The federal government’s National Labor Relations Board continues to probe the pitfalls of social media in the workplace.

The limits of workplace rules and of employee behavior are “a ‘hot topic’ among practitioners, human resource professions, the media, and the public,” noted acting general counsel Lafe Solomon in a recent report.

Business Ethics previously examined the NLRB’s social media approach last August.

The NLRB’s new year-end survey of 14 recent unfair labor practice cases cited several instances where employers adopted “overly broad” policies in attempting to police use of social media at work or online, even though, in some cases the discipline or discharge of an employee was legal.

Several cases arose from employee rants and protests posted on Facebook, where disciplinary steps were upheld because the worker’s behavior wasn’t considered “protected concerted conduct,” a common issue in NLRB cases.  Employees, the latest memo noted, have a “right to discuss their wages and other terms and conditions of employment, both among themselves and with non-employees.”

“Overbroad social media policies are high on the NLRB’s current enforcement agenda,” says global law firm Ropes and Gray.  The firm’s analysis said “employers who wish to restrict their employees’ use of social media must take care to specify the precise types of communications that will violate their social media policy, and avoid using broad, generic terms that could be understood to reach protected communication and activity.  This includes such commonplace terms as ‘inappropriate’ or ‘defamatory’ ……”

Just blowing off steam via Facebook doesn’t get much sympathy at the NLRB.  Consider:

--a bartender complained on Facebook that another bartender was “screwing over” customers by substituting a pre-made mix for more expensive premium liquor, and fretted that the practice could lose business.  Eventually, the complainer was discharged for using “unprofessional communication” on Facebook.  The NLRB legal staff didn’t think the behavior was linked closely enough to working conditions for the discharge to be illegal.

--a respiratory therapist at a children’s hospital, riding in an ambulance with a paramedic coworker, posted  via cell phone a Facebook message “indicating that it was driving her nuts that her coworker was sucking her teeth.”  After two Facebook ‘friends’ commiserated online, the therapist said “she was about to beat him with a ventilator,” the NLRB summary said.

The coworker complained to the company, and the therapist was eventually disciplined for that and other behavior.  The NLRB legal staff found labor laws didn’t offer her protection because “it did not concern terms and conditions of employment. She was merely complaining about the sounds her coworker was making, and was not even suggesting that the Employer could do anything about it.”

--a warehouse worker who was feeling ill was told by his supervisor that he could leave but he would be charged an attendance point; the worker completed his shift, but, from his car in the parking lot, posted a Facebook comment saying it was too bad when your boss doesn’t care about your health.  And he told a ‘friend’ who expressed support that he (the worker) thought the company was, in the NLRB’s words, “just trying to give him a reason to be fired because he was about ‘a hair away from setting it off.’ "

He was subsequently suspended without pay and later discharged for inappropriate, threatening, and violent remarks.  An HR manager said she interpreted the ‘setting it off’ remark as a threat to bring a gun to the warehouse and shoot everyone in it.  The NLRB concluded the employee wasn’t trying to initiate group action over sick leave policies and noted he had “characterized his conduct as ‘just venting.’ "

On the other hand, some Facebook discussions do fall under protection of the labor laws:

--workers at a popcorn packaging plant commented on Facebook about the behavior of an operations manager.  One said she hated the place and couldn’t wait to get out of there; eventually, one of the workers was discharged for the comments about the manager.  But the NLRB reviewers said the comments were “part of a discussion of employees’ shared concerns about terms and conditions of employment.”  The memo noted “it is well established that employee complaints and criticism about a supervisor’s attitude and performance may be protected” by the labor laws.

--a nurse at a hospital where a discharged employee had killed one supervisor and critically wounded another posted a series of critical messages online during a seven-month period.  He also criticized the hospital’s “management style” in a local newspaper and in other forums, and made a critical presentation to a borough assembly.  He was terminated. The NLRB staff found that many of the nurse’s remarks amounted to the sort of “rhetorical hyperbole” that is protected under labor laws.

And the NLRB memo criticized a number of rules for 30,000 employees at a large clinical testing laboratory, labeling the provisions “overbroad.”  Among them:

--Language that prohibited prohibited employees from disclosing or communicating sensitive, confidential or non-public information about the company without prior approval of senior management or the law department.

--A provision prohibiting use of the company’s name or service marks outside the course of business without prior approval of the law department.

--A prohibition against publishing any representation about the company without prior approval by senior management and the law department, including statements to the media, ads, weblogs and voice mail.

--A requirement that social networking site communications be made in an honest, professional and appropriate manner.

--A provision saying employees needed approval to identify themselves as the employer’s employees and that that social media comments must expressly be labeled as personal opinions that don’t necessarily reflect the employer’s opinions.

In 2011, Business Ethics Magazine republished a number of articles by ProPublica related to drug companies and their payments to doctors.  This article is a year-end look at where things stand as of December 2011.

Some of the nation's top medical schools cracked down on professors who give paid promotional talks for drugmakers last year, and the firms themselves cut back on such spending in the wake of mounting scrutiny.

Last year began with the University of Colorado Denver and its affiliated teaching hospitals launching an overhaul of conflict-of-interest policies after ProPublica found that more than a dozen of its faculty members had given paid promotional talks.

"We're going to just have to say we're not going to be involved with these speakers bureaus because they're primarily marketing," Dr. Richard Krugman, vice chancellor for health affairs, said in an interview in January 2011.

A few months later, Stanford University took disciplinary action against five faculty members identified by ProPublica who had taken money to deliver drug company speeches, a violation of university policy.

And by last fall, there were indications that pharmaceutical companies were also reducing the money they spent on doctor speakers.

ProPublica first published its Dollars for Docs database in October 2010 listing payments to doctors from seven drug companies. When we updated it this September -- with data from five additional companies -- spending by some of the firms was down.

Cephalon, a relatively small Pennsylvania company that specializes in pain, cancer and central nervous system drugs, paid physicians nearly $9.3 million in 2009 for speaking and consulting. That figure dropped to $5 million in 2010.

AstraZeneca cut its spending on speakers from roughly $22.8 million in the first half of 2010 to about $9.2 million in the second half. Both companies cited business reasons for the decline.

Throughout 2011, ProPublica also examined the hefty financial support drug and medical-device makers give to medical societies and health advocacy groups and the impact it has on the groups' positions.

At the national conference of the Heart Rhythm Society in San Francisco, companies sponsored much of what doctors saw -- hotel key cards, bus banners, ads on staircases, even motorcyclists driving mini-billboards in a continuous loop around the Moscone convention center. Nearly 50 percent of the society's funding in 2010 came from the drug and medical device industry. (We even created a neat interactive graphic that allows you to virtually tour the hotel and exhibit hall.)

The society, which represents doctors who treat abnormal heart rhythms, said its funders don't influence its positions, but it unveiled a new policy requiring more detailed disclosure of board members' industry ties.

Then, last month, ProPublica reported about the extensive ties between makers of narcotic painkillers and the American Pain Foundation, which bills itself as the nation's largest organization representing patients afflicted by pain. The foundation received nearly 90 percent of its income in 2010 from drug and device makers and takes positions that closely align with the companies.

Despite a steep rise in overdose deaths tied to the drugs, the foundation has said the risk of addiction to the drugs has been overhyped and that, if anything, they are underused.

Like the heart society, the pain foundation said its funders have no influence on its positions.

ProPublica also investigated why physicians were not disciplined or prosecuted after they were accused in federal lawsuits of taking kickbacks from drug or device companies or pushing drugs for unapproved uses.

We reviewed lawsuits against 15 drug and device companies that were settled since 2006. None of the more than 75 doctors named as participants in alleged schemes were sanctioned by state medical boards or pursued by prosecutors, ProPublica found.

Last year, dozens of news outlets around the country used our data to localize stories about conflicts of interest in medicine -- bringing the discussion to communities large and small.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

The news about narcotic painkillers is increasingly dire: Overdoses now kill nearly 15,000 people a year -- more than heroin and cocaine combined. In some states, the painkiller death toll exceeds that of car crashes.

The head of the Centers for Disease Control and Prevention has declared the overdoses from opioid drugs like OxyContin an "epidemic." And a growing group of experts doubts that they work for long-term pain.

But the pills continue to have an influential champion in the American Pain Foundation, which describes itself as the nation's largest advocacy group for pain patients. Its message: The risk of addiction is overblown, and the drugs are underused.

What the nonprofit doesn't highlight is the money behind that message.

The foundation collected nearly 90 percent of its $5 million funding last year from the drug and medical-device industry -- and closely mirrors its positions, an examination by ProPublica found.

Although the foundation maintains it is sticking up for the needs of millions of suffering patients, records and interviews show that it favors those who want to preserve access to the drugs over those who worry about their risks.

Some of the foundation's board members have extensive financial ties to drugmakers, ProPublica found, and the group has lobbied against federal and state proposals to limit opioid use. Painkiller sales have increased fourfold since 1999 , but the foundation argues that pain remains widely undertreated.

The group says industry money has had no effect on its advocacy.

"I'm convinced with every shred of my body that our interest is improving the lives of people affected by pain," said Will Rowe, the foundation's chief executive, "and we want to do that the best way we can."

The problem isn't opioids, Rowe and other group leaders say. It's poorly trained doctors who prescribe them too easily or in excess.

Yet, critics say the Baltimore-based foundation is making it harder to address a major public-health problem.

"If you were a drug company, wouldn't it be smart to make it look like you had a patient-oriented group?" said Dr. Gary Franklin, a Washington state official who tussled with the foundation over new restrictions on high-dose painkillers.

Its funding makes the group "one and the same" with the pain industry, Franklin said.

In stories this year, ProPublica has detailed the close entanglements between pharmaceutical companies and groups representing doctors. Reporting showed that the positions of societies representing specialty physicians often reflected the views of their major funders.

The American Pain Foundation falls into a different category -- health advocacy. It harnesses the power of patient stories to sway politicians, state medical boards, judges and government health regulators, emphasizing that it represents grassroots voices.

ProPublica's review found that the foundation's guides for patients, journalists and policymakers play down the risks associated with opioids and exaggerate their benefits. Some of the foundation's materials on the drugs include statements that are misleading or based on scant or disputed research.

The group has intervened in court cases in ways that appear to counter its stated mission. In one example, it sided with Purdue Pharma, its longtime funder, to block a 2001 class-action case filed by Ohio patients who had become addicted to or dependent on the company's blockbuster painkiller, OxyContin.

And the foundation mobilizes patients to send "outraged" email messages to news organizations that run stories it believes reinforce "stigmas and stereotypes" about the risks of pain medication.

The group's board includes some patients but also doctors who are paid to speak and consult for drug companies, a researcher whose clinic has relied on their funding for survival and a public-relations executive whose firm represents them.

Last year, one board member was the lead author of a study about a Cephalon drug. Cephalon sponsored the study, and its employees were co-authors. The study found that the drug, Fentora, was "generally safe and well-tolerated" in non-cancer patients even though it is only approved for severe cancer pain.

Dr. Andrew Kolodny, a New York psychiatrist who heads Physicians for Responsible Opioid Prescribing, said the foundation has built credibility with politicians and regulators who may not be aware of the extensive industry ties.

"I don't think they realize that in many ways the American Pain Foundation is a front for opioid manufacturers," Kolodny said.

Rowe, however, said it can be hard for critics to understand the mindset of patients whose pain is so severe they are willing to risk serious side effects to gain relief.

"Policymakers can go to bed at night and say, 'Well, I protected society,'" by restricting access to a risky painkiller," he said. "The person with pain or the person with cancer could say, 'You know, I'm sorry. I'm living with this, and I want to take this chance.'"

'The System Is Awash in Opioids'

In the late 1980s and early '90s, physicians who cared for pain patients excitedly embraced opioids as a low-risk treatment for suffering.

Derived from the opium plant, opioids reduce the perception of pain by attaching to opioid receptors in the brain, spinal cord and elsewhere in the body.

"We bought into this idea that opioids would be effective and that the risk of addiction would be low," said Dr. Jane Ballantyne, a longtime pain expert and a professor at the University of Washington.

But along the way, pain doctors split. Some, like Ballantyne, began decrying the increasingly widespread use of opioids and questioned whether the drugs worked. Others, like the foundation's leaders, said the drugs were being unfairly maligned, making pain patients feel like criminals and discouraging doctors from prescribing them.

Despite the debate, sales of the drugs have skyrocketed.

Last year, $8.5 billion worth of narcotic painkillers were sold in the United States, according to the prescription-tracking company IMS Health. Enough of the drugs were prescribed last year to "medicate every American adult around the clock for a month," the CDC said.

"Right now, the system is awash in opioids, dangerous drugs that got people hooked and keep them hooked," said CDC Director Thomas Frieden in a recent news briefing.

Some of the pills have become household names: Vicodin, Percocet, OxyContin. On its own, OxyContin, an extended-release painkiller, accounted for $3.1 billion in sales last year, up from $752 million in 2006, according to IMS Health.

There's little dispute that many people endure chronic pain. In the past, many doctors, especially those providing primary care, ignored pain as a condition that warranted its own treatment.

A report from the prestigious Institute of Medicine last summer said 116 million American adults suffer from chronic pain. The report also cited legal and regulatory barriers to opioids, especially for cancer and end-of-life pain. The findings are lauded by the foundation as underscoring the concern about undertreatment.

In an email to ProPublica, however, the report's chairman said the study panel took a broad look at chronic pain and didn't examine the use of opioids with "rigor or detail."

"It does seem like the issue of opioid use is worthy of a separate study," wrote Dr. Philip A. Pizzo, dean of Stanford University's medical school.

Guides Offer Reassurance About Pain Drugs

The American Pain Foundation's website offers publications for patients, policymakers and even journalists. Each depicts the benefits of opioids, and each is underwritten by the makers of those drugs.

Its patient guide, paid for by four companies, discusses several treatments for pain. It says such pain relievers as aspirin, ibuprofen and naproxen commonly cause gastrointestinal bleeding or ulcers, delay blood clotting, decrease kidney function and may increase the risk of stroke or heart attack. And it warns patients to use these pain pills at the lowest dose and stop them unless clearly needed.

The side effects of opioids, on the other hand, are minor, and most go away "after a few days," the foundation's guide says. The underuse of opioids, it says, "has been responsible for much unnecessary suffering."

Patients, it says, shouldn't worry if they need more of a drug. They are not developing an addiction.

"Many times when a person needs a larger dose of a drug," the guide says, "it's because their pain is worse or the problem causing their pain has changed."

Another guide, written for journalists and supported by Alpharma Pharmaceuticals, likewise is reassuring. It notes in at least five places that the risk of opioid addiction is low, and it references a 1996 article in Scientific American, saying fewer than 1 percent of children treated with opioids become addicted.

But the cited article does not include this statistic or deal with addiction in children.

"I would much prefer that they would put in there something that could be substantiated by a real reference," said Dr. Leonard Paulozzi, a CDC medical epidemiologist specializing in drug overdoses. "That would present a much less rosy picture of the risk."

A recent report by the National Institute on Drug Abuse said estimates of addiction among chronic pain patients using opioids range from 3 percent to as high as 40 percent .

One Foundation-related publication this year provided a case study of how physicians could convince patients that the drugs are not addictive.

In an e-newsletter paid for by a drug company, Florida family physician Louis Kuritzky summed up the advice he'd give to a patient with knee pain: "We have learned that when patients have important pain problems like you do, they can use such medications successfully over the long term without any major risk of addiction."

This advice is contradicted by a respected medical review organization that looked at research on the use of opioids for osteoarthritis of the knee or hip. The Cochrane Collaboration concluded that "the small to moderate" benefits of opioids "are outweighed by large increases in the risk of adverse events" and the drugs should not be routinely used.

Kuritzky said he had not read the Cochrane review but believes that the downside of opioids is "very, very small" based on his experience with his patients.

"There are many issues where you will see wise men and women differ about the right answer to a difficult and important question," he said.

Rowe, the foundation's chief executive, acknowledged that some of its publications need updating. He pointed to additional materials on the group's new PainSAFE website, which include a broader description of the risks. But the foundation continues to post outdated guides and even refers to them in newer materials.

And while the PainSAFE site discusses the risks more completely, it is based on the assumption that the drugs have proven to work well for chronic pain sufferers. The site says studies have shown opioids improve daily function and quality of life for such patients. In contrast, a new guide by New York City's Department of Health and Mental Hygiene says there is "insufficient evidence" that "pain relief is sustained or function improves."

Dr. Lewis Nelson, chairman of the federal Food and Drug Administration's Drug Safety and Risk Management Advisory Committee, said he believes the foundation's guides can't help but be biased.

"If you're taking drug-company money and you're working as an advocacy group for patients, I think by definition you're biased," said Nelson, an emergency room physician in New York. "I take everything they say with a grain of salt."

Fighting in Court for Painkiller Access

The foundation doesn't just offer advice about opioids; it takes its arguments into court.

In 2005, it filed a friend-of-the-court brief in the U.S. Fourth Circuit Court of Appeals in support of Dr. William Hurwitz, a pain doctor in Virginia who had been convicted on 50 counts of drug trafficking.

The doctor had been accused of prescribing a single patient as many as 1,600 Roxicodone pain pills in one day. Hurwitz allegedly had prescribed that patient alone more than 500,000 pills between July 1999 and October 2002.

The pain foundation and its allies argued that the jury instructions in the case didn't distinguish between criminal behavior and mistakes by a well-intentioned physician. "It is not drug dealing to prescribe opioids to patients that might be 'suspected' addicts or substance abusers," the foundation and two other groups wrote in a brief.

Rowe said the foundation intervened in the case on principle, fearing the drugs would be "demonized." The appeals court threw out the conviction, but Hurwitz was retried and convicted on 16 counts of trafficking.

Years earlier, the foundation opposed several pain patients who had sued Purdue Pharma in an Ohio county court for allegedly obscuring the risks of OxyContin.

The foundation filed a friend-of-the-court brief backing Purdue, arguing that the health of all pain patients would be harmed if the class-action lawsuit went forward because doctors would become fearful of prescribing opioids.

Ohio was plagued by "opiophobia" according to a brief co-authored by the foundation and two smaller pain nonprofits. "Consequently many, if not most, of the state's residents had been deprived of adequate pain care," it said.

The Ohio Supreme Court decided in 2004 not to allow a class action.

In a separate federal case in 2007, Purdue pleaded guilty to misbranding OxyContin "in an effort to mislead and defraud physicians and consumers," according to a statement from prosecutors. The company agreed to pay $600 million in penalties. Three top officials also pleaded guilty to misdemeanors and agreed to pay $34.5 million.

Two months after the conviction, however, then-foundation chairman Dr. James Campbell praised Purdue in a statement to a U.S. Senate committee.

"I believe Purdue and its management deserve recognition for their contribution to the welfare of these many patients," Campbell wrote. Prosecuting the executives, he wrote, sent a "chilling message to those who dare to develop high-risk drugs for important diseases."

Campbell mentioned his foundation role in his remarks. Rowe said the former board chairman was not speaking for the group, and stressed that strict rules keep funders from influencing its work. The foundation is working to diversify its support, Rowe and others said.

Nevertheless, the group often finds itself on the same side as drugmakers in state and federal debates over how to regulate painkillers.

In 2009, the FDA suggested changes to address concerns about the risks of long-acting opioids, recommending that physicians and pharmacists be certified to ensure they had been educated about those risks.

Although foundation officials blame poorly educated physicians for the growing problems with opioids, the officials joined with other pain groups and drugmakers to assail the plan.

The FDA backed off key elements of its proposal last year and said doctors could voluntarily attend courses about the risks.

That move was criticized by an FDA advisory committee, which voted overwhelmingly that it wasn't enough to stem the tide of overdose deaths.

"When you look at 14,000 people dying on an annual basis, that's more than we've lost in Iraq and Afghanistan since 2001 in active duty," Dr. Mori Krantz, an advisory panel member and director of the prevention center at the University of Colorado in Denver, said during the meeting.

Little Evidence That Narcotics Work for Chronic Pain

Missing from the American Pain Foundation literature is any suggestion that the drugs don't work for many chronic pain sufferers.

Recent editorials in medical journals and scientific reviews cite little evidence of long-term benefit.

Most of the clinical trials for opioids to treat chronic pain "were small, lasted less than 16 weeks and excluded patients with a history of substance abuse, psychiatric illness and depression, who are at increased risk for opioid misuse and abuse," three physicians wrote in an editorial this year in the Archives of Internal Medicine.

"How can a therapy be considered if there's no evidence that it works and there's evidence of lots of side effects?" Dr. Mitchell Katz, one of the authors and director of the Los Angeles County Department of Health Services, said in an interview.

Rowe said he knows plenty of patients for whom the drugs work, "and their lives are together because they use them."

The foundation board's chairman and president, Dr. Scott Fishman, is stepping down at the end of the month. In a statement to ProPublica, he said his views have evolved and that he now believes opioids are both overused and addictive. But he defended the group.

"I have not always agreed with APF positions and have had disagreements with some APF leaders and patient advocates about many issues in pain management, including the appropriate place of chronic opioid therapy," wrote Fishman, chief of pain medicine at University of California, Davis.

"Nonetheless, I have always believed that patients in pain in the United States need strong patient advocacy, which APF has offered."

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

When former CEO Don Blankenship left Massey Energy a year ago taking $12 million in severance, a consulting contract for two years, and hefty retirement and pension packages, he also left refusing to participate in federal investigations into his mine’s deadly explosion.

In April 2010, 29 miners died in Massey’s Upper Big Branch (UBB), the worst mining disaster in 40 years. Massey, under Blankenship, never accepted responsibility for the explosion and blamed the federal government.

On December 6, 2011, the U.S. Department of Mine Safety and Health Administration (MSHA) issued a 1,000 page report of its investigation into the UBB tragedy. Alpha Natural Resources, which bought Massey earlier this year, agreed to pay $209 million in penalties (civil, criminal and restitution) for Massey Energy’s role in the explosion. While criminal action won’t be pursued against Alpha, the settlement doesn’t cover Blankenship or other Massey managers.

The settlement agreement with Alpha includes a requirement that $80 million be spent to improve safety and infrastructure in UBB and all underground mines Alpha owns while another $48 million will finance academic research on mine safety.

Also on December 6, MHSA fined Alpha $10.8 million, the largest penalty in agency history, and cited Massey’s corporate culture as the root cause of the tragedy. They issued 369 citations for violations, saying that Massey “promoted and enforced a workplace culture that valued production over safety, and broke the law as they endangered the lives of miners.”

Included in the findings are:

• Examples of systematic, intentional, and aggressive efforts by Massey to avoid compliance with health and safety standards
• Testimony management intimidated miners saying their raising safety issues jeopardized their jobs
• Advance notification to mine personnel of state and federal inspections
• Two sets of books kept regarding safety and health hazards concealing certain hazards
• Failure to perform required mine examinations adequately and remedy known hazards and violations
• Failure to provide adequate training
• Failure to take necessary precautions that would have prevented the April 5, 2010 explosion

Massey’s legacy is that its leadership — Blankenship and the board of directors — failed to follow laws or create a work climate that would have avoided the conditions that led to the explosion and loss of life. Whether or not criminal charges are brought against Blankenship or any members of its previous leadership, the report’s findings indicate Massey was run in a manner that put its employees and shareholders at risk.

In any risk management study its board addressed, culture was apparently overlooked as Massey’s leading vulnerability. Massey became another poster child proving that culture matters; when tone at the top, transparency, integrity, and building trust are subsumed by short-term profits, crisis inevitably ensues.

So, in this case, culture killed.

“The best tribute to the 29 Massey workers” who died, I wrote in an April 2010 column on Blankenship ” is that safety really becomes Massey’s top priority and that going forward, no one should ever be injured or die in a Massey mine from issues the company can prevent. There is no acceptable tolerance level for deaths in the workplace; to operate as if there is constitutes a failure of leadership.”

Small comfort to the 29 families and hundreds of people affected by the UBB tragedy, but it is a start.

Gael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column where this article was first published.

by Marian Wang, Pro Publica

It’s an issue we and others have noted again and again: Years after the financial crisis, there have still been no prosecutions of top executives at the major players in the financial crisis.

Why’s that? Well, according to a now-departed Justice Department official who used to be in charge of investigating such matters, the Justice Department has decided that holding top Wall Street executives criminally accountable is too difficult a task.

David Cardona, who recently left the FBI for a job at the Securities and Exchange Commission, told the Wall Street Journal that bringing financial wrongdoing to account is “better left to regulators,” who can bring civil cases. Civil cases, of course, can produce penalties from the banks -- as well as promises to be on better behavior -- but don’t put any executives behind bars.

Here’s the Journal:

While at the FBI, Mr. Cardona oversaw dozens of criminal probes of large financial firms. The FBI's probes haven't led to any successful prosecutions of high-profile executives in relation to the financial crisis, despite demands from some lawmakers and angry Americans. In contrast, the SEC has filed crisis-related civil-fraud cases against 81 firms and individuals, and it has negotiated almost $2 billion in penalties in cases that have been settled.

Cardona told the Journal that the failed first attempt to charge financial players with crisis-related fraud -- the 2009 trial and eventual acquittal of two Bear Stearns Cos. hedge-fund managers -- triggered "a lot of rethinking on how we do things.” After that, he said, the federal government began to question its “ability to convince a jury that criminality has occurred” on complex and technical financial cases.

The lack of prosecutions was also raised in a ‘60 Minutes’ piece Sunday about large-scale mortgage fraud during the bubble. Assistant Attorney General Lanny Breuer told CBS that the Justice Department had not lost confidence and was “bringing every case that we believe can be made.”

“I get it. I find the excessive risk taking to be offensive,” said Breuer. “I may personally share the same frustration that American people all over the country are feeling, that in and of itself doesn’t mean we bring a criminal case.”

However, one question raised by the 60 Minutes segment is why the Justice Department isn’t building criminal cases against companies for violating Sarbanes-Oxley -- a landmark corporate reform law enacted after Enron. From the transcript:

The Sarbanes Oxley Act imposed strict rules for corporate governance, requiring chief executive officers and chief financial officers to certify under oath that their financial statements are accurate and that they have established an effective set of internal controls to insure that all relevant information reaches investors. Knowingly signing a false statement is a criminal offense punishable with up to five years in prison.

Frank Partnoy is a highly regarded securities lawyer, a professor at the University of San Diego Law School and an expert on Sarbanes Oxley.

Frank Partnoy: The idea was to have a criminal statute in place that would make CEOs and CFOs think twice, think three times before they signed their names attesting to the accuracy of financial statements or the viability of internal controls.

Kroft: And this law has not been used at all in the financial crisis.

Partnoy: It hasn't been used to go after Wall Street. It hasn't been used for these kinds of cases at all.

Kroft: Why not?

Partnoy: I don't know.

As Cardona -- the former Justice official -- sees it, financial regulators have been doing a “fine job” building civil cases against big firms.

That might come as a surprise to U.S. District Judge Jed Rakoff, who’s repeatedly rebuked the SEC for striking relatively small agreements to settle civil charges against financial firms.

As we noted last week, Rakoff tore into a recent $285 million settlement with Citigroup, calling the financial penalty “pocket change” for Citi and blasting the SEC’s longstanding practice of allowing firms to settle without admitting wrongdoing.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

Yesterday (11/28), federal judge Jed Rakoff slammed the Securities and Exchange Commission for making a toothless settlement with Citigroup over financial crisis misdeeds, arguing that it obscured the basic facts of what actually happened. Today (11/29), Bloomberg has an important story by Richard Teitelbaum that, from a very different vantage point, demonstrates the same infuriating point: Despite the economic wreckage we are still trying to repair, we have yet to have an adequate accounting of how the financial crisis happened, what caused it, and who knew what when.

Former U.S. Treasury Secretary Hank Paulson (2006).

According to the story, on July 21, 2008, then-Secretary of the Treasury Hank Paulson met with "a dozen or so hedge-fund managers and other Wall Street executives" and discussed "a possible scenario for placing Fannie [Mae] and Freddie [Mac] into 'conservatorship.'" That's a fancy term for a government seizure that would have allowed the entities to keep operating, but would have caused severe adverse consequences to holders of the Frannies' equity and, possibly, debt. A fund manager told Bloomberg he was "shocked that Paulson would furnish such specific information -- to his mind, leaving little doubt that the Treasury Department would carry out the plan." After the meeting, this manager consulted a lawyer, who told him to cease trading immediately in the Frannies, lest he later be accused of - here's the rub - insider trading.

The Bloomberg story cites law professors to say that Paulson did not break the law. But the story's implicit allegation is that the former head of Goldman Sachs was so clueless - or contemptuous - of his role as Secretary of the Treasury of the United States of America that he engaged in a clubby tête-à-tête with his former peers and handed them what Bloomberg says "amounted to inside information."

It's actually worse, because as Bloomberg also reports, Paulson was publicly playing down the possibility of dramatic government action -- practically the opposite of what he confided behind closed doors to those elite traders.

Paulson didn't comment for the Bloomberg story, and his spokesperson referred questions to his book, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System - which, Bloomberg points out, doesn't mention the meeting.

There are limits to what a reporter can get - starting with whether any of those powerful and canny Wall Street sharks profited on the information. They may have shorted the Frannies, but, as the Bloomberg story points out, "tracking firm-specific short stock sales isn't possible using public documents." We need a more powerful entity - perhaps a Congressional committee? - to find that out. And, here are a few more questions that cry out for answers:

1. What is the justification for such a meeting? Former St. Louis Federal Reserve bank president William Poole suggests that the Treasury needs to be able to prep the market with information.

Fair enough. A Treasury Secretary should talk to smart market participants, and needs to know how the market might react to any given action.

But there's a difference between meeting to receive information and telling a chosen few market-moving plans. Hank Paulson and now Timothy Geithner should receive information from all types of parties. If they want to float a trial balloon, they have to float it in such a way that doesn2019t give select participants market sensitive information.

2. Why did Paulson meet with these people specifically? The Bloomberg piece notes that Eric Mindich, a hedge fund manager who is a former Goldman Sachs employee, hosted the meeting. Several Goldman Sachs executives attended.

If the Treasury secretary is going to hold meetings with market participants, the attendees should be chosen based on - you are going to laugh here - merit, not connections. And they should be transparently disclosed at the time.

3. How many other meetings like this were there? As Felix Salmon recalls, Andrew Ross Sorkin in his book "Too Big To Fail" revealed that Paulson met with the board of Goldman Sachs in June 2008 in Moscow -- a month before the meeting Bloomberg has revealed -- and discussed market conditions, and even contemplated that Lehman Brothers might fail.

Here's how Sorkin wrote about this:

For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink's BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.

Anxious about the prospect of such a meeting, [Paulson Chief of Staff Jim] Wilkinson called to get approval from Treasury's general counsel. Bob Hoyt, who wasn't enamored of the "optics" of such a meeting, said that as long as it remained a "social event," it wouldn't run afoul of the ethics guidelines.

Still, Wilkinson had told Rogers, "Let's keep this quiet," as the two coordinated the details. They agreed that Goldman's directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the "social event" on his official calendar.

One possible defense for Paulson floating government conservatorship of Fannie and Freddie is that by the time of his July meeting with traders and executives, the market was widely anticipating the government would take that action. But what if the market only anticipated this because there were other, previous meetings between Treasury officials and well-connected investors in which such plans were floated?

4. What did this meeting do for the Treasury?

My sense of Paulson's approach - act first, act boldly, move on and dwell no more - is that his actions weren't well thought out at all.

But let's concede, arguendo, that Paulson and the Treasury held this meeting as part of a carefully thought-out strategy to prep the market for the Frannie conservatorship. What did that get the government? If anything, the prepping only would make the investors more likely to extrapolate and short or sell other financial stocks.

If preparation was indeed the rationale and justification, then Paulson and Treasury needed to have a contingency plan for investor reaction. Which they almost certainly didn't, since Lehman then failed and they were forced into a series of desperate actions. Over the next weeks, they scrambled to create the Troubled Asset Relief Program, or TARP, and then remake it into the preferred equity-buying program (rather than the toxic asset purchasing program).

Without a full and convincing accounting, we are left with a picture of a Treasury Secretary who took care of his buddies while allowing the system to blow up. This is the kind of thing that a crony capitalist system - and only such a corrupt system - would allow.

Photo: U.S. Treasury

Jesse Eisinger is a senior reporter at ProPublica, covering Wall Street and finance.  In April 2011, he and Jake Bernstein were awarded the Pulitzer Prize for National Reporting for a series of stories on questionable Wall Street practices that helped make the financial crisis the worst since the Great Depression.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

When the Securities and Exchange Commission struck a deal with Citigroup over a failed security that the bank sold to investors, we asked whether regulators had handed Citigroup too sweet of a deal .

Today in Manhattan, U.S. District Judge Jed Rakoff appeared to reach that very conclusion: "If the allegations of the Complaint are true, this is a very good deal for Citigroup," Rakoff wrote as he refused to sign off on the $285 million proposed settlement agreement.

While the full opinion is worth a read, here's a summary of the judge's objections:

The allegations brought by the SEC don't match the charges.

The SEC, in its complaint, alleged that Citigroup knowingly misrepresented or failed to disclose to investors key information about the CDO, known as Class V Funding III. We first reported on Class V last year, in our story on CDO self-dealing, noting that the CDO contained risky pieces of other Citigroup CDOs.

Specifically, the SEC charged that Citi put risky assets into the deal, bet against it, and then didn't disclose that to investors. According to SEC, "Citigroup knew it would be difficult" to sell the CDOs if it disclosed all that to investors.

Judge Rakoff concluded, "This would appear to be tantamount to an allegation of knowing and fraudulent intent."

But in the end, the SEC only charged Citigroup - and one low-level exec - with negligence 2013 a lower standard of proof than intentional fraud. Charges were also not filed against other, more senior Citi execs who, according to the SEC, also knew details of the deal.

The boilerplate language in the settlement that forbids future violations by Citigroup is essentially meaningless.

"By the S.E.C.'s own account, Citigroup is a recidivist," wrote Rakoff, who noted that the SEC had not sought to enforce that prohibition for at least a decade.

The context here is more than adequately explained by a recent New York Times article that found that Citigroup had agreed on at least four other occasions not to violate that same anti-fraud statute, only to continually break that promise.

The fine is too modest to have a deterrent effect.

According to Rakoff, the fine in this case is so mild that it's more or less "pocket change to any entity as large as Citigroup" and starts becoming just a cost of doing business.

Rakoff loathes the longstanding tradition of reaching settlements without any admissions of wrongdoing.

Sure, it's standard in these types of settlements, and judges have routinely signed off on such language, but Rakoff has signaled in the past that he has serious qualms about these non-admission, non-denial settlements.

For one, he says the deal with Citi shortchanges investors, who according to the SEC lost more than $700 million: With no mea culpa from Citi, private investors have a much harder time bringing their own lawsuits against the company - which for Citigroup is precisely the point.

Rakoff also argues that the tradition cheapens judicial power, which must be used in conjunction with "cold, hard, solid facts."  A non-admission of guilt but agreement to pay, while in keeping with established tradition, denies the court of established facts on which to decide whether the settlement is reasonable, he said.

The truth should come out

Finally, Rakoff argues that especially when it comes to the financial sector - and especially now - the public deserves to know the truth:  "In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth."

One thing Rakoff didn't touch on? A discrepancy we raised last month: Citigroup seems to believe this deal with the SEC would have settled all of its potential liability over CDOs - something the agency denied.

The SEC's response

The SEC issued a statement today defending its settlement:  "We believe that the proposed $285 million settlement was fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial," said Robert Khuzami, the SEC's head of enforcement.

Khuzami pointed out that Rakoff's objection to the lack of admission of guilt "ignores decades of established practice throughout federal agencies and decisions of the federal courts."

That response is in line with what Khuzami has said in the past - that securing corporate confessions from companies like Citi, while ideal, would slow down the agency's investigations.

"No one disagrees with the sort of abstract notion that you'd like to have admissions in your cases," Khuzami said earlier this month. "One has to make choices between competing demands."

The agency has also argued that taking banks to costly trials would divert scarce resources toward their other securities fraud fighting efforts, and be counterproductive.

What's next?

The case has been scheduled for trial next year - something Citigroup would presumably like to avoid, given the mountains of evidence in the SEC's possession that would become public should the case indeed go to trial.

But a trial is still not a sure thing. Rakoff initially rejected a proposed SEC settlement with Bank of America, but he eventually approved the deal last year after the agency came back with a bigger fine. It's unclear if the SEC will try to do the same this time around.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

Pharmaceutical companies have sought for years to protect their expensive brand-name drugs by paying generic rivals handsome sums of money to put off efforts to introduce cheaper, generic alternatives that could steal market share.

The controversial practice, known as "pay for delay," occurs as part of patent litigation settlements and typically buys a brand-name drug company more time to sell its blockbuster drug exclusively until its patent on the drug expires. Federal Trade Commission regulators have said the practice costs consumers an estimated $3.5 billion each year, and have pushed for a ban.

But now it appears the drug company Pfizer is adding yet another twist to its efforts to delay generic competitors. As The New York Times reports, the company seems to have struck a deal with certain pharmacy benefit managers - the middlemen in the pharmaceutical industry - to block generic versions of Lipitor.

Lipitor, Pfizer's blockbuster cholesterol-lowering drug, is among the world's best-selling pharmaceuticals, and this isn't Pfizer's first attempt to protect it.

In 2008, the company settled patent litigation with Ranbaxy, an Indian generic manufacturer, striking a deal that guaranteed that Pfizer would not have to face challenges from Ranbaxy's generic version of Lipitor until the end of November 2011. Pfizer granted Ranbaxy some incentives as part of the bargain but said it made no payments. Nonetheless, a group of pharmacies filed suit against Pfizer and Ranbaxy last week over the deal, calling it "an extraordinary ripoff" and alleging price-fixing between the two companies.

Now that it's November 2011, Ranbaxy and other drugmakers are gearing up to offer cheaper versions of Lipitor. As The Times reports, Pfizer has tried to counter this competition by offering big discounts on Lipitor to the middlemen that process prescriptions for pharmacies and other buyers, giving them discounts in exchange for having them block generic versions of Lipitor for another six months. Here's The Times:

Many drugstores are being asked to block prescriptions for a generic version of Pfizer's Lipitor starting Dec. 1, when the company loses its patent for the blockbuster cholesterol drug and generic competition begins.

Medco Health Solutions, among the nation's largest pharmacy benefit managers, is one of the companies issuing instructions, seeking to have pharmacists keep filling prescriptions with the more expensive Lipitor for six months.

See some of those instructions sent to pharmacies by the pharma middlemen. The documents were released by Pharmacists United for Truth and Transparency, a group of independent pharmacists. (We first noticed them posted at the blog Pharmalot.)

(Business Ethics Update 11/16/2011:  Following publication of this article, Medco Health Solutions issued a statement disputing the original New York Times story cited above.  Medco said its notice to retail pharmacies was "on behalf of a single health plan client that has chosen to work with Pfizer directly" and "does not reflect Medco's generic strategy toward Lipitor."

According to Pharmacists United for Truth and Transparency, Pfizer's plan would mean that customers at the pharmacies serviced by these middlemen would receive Lipitor even when they've been prescribed a generic version. Because Lipitor co-pays would also be reduced to the level of generic co-pays, customers might not notice, but employers and Medicare Part D would pay the same amount as before, despite the availability of a cheaper alternative.

A Pfizer spokesman gave The Times a statement saying that the company was committed to ensuring that customers had access to Lipitor but declined to answer additional questions. We've also asked Pfizer for comment and will update when we hear back.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

Consider the case of MF Global Holdings Ltd., a New York-based securities firm that filed for bankruptcy protection on Oct. 31 after disclosing sizable exposure to derivatives and other investments related to billions of dollars in European sovereign debt. The firm was headed by Jon S. Corzine, a former CEO of Goldman Sachs who was subsequently elected U.S. Senator and, later, Governor of New Jersey.  After losing his gubernatorial re-election campaign to Chris Christie in 2009, Corzine returned to banking as CEO of MF Global.

In this video clip, “Daily Show” host Jon Stewart compares and contrasts the positions and behavior of Jon S. Corzine, the politician, with Jon S. Corzine, the banker.

John Ruggie

The principles grew out of a six-year consultative process which began in 2005, when UN Secretary General Kofi Annan appointed Harvard University Professor John Ruggie as his Special Representative for Business and Human Rights.  While implementation is still in its earliest stages, the Principles have been lauded by non-governmental organizations and endorsed by major corporations. The Coca-Cola Company has praised the “flexible framework” of the Principles; GE has said they will “no doubt serve as a lasting beacon for business entities seeking (to) grow their service and product offerings while respecting human rights.”

John Ruggie recently joined the Corporate Social Responsibility practice of the law firm Foley Hoag as a senior adviser, working with the firm and its clients on issues related to implementation of the Guiding Principles; he continues his association with the Harvard Kennedy School, where he holds a chair in human rights and international affairs, and Harvard Law.  In the following interview with Business Ethics Magazine Editor & Publisher Michael Connor, Ruggie discusses implications of the Principles and why he thinks a newly-coined term – “human rights due diligence”- has already become a permanent entry in the lexicon of international business.

MICHAEL CONNOR: The new Guiding Principles rest on a framework that has what you call three pillars – “protect, respect and remedy.”  Can you explain those?

JOHN RUGGIE: Yes. The first pillar is simply that under the existing international human rights regime, states are required to protect against human rights abuses - not only those committed by state agents, but also by third parties.  So when a country adopts a human rights treaty or convention, there is the requirement that those whose rights are enumerated in those instruments are protected against abuse. By definition, third parties include business. States also have certain legal obligations under customary international law. The bedrock of the Guiding Principles is that they do not attempt to privatize human rights protection: it’s a fundamental duty of states.

Ruggie with UN Secretary-General Kofi Annan in 2004.

The second pillar is what I call the corporate responsibility to respect rights. I chose the word responsibility, rather than duty, because for the most part international law doesn't apply directly to companies.  It applies to states, and through what states do domestically, it applies to companies. The exception to the rule is corporate involvement in the most egregious human rights violations, including crimes against humanity, where domestic courts may apply international standards—as under the U.S. Alien Tort Statute. The corporate responsibility to respect human rights is a social responsibility over and above compliance with applicable laws. It is the minimum expectation society has of business conduct in relation to human rights. It means that as business goes about its business, it should not infringe on the rights of others. So manufacture your mouse traps, deliver whatever services you provide, but don’t infringe on others’ human rights in the process.

The third pillar - access to remedy - includes both judicial remedy, which again is a duty of the state to provide, and non-judicial grievance mechanisms which companies themselves may create to deal with issues before they escalate and turn into major campaigns or lawsuits.  The idea in the latter case is for companies to deal with grievances in an early stage.

MICHAEL CONNOR: What's the business case for concern about human rights?  Why should companies care?

JOHN RUGGIE: If you go to company websites, you won’t find one that says “we don’t respect human rights.”  They will invariably say - if they say anything on the subject, and more and more companies do - that they respect human rights.  I assume they do it in part because it's the right thing to do, and because expectations by external stakeholders have raised the issue on company agendas.  There are also very material reasons.  You’ll recall that way back in the 1990s Nike first got interested because there was a worldwide campaign against the company.  The extractive industry has been hit by lawsuits in courts in Europe and the United States probably more than any other sector. Internet and mobile telephone service providers are under growing legislative and social pressure for revealing user information to authorities and providing them with other tools to track down dissidents. And so on.

"It’s important to keep in mind that the principles are principles.  They're not a toolkit.  You don’t take it off the shelf and plug it in and get an answer."

MICHAEL CONNOR: So there's financial risk?

JOHN RUGGIE: There can be huge financial risks. We're still finishing a research project called the Cost of Conflict with Communities, which was triggered by a Goldman Sachs study about the international oil majors.  Goldman looked at 190 projects and found that the time from first approval to the time the first drop of oil was pumped out of the ground had doubled over the course of the previous decade, creating substantial cost inflation.  They looked into what the factors were and they discovered that it had a lot to do with various permitting issues, with resistance from communities, with demonstrations against projects, with lawsuits.

So we looked into this. One company went back over its own figures. It discovered that in a two-year period it had left $6.5 billion on the table.  Now that attracted attention.  We also did some work in the mining industry.  For a world-class mining operation, which requires about $3-5 billion capital cost to get started, there’s a cost somewhere between $20 million and $30 million a week for operational disruptions by communities.  Another estimate used by the mining industry is that an asset manager is supposed to spend between 5% and 10% of his or her time on community engagement issues.  We found that it can be anywhere from a one-third to 50%, and in some cases 80% of their time.  So there are opportunity costs, financial costs, legal costs and reputational costs.  All this has escalated tremendously, which is why companies themselves have been so interested in the UN mandate I’ve led.

MICHAEL CONNOR: Your report notes that we live in a world of “192 United Nations member states, 80,000 transnational enterprises, 10 times as many subsidiaries and countless millions of national firms, most of which are small and medium sized enterprises.  When it comes to means to implementation therefore, one size does not fit all.”  In that context, how do you go about getting these principles implemented?

JOHN RUGGIE: It’s important to keep in mind that the principles are principles.  They're not a toolkit.  You don’t take it off the shelf and plug it in and get an answer.  Issues of context, issues of industry sector, matter. The size of a company may matter. For example, you don’t want to impose the same sets of rules on a small or medium-sized enterprise that has maybe 100-150 employees and occasionally sources something from overseas that you would apply to a company that has 300,000 employees in all the countries of the world.  So it's a principles-based framework, not a rules-based system, and it certainly isn't a toolkit.  But whatever the granular operationalization that companies develop, it has to meet certain criteria, and that’s what the principles really are intended for.  They're benchmarks against which specific tools that are adopted by companies as a way they implement things can be measured by themselves and other stakeholders.

MICHAEL CONNOR: Are there specific countries or parts of the world that might be more affected by implementation of the principles?

JOHN RUGGIE: One of the things we found is that there's a negative symbiotic relationship between company involvement in human rights abuses and conflict zones -for example, the eastern parts of the Democratic Republic of Congo.  That's one of the types of situation that requires enhanced due diligence.  You're not operating in Denmark; you're operating in a conflict-affected area where the writ of the government is weak to non-existent. There are also sectoral differences: the mining industry and the oil industry, because of their huge physical footprint, have tended to generate community-related issues.  Footwear and apparel and the electronics industry have labor issues.  The IT sector has end-user issues. Pharma has access to essential drug issues. That’s why you can't write a detailed check-the-box toolkit for the globe.  But you can, as I say, provide benchmarks against which such things can be assessed.

"In just three years, the concept 'human rights due diligence' – which didn’t exist before—has entered into a variety of international and domestic policy arenas."

MICHAEL CONNOR: What's been the reaction from business so far?

JOHN RUGGIE: Business has been supportive. I made it a point to reach out to business literally from the beginning, first through the international business associations – the International Chamber of Commerce, International Organization of Employers, the U.S. Council for International Business and the like – and worked closely with them from the start.  And then individual companies started getting involved.  Over the course of the six years, we held 47 international consultations; business was invited to participate, as were other stakeholders.

A number of companies worked with us to pilot various projects. A group of Dutch companies, including Unilever and Shell, piloted the idea of “human rights due diligence” processes, which is one of the key elements in the Guiding Principles.  They spent a year examining whether they could make sense of this concept, and what it would take to make it work.  And then they issued a public report saying “Yes, this actually is a good idea, we can make it work.”

We also got five companies in different countries to pilot site-level grievance mechanisms to see how you make them work.  For example, Tesco set up a pilot in the Western Cape of South Africa for a network of fruit supplier farms.  Sakhalin Energy participated in a pilot in Russia of their natural gas operation on Sakhalin.  We had a Hong Kong-based company collaborating with us in its operations in Vietnam. Cerrejon Coal in Colombia participated. Hewlett-Packard collaborated in China.  So we tried to work with business to make sure that what we were going to propose would have legs by road testing ideas on the ground.

MICHAEL CONNOR: When you talk about human rights, what are the key conflict points?  What violations of human rights most often show up?

JOHN RUGGIE: Again, it varies by industry.  If you look at the extractive and infrastructure sectors, one of the main issues initially has to do with taking over land and resettling the population.  This has to involve adequate consultation and compensation. Particular issues relate to indigenous communities, which have special protections under many national laws and also under international law.  Then there’s issue of the physical security of the person: conflicts between companies and communities; security forces that shoot demonstrators; or, as has been often alleged and sometimes proven, security forces protecting company facilities that trade access for sex, or that rape and sometimes kill people.

In manufacturing, the issue invariably has to do with labor rights.  Do you remember the Foxconn story of last year, when there was a rash of suicides by workers?  Foxconn is a major Chinese supplier of electronic equipment, mobile, telephones, computers and the like, to western brands; those were workplace related grievances.  In the information technology and telecommunications area, a major problem in recent years has been privacy rights. The latter are not always easy cases; they pose dilemmas.  When Google faced the issue in China, they tried to figure it out: “What do we do? Can we move our servers? We don’t want to be complicit in putting dissidents in jail.  At the same time, we're in China and we can't outright violate Chinese law, otherwise we're not going to be here very long.”  One of the things we tried to do in the Guiding Principles is to better inform decision-making in dilemma situations, not to pretend that there are always easy solutions to be had.

MICHAEL CONNOR: The guidelines specifically state that businesses may be involved in adverse human rights activity either through their own activities or as a result of their business relationships with third parties.  Does that put a greater obligation on companies to closely monitor their supply chain relationships?

JOHN RUGGIE: Yes.  That's how this all started in the first place.  To go back to Nike in the 1990s, they didn't own any factories; they were buying from independent contractors.  Nike’s first reaction back then was, “This is not our problem, we're just buying stuff.”  But that argument didn't hold for very long.  So yes, it does put a greater obligation on companies to do adequate due diligence.  Now if you have 100,000 suppliers, as Wal-Mart I think does by now, you obviously can't monitor the day-to-day activities of each and every one of your suppliers.  So it becomes a risk-based approach.  Where are the areas of highest risk?  Companies have enough intelligence sources to know that. They can ask the question: “What are the sectors, what are the geographical areas, where we need to pay most attention?”  That’s part of the due diligence process.

"We now have a foundation on which we can build going forward.  It doesn't solve all the problems.  But at least we now know what the foundations are and how to frame future debate."

MICHAEL CONNOR: Take out your crystal ball for me if you can and look forward 10 years.  How broadly will these principles be embraced by countries and business?

JOHN RUGGIE: Yogi Berra said it was hard to make predictions, especially about the future (laughing). But judging from the reception and uptake so far, I think it's clear that some things are going to move fairly rapidly.  Before 2008, no one had ever used the term “human rights due diligence.”  It was introduced in my 2008 report.  It is now everywhere.

By everywhere, for example, I mean big companies - like GE and the Coca-Cola Company, which have endorsed the Guiding Principles, as have big law firms, like Clifford Chance.  Human rights due diligence is now also in the requirements of the OECD (Organisation for Economic Development and Cooperation) guidelines on multinational enterprises.  What's unique about the OECD guidelines is that they come with a complaints mechanism, so that people who feel that their human rights have been harmed can actually bring a complaint against a company to an office in any the 42 countries that adhere to the OECD guidelines.

The principle has been incorporated into a new ISO (International Standards Organisation) standard, ISO 26000.  The International Finance Corporation has updated the performance standards it requires of clients, which now reference the business responsibility to respect human rights.  The European Commission has incorporated the same principles, including human due diligence, into a new EU strategy on corporate social responsibility. In the U.S., the Dodd-Frank Act includes a due diligence element for companies sourcing certain minerals closely tied to conflict in the Democratic Republic of Congo.

So in just three years, the concept “human rights due diligence” – which didn’t exist before—has entered into a variety of international and domestic policy arenas. It is going to become standard operating procedure going forward.  Companies themselves have welcomed the principle and many are already applying it in practice because adequate due diligence can only be their friend: it provides protection in law suits and other liability issues.  It doesn't absolve companies when they commit wrongs, but if they can demonstrate that they’ve done everything possible to get things right, that can only be helpful.

Another element of the Guiding Principles that has had really good resonance inside the corporate community itself, particularly in the extractive industry, is the idea of site-level grievance mechanisms.  Again, that wasn’t anything that people generally did or talked about three years ago.  I remember being in Peru talking to a community leader; he had just led a community in a demonstration, a long shut-down of a mining operation run by an American mining company. It turned ugly, as these things often do, and people got hurt.  I met with him afterward and asked: “So what brought you to this point? Why did you close down the mine?”  He said something I'll never forget: “They wouldn't listen to us when we came to them with small problems, so we had to create a big one.”

Companies understand that it's better to deal with small problems before they escalate, particularly when they are embedded in a local community, as the extractives are.  I know of a number of companies - I don’t think they’ve announced it publicly, because they don’t want to get too far ahead of the game - that are rolling out site-level grievance mechanisms throughout their operations.

Thirdly, I think the national regulatory regimes in different countries have been as perplexed in the past by business and human rights challenges as business itself was.  But they too are beginning to realize that there are certain preventative measures - like human rights due diligence - which if you write them into policy requirements have tremendous potential positive consequences.  It's always harder to deal with issues after bad things have happened: you end up in the courts, with problems that might have taken place on the other side of the earth, and are costly to resolve.  In the past, we tended to think about effective remedy largely in terms of after the fact judicial remedy. Now the regulatory authorities in various countries are beginning to realize that there are a lot of preventative measures that can and should be used, which lower the incidence of corporate involvement in human rights abuse in the first place, and thereby also lower the burden on the rest of the remedy system.

Finally, judicial remedy will continue to evolve. Judicial reform in countries where the rule of law is weak and governments are corrupt is a slow process, but it is happening. And the web of legal liability for corporate involvement in egregious violations is expanding in the home countries of multinational corporations—a trajectory that will continue no matter how the U.S. Supreme Court rules on the applicability of the Alien Tort Statute to legal persons, such as corporations.

MICHAEL CONNOR: How does it feel, having spent six years on this project, now that it's done?

JOHN RUGGIE: It's not done.  It goes on.  When I wrapped up my mandate in June, I said to the Human Rights Council that this is not the end, but I believe it is the end of the beginning.  What I meant was that we now have a foundation on which we can build going forward.  It doesn't solve all the problems.  But at least we now know what the foundations are and how to frame future debate, which was all over the place in the past.

MICHAEL CONNOR: So is there a feeling of accomplishment about that?

JOHN RUGGIE: Yes.  I mean it hadn't been done before.  And I don’t have to travel as much (laughing).  I get to see my wife and talk to my son more often.

MICHAEL CONNOR: It seems a well-deserved change of pace.  Thanks, John, for speaking with us.

This interview transcript has been edited for length and clarity.