Obamacare — the question we really should be asking

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I remember how difficult it was to pass Medicare back in the sixties (see also). Now many consider this a basic government service meeting the needs of hundreds of thousands of citizens. The fact that Obama got any kind of healthcare billed passed when Lyndon Johnson couldn’t, Jack Kennedy couldn’t and Bill Clinton couldn’t is really something. Hillary Clinton put together a task force of the smartest people in the world and they got nowhere but Obama got something done. That, in itself, is an accomplishment.

There’s a troubling aspect to the Affordable Care Act that no one seems to be talking about (aside from the fact that some people think the ACA and Obamacare are two different things…). We have a habit in this country of assuming the profit-making entities can deliver a service better than the government and it’s become something of a religion in the last few decades. The idea, I suppose, is that you’re going to get a more efficient process if it’s done through the private sector. Maybe some think that it’s even going to save money. But, you have to consider the profit-making factor and the desire for profit never goes down. It never even really levels off. Both the consumer and the government are held hostage to corporations that want to make more and more money for providing basic, necessary services. In fact, privatization and government contracts take market forces out of the equation when a mandated government service is provided by corporations.

Just look at the deals states are cutting with for-profit prisons – guaranteed occupancy levels. That means they’re promising to pay for services even if crime levels go down and we have fewer prisoners. Not much incentive to cut crime there. So, the question we really should be asking is: just how will this play out in Obamacare?

Instead, the discussion – if you want to call it a discussion – is about how the badly the ACA launch has done. That’s news and boy do the anti-government types love it. To them, it’s proof-positive that government can’t work. But let’s be fair: these things almost never work right out of the box. Could they have done a bit more testing of the software – yes, and it’s hard to believe that with all of the computer expertise in this country they couldn’t have gotten some advice on this. Still, do the initial glitches mean that the ACA is a complete bust? No. So let’s hope we can get beyond these surface issues and address the real potential problems of corporations providing government-mandated services.


Who picks up the tab when a corporation is fined?

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I can’t think of anybody who was satisfied with the way in which the consequences of the financial crisis of 2008 have been handled. There have been some indictments but always against very minor figures, and no prosecutions have been directed toward the major players in any of the large institutions.
Who takes responsibility?
This is in contrast to prior disasters in American history when we saw the Pujo Commission and later the Pecora Commission. Government then was determined to investigate what brought about the problems, find out who was at fault and then brought prosecution against those people. Nothing like this happened this time. Oh, there was the Financial Crisis Inquiry Commission but by the time they completed their investigation Congress had already taken what little action they were going to – which is to say nothing came of it. Senator Levin has probably made the best effort to address the root of the problems but Washington seems to have little interest in doing anything about them.
In the end, no one wants to bring a criminal case against a corporation. The memory of the Arthur Anderson case is still strong in people’s minds when thinking about this. The unintended consequences of criminal charges in that case led to one of the country’s largest and most prestigious accounting firms to go out of business. Except in the most extreme cases, it doesn’t do anyone any good to drive a company out of business, and so there has been an aversion to charging corporations with crimes.
Business as usual…
Take, for example, British Petroleum which is involved in an enormous amount of private liability on account of the spills in the Gulf, and in the case of BP, if they were found guilty of a crime they wouldn’t be eligible any longer to bid for drilling on U.S. government property. Well as a matter of national policy, do we really want to eliminate one of the major players to drill on government property? On the other hand, BP is a habitual offender and never seems to address the persistent problems that led to loss of life and environment disaster. But we haven’t figured out a way to deal with these issues as a country either. What’s the best way to address corporate crime and negligence without undermining our economy?
Without addressing that question, we’ve allowed the situation to carry on in a sort of limbo so that corporations pay fines but don’t have to admit wrongdoing or change the way they do business. In fact, many corporations have enough cash reserves on hand that they factor in potential fines. Not only does the system have no teeth, it’s tantamount to a licensing scheme. 
Why doesn't the captain go down with the ship?
Little attention is paid to the people making the decisions at the head of the corporations. They alone are responsible for the (sometimes repeated) offenses, and yet the financial burden is borne by the shareholders. Bonuses and salaries are paid to top management regardless of company performance. Even when a CEO is fired, more often than not he or she has craftily arranged a golden parachute and walks away with a fortune. 
When the government imposes a fine, the intention is to reduce the book value of the stock which is to the detriment of the shareholders — and nobody else. They end up in the disagreeable position of having their cash reserves depleted and having been misled by executives. We see a vast discrepancy between salaries for corporate managers and their personal risk. We’re told that they warrant outrageous compensation because of the risks they take. What risks? No responsibility for corporate misdeeds or failure is carried by executives. Their contracts remove all personal and financial risk.  No, all financial burdens fall to the shareholders.
What if…
So, here’s a question: Why shouldn’t fines be paid out of executive bonuses & board of director’s fee? Once that amount is met then any amount over and above could be paid out of shareholders’ equity. Obviously there would be consequences — I’m sure compensation consultants, lawyers and mangers would find a way to wrap that bonus money into regular salaries. For the time being, though, it would be an interesting and useful way of addressing a problem. I mean, if an executive knows he or she will be held personally, financially liable then wouldn’t they less likely to break the law? If a director knows there are ramifications wouldn’t they be more likely to take their oversight duties seriously?
Shareholders have no say in the day to day decisions of a company – and I don’t think they should. But why are they the ones who foot the bill for corporate malfeasance? Some of the so-called negligence or mistakes are barely disguised “business as usual” tactics exercised by executives.  We see this all across the corporate spectrum but it’s been especially notable in the pharmaceutical industry. For example, Abbot Industries paid a fine of over $1 billion last year for “for illegal marketing practices, including promoting prescription drugs for uses not approved by the FDA, paying financial inducements to increase sales and engaging in practices that pose grave danger to patients’ health and lives.”
Collecting fines out of executive bonuses could have two very desirable effects:  it would send a message to the management that this is not acceptable corporate behavior and they, as the decision makers, are responsible for fines; and that shareholders will not bear the financial burden of executive negligence or misdeeds. This could create an attention to obedience with law that is obviously lacking now.  
Corporate crime as a breach of fiduciary duty.
And, it would resolve a clear default of fiduciary duty. When executives repeatedly sanction corporate negligence or crime they leave shareholders to pick up the tab for the fines. How does that square with an obligation to provide shareholders with the best possible returns? All the recent talk about corporate need to pay no taxes or as few taxes as possible because they are obligated by fiduciary duty to shareholders is bunk. Corporations would be much closer to fulfilling fiduciary duty if they didn’t break laws and incur fines. If they’re looking to meet fiduciary obligations, they should follow this simple solution: don’t break the law and avoid paying fines with cash reserves. 

Government Shutdown as Protest

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Does the government shutdown, as a form of protest, resemble Occupy Wall Street? The current state of government dominated by business has caused protest on both ends of the political spectrum in the U.S. – and cries out for public recognition that something is very, very wrong.
In chapter two of Citizens DisUnited, I write about the extent to which the corporate community has taken over the US government. In many ways, I see this as a driving factor for the faction that has brought about the government shutdown. This group in Congress represents people who have perceived the same things that I point out in my book, and they’re fed up with it. Citizen dissatisfaction with the Washington circus is at an all-time high and one sector of the population is in favor of – if not the shutdown, specifically – some action that addresses government spending that favors corporate interests. 
 The illicit union of commerce and government is unacceptable and this group, like the Occupy Wall Street movement, is protesting in the only way they can. The Congressmen realize that in standing up like this they are incurring every imaginable kind of enmity and blame, and from their point it is worthwhile – because they and their constituents see the Citizens DisUnited America as unacceptable. 
Look, the shutdown is creating a mess and we will all feel the repercussions the longer it continues. I may not agree with many things this group supports, but I think we have come to the same conclusion about corporate influence in Washington. The shutdown may be further undermining citizen confidence that any good comes out of DC – BUT, I think the citizens behind it are trying to stop government driven by the Chamber of Commerce from pushing us over the cliff.
And, of course, this is what business-dominated government does: It uses national credit to create business and profit for big corporations. The citizens who support the Republican faction feel that unchecked government spending and incurring of debt must be stopped. However, where this group goes wrong is when they try to shape the issues within right-wing party ideology. The issue of our national debt is not new – and the hysteria surrounding it is misplaced because George W. Bush slapped a couple of trillion dollars onto our liabilities and severely hampered our financial security. It didn’t begin with the Obama Administration and it didn’t begin with the Affordable Care Act. But, the insurance companies bought and paid for the Affordable Care Act – whether or not it helps people is a side issue. It was passed because the insurance executives supported it and because it’s a bonanza for the insurance industry. We didn’t get what the people wanted – we got what Wall Street wanted. In the end, both parties have been captured by corporate interests.
So, to my mind the citizens supporting the rogue Congressmen are similar to Occupy. They are both, in a sense doing something outside the norm, outside the system, something unexpected. They are trying to call people’s attention to the problem — they won’t succeed but they could use this opportunity to call peoples’ attention to the problem. Unfortunately, they are rather ham-fisted and inarticulate about it. And, the preoccupation with blaming Obama will not help them. Their entire program seems to be to withhold funding for Obama Care. Instead of looking at the larger problem of corporate influence driving government spending, they are stuck on a loop of party politics that is making them look foolish and will ultimately fail. It raises the wrong issues. 

The Wall Between Mission and Endowment

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What I want to talk about today is the whole question of the students petitioning universities to divest themselves of various stocks having to do with global warming, and specifically in the field of hydrocarbons. This movement has gained momentum and in many ways is heartening to see. Ultimately, I think it will fail — and I think it will win.
Divestment will fail but the students will succeed
I don’t think divestment will happen on a large scale and – as I’m sure many of you know – I’m not a big supporter of divestment because the stock is then bought by people who don’t care and won’t act as responsible owners. I do think this movement will succeed in the long term. It is clear that this generation of students is serious about a future without dependence on hydrocarbons. They are studying the science and the policy to make that happen and they are raising the consciousness of younger and older Americans. It won’t happen overnight but, after meeting some of the students working on these issues, I believe change will come.
Why do I think divestment will fail? There are several underlying issues that will impact the campaigns at most universities. The first is that university administrators act as if there is a wall of separation between the endowment and the mission-driven part of the institution. You have on the one hand mission and on the other hand you have money. It is a compete conceit that these two issues can or should be separated. This is not church and state, though institutions act as if it were. Mission is supported by money, no doubt about it. But – and this is where things break down – the pursuit of support money is rarely impacted by the mission. Why is it that the people who educate the next generation of leaders don’t follow their own institution’s ethical ideals when raising funds? Isn’t this an ethical breakdown — hypocrisy? How can ethics, governance or social justice be taught at an institution that ignores these issues when investing money? How can an institution expect to solve big world problems if it’s invested in companies that contribute to those problems? 
There is no justification for the position that mission is separate from endowments. These institutions are simply doing something that’s wrong. Can we simply espouse a point of view but then act counter to that view simply to make money. There’s no question but that there is a unitary nature between the mission and the endowment, and so the wall concept is just plainly wrong. 
The second issue that will undermine divestment is that undergraduates are at the college only four years, and after a student is up to speed on the issues they perhaps have two or three years of active involvement before they graduate. So, the university simply has to wait the students out. University administrations move at a glacial pace and can usually get by with occasionally responding to or meeting with students agitators before that group moves on and a new crop of students take over. So the university plays a waiting game while the main active stakeholders are racing the clock. 
And the wall between mission and endowment remains.
The wall between students and the university
So you have the university saying mission and endowment are separate and you have students are saying divest, divest, divest. In the end, they’re may not be speaking the same language but they’re talking about the same thing. Both are saying “I don’t want to address the underlying problem.”
-To the students I say, divestment may seem like an answer because then you’re no longer involved in a problem. But that doesn’t mean the problem doesn’t exist; it just isn’t solved by divestment.  Use your voices to stress ownership responsibility and put the burden for endowment securities on the administration. The values and philosophy they are teaching you should inform their investing policy. And, I hope you continue the fight to move beyond hydrocarbons. You’re 100% right to work for a better future and we need you to keep doing it. But a better future doesn’t come from walking away from problems. It comes from solving them.
-To the university I say, separating mission and endowment is unethical. You are either an organization that works for good or you are not. Ethics and governance cannot stop at the classroom door. The underlying values of an institution have to inform its investing and ownership policy. Face up to your responsibility, take advantage of the expertise in the academic side of your institution, develop learning on the subject of institutional responsibility for endowment assets, invite public criticism, invite student involvement. Be leaders in this – your example could change the world.

For the Public Good? Nonprofits & Political Donations

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What is a charity? In general, we think of it as an organization that does something to further the public good, doesn’t make a profit and is tax-exempt. We feel good about giving to them because they help people or do something good for society. But charities and nonprofits are a murky world these days. Big charities handle millions of dollars and the highest paid director of a charity makes over $2 million dollars. That’s a far cry from the local food bank, little league team or crisis hotline, and not what most of us picture when we think of a charity. And while they may accept donations and be tax-exempt, not all non-profits are charities. Under the IRS code, there 28 designations for tax-exempt status including charitable, educational and recreational so there is a wide-range of groups that fall under nonprofit or tax-exempt status. 
Money = speech
What makes non-profit groups so much more difficult to judge these days is that they may play a role in politics. How can a charity, a hospital or even a church be political? We know, for example, that hospitals and nursing homes (both individual hospitals and trade groups) have spent nearly $23 million on lobbying so far this year. The Supreme Court, in the Citizens United decision, placed an absolute premium on freedom of political expression –monetized it. However they’re categorized, these groups recognize their need for a voice in Washington — and voices cost money.
Promoting the common good?
The recent brouhaha about the IRS unfairly scrutinizing conservative groups applying for tax-exempt status illustrates just how sticky – and political – nonprofit and charitable status has become. That status is important because it allows organizations to take donations and it also allows them to craft an image that they are working for the public good. In particular, social welfare groups as designated by the IRS in the 501(c)3 rules and , are confusing because they may not look or act like charities and they can appear very political in nature. This designation provides “for the exemption from federal income taxation of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” The IRS admits that there is no definition of a social welfare group but offers the lofty idea that these groups embody, "the ideas of citizens of a community cooperating to promote the common good and general welfare of the community."  
Isn’t this a problem? That nebulous and idealistic description is supposed to offer guidance on who gets tax exempt status? Even corporate p.r. departments could spin that – I mean, aren’t grocery company employees a community of people contributing to the public good? Vague, complicated definitions make tax status determinations difficult and in the end you wonder if applications are ever refused. The problem isn’t what tax exempt organizations can do or not do, but the broad classification of these “social welfare” groups makes it easy for organizations to play politics with charity status. And they do. 
Who is funding nonprofit political spending?
Then there are the (501(c)6) organizations which includes business leagues and chambers of commerce. The U.S. Chamber of Commerce is a tax-exempt organization and according to their website, they advance the interests of business “ through its nationally-recognized team of lobbyists and policy experts. Together, they help craft pro-business legislation and block excessive taxes and regulations.” Their Wikipedia page calls them a “lobbying group representing the interests of many businesses and trade associations.” The Chamber has spent a billion dollars on lobbying since 1998, more than any other organization whether corporate or nonprofit. Since they don’t have to disclose their donors we don’t know who they are representing when they wine and dine in Washington but a look at their spending gives you an idea.
I guess that it’s to be expected that charities and nonprofits would have lobbyists and give to political campaigns in today’s politicized world. If you’re trying to affect change then you need to have influence with lawmakers. Clearly, savvy charities and nonprofits know that. 
The solution is clear and transparent…
Here’s my question though: if we give these groups a break on taxes to support their mission to serve the public good, why don’t we get a full account of their donors and how they spend money on politics? Isn’t a transparent political system also for the public good? And, if no one is breaking rules or doing bad why should it be a secret?
Let’s call for transparency in political spending across the spectrum – profit or nonprofit.
Let political spending be out in the open and then we, as citizens, donors and consumers, can make the choices we feel are best.""
As for the tax code, there may be some help on the horizon. Public Citizen is trying to bring some intelligibility to the issue of political spending through a new initiative called Bright-Lines. They are proposing new guidelines that clearly define political activity so that nonprofit organizations can engage in our political process without gaming the system, without fear of audits and in a way that is clear to all stakeholders. Something has to be done and this is a start – our tax code may need lots of work but clarity and transparency are an excellent place to start.

Not Fade Away: We Must Revive Fiduciary Duty

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A few years ago we recorded this post about fiduciary duty.  I still had the misguided hope that President Obama would address corporate capture, conflict of interest and fiduciary duty.  While it's clear that these issues are not on his agenda, they are still very much essential for corporate governance and shareholder activists.  Shareholders — big and small – must define what they want from their corporations and push for it.  I've just posted about this today over at CSRwire:

Remember when you’d put Silly Putty on the Sunday color comics and the image would be transferred to the Silly Putty? Then you’d stretch it and re-stretch it to distort the image until finally it was no longer recognizable. That is where we are with fiduciary duty. – See more at: http://www.csrwire.com/blog/posts/1030-the-failure-of-fiduciary-duty-a-ready-to-use-corporate-umbrella#sthash.uA8oe0nW.dpuf
Remember when you’d put Silly Putty on the Sunday color comics and the image would be transferred to the Silly Putty? Then you’d stretch it and re-stretch it to distort the image until finally it was no longer recognizable. That is where we are with fiduciary duty. – See more at: http://www.csrwire.com/blog/posts/1030-the-failure-of-fiduciary-duty-a-ready-to-use-corporate-umbrella#sthash.uA8oe0nW.dpufRemember when you’d put Silly Putty on the Sunday color comics and the image would be transferred to the Silly Putty? Then you’d stretch it and re-stretch it to distort the image until finally it was no longer recognizable. That is where we are with fiduciary duty.

Remember when you’d put Silly Putty on the Sunday color comics and the image would be transferred to the Silly Putty? Then you’d stretch it and re-stretch it to distort the image until finally it was no longer recognizable. That is where we are with fiduciary duty.

More to come on this issue in the coming weeks.  Stay tuned…

Let’s Take Constitution Day Seriously

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September 17 is Constitution Day in America; an ideal time to reflect on the challenges our Constitution faces today. 
Two hundred and twenty six years ago, delegates to the Constitutional Convention in Philadelphia signed the proposed Constitution and left Independence Hall. Outside, a passerby asked a delegate, Ben Franklin, what kind of government had emerged. The 81 year-old Franklin replied, “a republic, if you can keep it.”
Will we be able to keep it? In our time, the answer to that question largely depends on addressing the problem of our government’s capture by the largest corporations and the extraordinarily wealthy who participate in our corrupt and dangerous pay-to-play political system.
With the infamous Citizens United decision, a narrow but determined ideological majority on the Court challenges the foundation of the American Republic: According to the Court, the political equality of every citizen is not a legitimate interest to be served by campaign finance laws.
Now here comes another challenge in the Court’s new term, McCutcheon v. Federal Election Commission. The McCutcheon case seeks to dismantle the $123,000 limit on total contributions to federal candidates. Who has a spare $123,000 a year to buy fidelity from politicians? Not too many.
Between 2010 and 2012, a small group of people poured more than $18 billion into state and federal elections. How small a group? According to a report issued by Demos and the US Public Interest Research Group, just “47 individuals, donating $1 million or more, were responsible for more than half the individual contributions to Super PACs — and only 6 percent came from donations under $10,000.”
And what about corporations? The global oil giant Chevron openly dropped $2.5 million into the Speaker of the House of Representatives’ PAC, with only yawns from a jaded political class incapable of seeing scandal at the end of their noses. Chevron even spent $1.3 million in a city council election in Richmond, CA, a community of 100,000 people where Chevron runs a dirty and dangerous refinery. 
The US Chamber of Commerce, doing the bidding of global corporations, spent more than $35 million—the source of which is secret– in the 2012 election, and has now passed the $1 billion mark in lobbying spending since 1998. 

 While wages, opportunities and any real voice in government for most Americans shrink, Wall Street gets taxpayer bail-outs, special low tax rates, and obstruction of significant reform. Fossil fuel corporations get billions in tax subsidies, military protection around the globe, and escape accountability for climate catastrophe. Congress passes what many call the “Monsanto Protection Act” to exempt decisions about genetically modified crops from judicial review, and the United States remains one of the only democracies on the planet that fails to label GMO food. The firearms industry gets a free pass from any responsibility for the 30,000 Americans who die every year from guns.
This is how republics fail. But there’s more to the story.
The “corporate capture of the courts,” as Senator Elizabeth Warren puts it, goes beyond the issue of money in politics. The same “corporate speech rights” fabricated by the Court in Citizens United now are used with regularity to strike down laws deemed unfriendly to corporate profits.
 Our courts are creating astounding new corporate Constitutional rights. The pharmaceutical industry has a right to traffic in private prescription information, driving up health care costs. Utility corporations have a right to promote energy consumption in defiance of conservation policies. Cigarette corporations have a right to eliminate warning labels. Verizon and the telecommunications industry even claim a Constitutional right to secretly turn over customer data and information to the government.
If Americans are determined to keep our republic, we have a lot of work to do. September 17 is a day for commemoration but it also is a day for honest appraisal and recommitment to Constitutional principle.
Three essential steps are necessary: we need to join and support the broad-based, non-partisan movement for a Constitutional amendment to correct the Supreme Court’s disastrous mistake in Citizens United, and to enable sweeping campaign finance and lobbying reform. We need expanded advocacy in the courts to roll back corporate-dominated jurisprudence. And we need a new era of public responsibility and accountability from the largest corporations and those who own shares in them.  
A republic is never guaranteed. These steps, though, will take us far toward a new century of self-government by a free and equal people.
 Robert. A.G. Monks is the author of Citizens Disunited: Passive Investors, Drone CEOs, and the Corporate Capture of the American Dream, a corporate governance adviser and shareholder activist. He serves on the legal advisory committee of Free Speech For People.
Jeff Clements is the co-founder and president of Free Speech For People and the author of Corporations Are Not People: Why They Have More Rights Than You Do and What You Can Do About It.