholders can place their proposals on the corporate proxy if they’ve owned at least $2,000 in stock or 1 percent of a company’s shares for at least a year, and the proposals’ topics fall within the SEC guidelines.

It has never been easy to gain a majority vote in favor of a shareholder proposal — managements typically oppose them, and institutional investors, who make up the largest body of shareholders of the typical large public company, have customarily voted with management. But concerted efforts by Chevedden and other activists have changed corporate practice in numerous ways. Steiner, for example, waged a long campaign against retirement plans for corporate directors, who are supposed to be part-time advisors and not employees. “Bill Steiner’s single-handedly responsible for getting rid of those,” Minow says.

The Manhattan Institute sniffs that support for proposals from Chevedden, McRitchie and Steiner has waned in recent years — from winning majority support for an average of about 15 percent to 30 percent of their proposals over the years to only 1 percent to 3 percent this year.

Its study also acknowledges that one reason for the waning support is that many larger companies have adopted “some of the ideas that gadflies and shareholder-proposal activists have espoused, including declassifying boards of directors, eliminating super-majority voting provisions in corporate bylaws and requiring that directors be elected by a majority of voting shareholders.”

Sounds like a victory for the gadflies.

That hasn’t stopped many corporations from waging a war of intimidation on them. Business interests have tried to smear the gadflies as people out to make a profit — though the SEC rules state that proposals must aim at changes that will benefit all investors equally. They’ve suggested that Chevedden is acting out of revenge for losing his job at Hughes in the 1990s, noting that he introduced his first proposal at General Motors, which owned Hughes. But that was two decades ago, in 1994.

Shareholder proposals filed by Chevedden have been the subject of at least seven federal lawsuits by their target corporations in the last four years. Typically, the companies are seeking the court’s permission to delete the proposals from the proxy, on grounds that Chevedden doesn’t own enough shares or that the proposals don’t meet SEC standards.

Several cases produced technical victories for the companies, but the tide may have turned. Earlier this year, federal courts in Massachusetts and New York rejected requests by EMC and the advertising company Omnicom, respectively, to rule Chevedden’s proposals out of order prior to their annual meetings.

Corporations argue that the shareholders are forcing them to spend millions to fight their proposals in court; UC Berkeley’s Solomon cites an estimate of $90 million a year. But that claim deserves a horselaugh. No one is forcing companies to hire white-shoe law firms to run to the SEC or the courts for permission to strike a shareholder proposal — they spend that money on their own initiative.

“The very people who are rhapsodizing about the purity of the free market are the first ones to squeal about a free-market response,” scoffs Minow. If managements don’t want to confront shareholder proposals, she says, “they should go private.”

Solomon acknowledges that the “gadflies” have inspired positive policy changes at some companies. But he argues that their filing proposals repeatedly despite not garnering majority approval interferes with corporate operations. “Companies are not designed to be democracies,” he says. “They’re designed to provide profits and economic value.”

Yet it sometimes takes years for a shareholder proposal to move into the mainstream and acquire majority support. In any case, SEC rules say that corporations are free to block those that fail to attain a threshold level of approval — 10 percent of the vote if it has been submitted three times over a period of five years, for example.

It’s more likely that managements fight shareholder proposals because executives, notwithstanding their pledge to be working exclusively in the shareholders’ interests, don’t want to be bugged by shareholders in the flesh. As activist McRitchie told me, “I don’t hear a big cry from investors to stop our work.”

Michael Hiltzik is a columnist for the Los Angeles Times. Readers may send him email at

Photo: Sebastian Alvarez via Flickr

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Obama’s Executive Order Rights A Wrong

By Michael Hiltzik, Los Angeles Times

Little noticed in coverage of President Barack Obama’s signing of the Fair Play and Safe Workplaces executive order July 31 was a provision that has been called “one of the most important positive steps for civil rights in the last 20 years.”

The statement comes from Paul Bland of the public interest group Public Justice, quoted by Emily Bazelon of Slate. He’s right; what he’s referring to is a provision of the order that bars employers from forcing workers to bring workplace discrimination, sexual assault or sexual harassment cases only through arbitration. As Bazelon reports, the order applies to firms with federal contracts valued at more than $1 million. But that’s plenty.

The arbitration provision got little public attention after the signing, in part because business lobbyists were so busy carrying on about other aspects of the executive order.

As my colleague Christi Parsons reported, businesses are exercised about a rule requiring prospective federal contractors to disclose labor law violations dating back three years and government agencies to take those violations into account when handing out federal contracts. The idea is to goad employers into settling the violations before they apply for contracts.

Business mouthpieces complain that the provision will create a “blacklist” barring companies with even minor violations from hopping on the government gravy train. Repeat after me: “Tough.”

The arbitration provision, however, addresses what may be an even more important abuse. As a private venue for dispute resolution, arbitration may be an effective way to keep commercial disagreement from clogging court dockets. That’s true chiefly when all the parties come to arbitration with roughly equivalent resources.

When it’s used by employers against employees, or by corporations against aggrieved customers, and when it’s forced down complainants’ throats against their wishes, however, it’s a scourge.

Arbitration provisions have proliferated everywhere, and it’s a safe bet that many, if not most, people forced into arbitration didn’t even know they were subject to the requirement until after their dispute arose — arbitration clauses are buried in the boilerplate you sign when you enroll with a cable company, go to a doctor or hospital, or take a new job. Arbitration typically favors the bigger party — they know their way around the process better, and they can take better advantage of what are often very loose standards of evidence and testimony in arbitration.

The Obama order strikes at the heart of this injustice by allowing complaints about workplace discrimination or abuse to be arbitrated only with the consent of the parties after the disputes arise. Surprise arbitration clauses, in other words, are out.

It’s hard not to see the order as a reproach to the Supreme Court and other courts. Judges are big fans of arbitration, in part because it keeps tedious commercial disputes out of their hair. The key case upholding arbitration clauses involved AT&T and a customer dispute over the real cost of “free” cellphones sold by the mobile carrier.

A California federal judge and the 9th Circuit Court of Appeals rejected AT&T’s demand to compel arbitration. But the Supreme Court sided with the company in a 5-4 ruling (naturally).

This was a reflection of what legal scholar David Cole recently called the court’s “unremittingly conservative” narrowing of access to the judiciary to remedy legal wrongs. The Earl Warren Court, he observed in the New York Review of Books, “viewed the courts’ highest calling in a constitutional democracy as safeguarding those who cannot protect themselves through the political process.”

The Roberts Court has put its thumb on the other side of the scale.

The Obama order shifts the balance just a little bit back the other way.

Michael Hiltzik is a columnist for the Los Angeles Times. Readers may send him email at

AFP Photo/Jim Watson

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Is U.S. Academic Freedom A Casualty Of The Israeli-Palestinian Debate?

Steven Salaita is a respected scholar in American Indian studies and Israeli-Arab relations, which got him hired recently to a tenured position at the University of Illinois.

On Twitter, he’s been voicing his objections to Israel’s conduct in Gaza in the most forceful terms. That has just gotten him fired by the University of Illinois. The result is a firestorm over whether Salaita was fired for his political views, or for his comments in the nonacademic, extramural forum of Twitter, or both.

Either way, the episode looks like a clear-cut infringement of academic freedom. The fact that the underlying political issue is the white-hot issue of Israeli-Palestinians makes it all the more troubling.

At the heart of the case are tweets that Salaita has issued over the last few weeks, during the Gaza battle. There’s no question that some are extreme, intemperate and vulgar.

Among the more notable remarks are these: “At this point, if Netanyahu appeared on TV with a necklace made from the teeth of Palestinian children, would anybody be surprised?” And: “Zionists, take responsibility: if your dream of an ethnocratic Israel is worth the murder of children, just (expletive) own it already.”

One of Salaita’s frequent targets is the tendency of Israel’s supporters — “Zionists,” as he puts it — to conflate Israel with Jewishness, which he says makes them “partly responsible when people say antisemitic (expletive) in response to Israeli terror.” (That’s from another tweet.)

Yet this viewpoint could not have been a surprise to the people who hired the controversial Salaita at Illinois — they were a theme of his 2011 book Israel’s Dead Soul. There he writes of his “difficulty understanding what awareness of Jewish culture has to do with puffery of a nation-state and recapitulation of its propaganda.”

The university’s defense appears to turn on a technicality — that Salaita’s appointment had not yet been presented to the board of trustees, and therefore was not final. The university has decided not to present the appointment to the trustees after all; in other words, it’s not that Salaita was fired, he merely was not hired. And since a university can’t be forced to hire anyone in particular, who can object to that?

“This is not an issue of academic freedom,” Cary Nelson, an emeritus professor of English at Illinois and a former national president of the American Association of University Professors, has written. “If Salaita were a faculty member here and he were being sanctioned for his public statements, it would be.”

As a rationalization, this has received low marks from academic observers. Salaita was offered the job last year, accepted it, received confirmation in writing, and had been slotted in to the university’s class schedule for the coming term, which begins in a few weeks.

To quote John K. Wilson, a member of the state council of the Illinois chapter of the AAUP: “I’ve been turned down for jobs before, and it never included receiving a job offer, accepting that offer, moving halfway across the country, and being scheduled to teach classes.”

It should go without saying that Israeli-Palestinian relations evoke strong views, and the horrific events in Gaza have turned up the heat. The inevitable inconsistencies produced by Israel’s stature as the Jewish homeland and its role as a state trying to protect its ethnic character and its very existence have long been the topics of debate among Jews, supporters of Israel, and policymakers worldwide. By its nature the debate elicits strong views strongly, often intemperately, expressed.

Salaita’s resort to Twitter to air his views adds a distracting element to the question of whether he has lost his job because of those views. Universities have been grappling with how to treat extramural statements for years, and the proliferation of social media makes the issue more urgent.

But it doesn’t really alter the principle set down by the AAUP in 1958, which is that “a faculty member’s expression of opinion as a citizen cannot constitute grounds for dismissal unless it clearly demonstrates the faculty member’s unfitness to serve.” Whether Salaita’s position is unpopular, even offensive, doesn’t enter into the discussion — unpopular views are exactly what demand protection.

Did Salaita’s words amount to violations of professional ethics suggesting he’s unfit to serve? Members of an Illinois AAUP committee on academic freedom don’t think so: “There is nothing in the Salaita statements about Israel or Zionism that would raise questions about his fitness to teach. …. Passion about a topic even if emotionally expressed through social network does not allow one to draw inferences about teaching that could possibly rise to the voiding or reversal of a job appointment.”

The key, of course, is Salaita’s right to due process. If Illinois really thinks his Twitter feed makes him unfit to teach on its campus, then it should make that case in accordance with his right to due process. Its claim that he wasn’t really a faculty member just yet is merely a dodge.

Salaita’s appointment was withdrawn just on Friday, which means this case has a long way to go.

Photo:  The JR James Archive via Flickr

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Social Security’s No-Bad-News Day

By Michael Hiltzik, Los Angeles Times

The annual trustees reports for Social Security and Medicare customarily give rise to an outburst of disinformation from the enemies of social insurance programs — that comes with the territory when you’re putting out hundreds of pages densely packed with graphs, charts and statistics.

There may be less of that with the release of both reports Monday (months after the statutory deadline). That’s because “the news is essentially that there is no news,” as Kathy Ruffing of the Center on Budget and Policy Priorities, a leading expert on Social Security, said during a conference call Monday on the Social Security report.

The trustees still estimate that the Social Security trust fund will be exhausted in 2033 — same as its estimate last year. The range of estimates places the date sometime between 2029 and 2041. Even then, the trustees say, there will still be enough money coming in each year to pay 77 percent of currently scheduled benefits. The trustees do, however, suggest that their best-case scenario for economic growth and other demographic and economic factors is brighter this year than in 2013.

Social Security recorded a surplus last year of $32 billion last year and is expected to record continued surpluses at least through 2019.

Any way you look at it, this program is not bankrupt, and not going bankrupt. Anyone who claims it is has given up his or her right to be taken seriously as a policy expert.

As for Medicare, there’s distinctly good news. The continuing drop in health care expenses has made Medicare healthier — the estimated date of its trust fund’s depletion has been moved out by four years, to 2030. That date has been moved off by 13 years since enactment of the Affordable Care Act.

In the words of the Center on Budget and Policy Priorities’ Paul Van de Water, a former official of the Social Security Administration and the Congressional Budget Office, “Medicare spending per beneficiary in recent years has grown at historically low rates — 0.3 percent in 2012 and 0 in 2013.”

The Medicare trustees specifically, though carefully, ascribe a large portion of this reduction to Obamacare — to “substantial, but very uncertain, cost savings deriving from provisions of the Affordable Care Act.” These include reductions in the growth rate of reimbursements to doctors and hospitals.

Interestingly, the trustees suggest that the revised payment schedule will change patterns of healthcare delivery, as they should. Or else — if physician and hospital methods of delivering care to patients don’t change, the trustees say, the changes in reimbursement probably won’t be “viable indefinitely.”

The most important cautions in the reports concern Social Security disability, which is very much in trouble and crying out for urgent action by Congress. The disability trust fund, which is separate from the old-age program’s trust fund, looks poised to run out in 2016. At that point the program will be able to pay out only 81 percent of disability benefits. That might reduce the average monthly disability benefit of $1,146 today to about $928.

The trustees suggest that Congress shore up disability the same way that it did at the last such crisis, in 1995: simply allocate more of the Social Security payroll tax from the old-age program to disability.

The payroll tax is currently 12.4 percent of wages (up to a maximum of $117,000. If the disability allocation rose from 0.9 percentage point to 1.4 points over the next couple of years and then drifted back down, the disability fund would remain solvent through 2033; the old age fund’s exhaustion date would shift only slightly, from 2034 to 2033. That would give Congress a couple of decades to work out a longer-term fix.

But that requires Congress to get off its duff and treat the matter seriously. Are the lawmakers up to the challenge? Congressional conservatives, and a few lazy news organizations (I’m talking about you, 60 Minutes) have spent the last few months demonizing the typical disability recipient as a layabout and malingerer, which is contrary to the truth.

What’s scary is that their goal might be to rationalize cutting benefits in this all-important program, which represents a commitment made by the country to its most unfortunate workers. Social Security’s actuaries long ago established the disability case load is rising largely because of the aging of America, changes in the demographics of its workforce, and the deterioration of the economy.

Disability standards are stringent, the program is hard to get on, it’s not a ticket to wealth or a comfortable lifestyle, and it needs to be protected, not hollowed out. Monday’s trustee’s report underscores that reality, if Congress would only pay attention.

After it gets back from its five-week vacation, that is.

Image: Donkey Hotey via Flickr

Yes, (Some) Corporations Can Pray — And You’ll All Pay

By Michael Hiltzik, Los Angeles Times

In its decision Monday in the Hobby Lobby case, the conservative Supreme Court majority that upheld corporations’ religious objections to birth control spends an inordinate amount of time defending itself from the reasoning and wrath of Justice Ruth Bader Ginsburg’s dissent.

Justice Samuel Alito, whose name is on the decision, alludes no fewer than 24 times to the “principal dissent,” which Ginsburg wrote for the four-member minority. Plainly, he felt Ginsburg’s powerful intellect breathing down his neck as he tried to find a path to upholding the Hobby Lobby parties’ attack on women’s rights without expanding corporate “personhood” too much.

He failed. Ginsburg concisely labels Alito’s ruling one of “startling breadth,” pointing out all the doors it opens to religious claims by business owners trumping the rights of their employees. She also observes that the majority’s answer to allowing business owners to opt out of covering their employees’ legitimate health needs is that “the general public can pick up the tab.”

In other words, the decision gives business owners the right to weasel out of their legal obligations by sticking you and me with the bill.

The Hobby Lobby case, as we reported earlier, has been percolating for months as yet another corporate challenge to the Affordable Care Act. It was brought originally on behalf of the pious owners of that privately held crafts chain, along with other private businesses. They asserted that their religious convictions were trampled by the Affordable Care Act’s mandate that medium and large employers cover contraceptives for their female employees without cost sharing—that is, without co-pays and deductibles.

The businesses pointed to a 1993 federal law, the Religious Freedom Restoration Act, which prohibits the government from imposing a “substantial burden” on a person’s exercise of religion, even in a generally enforced law. The court majority ruled that the law effectively pre-empts the contraceptive mandate in the ACA.

Eric Posner of the University of Chicago law school contends that, to the extent the majority relied on the RFRA, “Alito’s legal argument is stronger than Ginsburg’s.” But the law itself, he says, “is pretty dumb.

Alito maintains that his decision is narrow, applying only to contraceptives, and only to “closely-held” companies — that is, not to publicly traded corporations.

Ginsburg doesn’t buy it. She asks how the ruling can be differentiated from those in which business owners pose religious objections to granting insurance coverage for “blood transfusions (Jehovah’s Witnesses); antidepressants (Scientologists); medications derived from pigs, including anesthesia … and pills coated with gelatin (certain Muslims, Jews and Hindus); and vaccinations (Christian Scientists, among others).” She concludes, “the court … has ventured into a minefield.”

Indeed, Alito himself acknowledges that “other coverage requirements, such as immunizations … may involve different arguments about the least restrictive means of providing them” — that is, exempting the employer, and letting government step in.

To a great extent, the decision turns on whether a business is a “person.” This is the same minefield the court seeded in its infamous Citizens United case in 2010, when it held that campaign finance laws limiting corporate contributions violated corporations’ free-speech rights. The detonation of those mines has laid waste to the electoral process, turning it into a playground for corporate interests. (More of a playground, anyway.)

Here the court’s majority rules that a privately held company is, in effect, a “person” that can express religious convictions. Alito sugarcoats that finding, acknowledging that corporate personhood is a “fiction,” but one designed to “provide protection for human beings.”

Ginsburg also picks that assertion clean. “The exercise of religion is characteristic of natural persons, not artificial legal entities,” she writes, quoting retired Justice John Paul Stevens as having observed in the Citizens United case that corporations “have no consciences, no beliefs, no feelings, no thoughts, no desires.”

Today’s decision invests them with all the consciences, beliefs, thoughts, and desires of characters from Tolstoy. And that’s a lot.

Alito and Justice Anthony Kennedy, in a separate concurrence, argue that the federal government has already offered an accommodation to nonprofit organizations that object to the contraception mandate — they can cede the responsibility for the coverage to their insurers, who cover their own expenses via a rebate on a federal tax. They ask: Why not extend that break to closely held companies?

(That’s how the general public would end up subsidizing the religious discrimination practiced by Hobby Lobby’s owners.)

What Kennedy and Alito seem to miss is that those nonprofit groups didn’t gain the exemption because they were nonprofit, but because their exclusive purpose was religious, not commercial. “The court forgets that religious organizations exist to serve a community of believers,” Ginsburg writes. “For-profit corporations do not fit that bill.”

It will be said that Monday’s decision walked a fine line, giving the Hobby Lobby owners what they sought without opening the floodgates to religious objections to a wide range of laws and regulations.

The court has signaled that it’s open as never before to claims by private businesses for exemptions from laws that apply to the rest of us, based on religious beliefs that can’t be objectively verified. And if they win, we’ll pay. Ginsburg’s question is apt: What’s next?

Michael Hiltzik is a columnist for the Los Angeles Times. Readers may send him email at

Photo: Matt H. Wade via Wikimedia Commons

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