It turns out that cartel and anti-trust violations may be rampant in the municipal bond world, made especially harmful due to the amount of notes and bonds that governments sell each year-about $400 billion worth. The issues surrounding Governor Richardson’s particular case could just be the tip of the iceberg.

According to The New York Times, at least three federal agencies and several attorneys general have been working for years to uncover collusion among independent specialists hired by municipalities to distribute bond packages. According to the Times, one of these specialists was recorded during a phone conversation saying, “We want you to bid on this deal, but you’re not going to get it — you’re going to get the next one. We want you to submit a sloppy bid.”

Municipalities would then obliviously pay the vendor that the specialist recommended, often at inflated prices. Combined with the minuscule regulation in municipal bonds, this activity has been able to safely occur for some time.

Despite this shocking news, it does look like there might be light at the end of the tunnel. In a related story, President Obama made his first public act in office today to enact new, stringent laws on lobbying. Perhaps this ethics-in-contracting mindset will trickle down to the smaller, municipal level in order to stop antitrust in bond markets from escalating ever further.

According to the Economic Times, a conflict between the two companies has been taking place over the past several months. Although Future Group is the one that cut ties, the article states that the tension began when Future began to sell rival chocolate products that provide higher profit margins. The two companies have been quoted with clashing opinions on the issue:

Future Group’s take:

“We have found out from our intelligence network that the company is not cutting uniform deals with all retailers and probably has better deals with international retailers where there are larger stakes involved. We find their ‘conditional terms’ unacceptable, offering fill rates (stocks on shelf) of only 65%.”

Cadbury’s take:

“Sales from emerging markets like India are vital to global sales and therefore it is unlikely that Cadbury will discriminate on this front.”

The article also says that Future Group has come into conflict with Frito-Lay and GlaxoSmithKline in the past as well, though those issues have since been resolved.

The charges brought against Hauxwell-Smith and his co-defendants included conspiracy to defraud, corruption and witness intimidation.

Hauxwell-Smith paid the bribes in order for Ikea managers to overlook a company rule, which states that Ikea will not accept over 40 percent of the turnover of a single supplier. The judge presiding over the case warned the three defendants to expect jail time.

Three other defendants, one of which was Hauxwell-Smith’s wife, were named by the United Kingdom’s Serious Fraud Office, however the SFO announced that they would not be pursuing charges against them at this time.

Read the story as presented in The Sun Online.

Commentary: It’s interesting to note that the press release issued by the Serious Fraud Office mentions that this case was brought up by an internal investigation on behalf of Ikea, not by an outside source or whistle-blower leaking information about the bribes to the media. Bravo, Ikea! Bringing the issue to light in this manner saves the company from dealing with negative publicity and other difficulties down the line.

The company introduced a “corporate responsibility supplier questionnaire” last year with a goal of ensuring that Barclays “engages with the right suppliers and that they have suitable corporate responsibility policies in line with Barclays’ standards,” according to a company spokesman.

Much to the delight of London Barclay employees, the company has also raised the minimum wage paid to London employees to £7.50. The current minimum wage set by the Mayor of London is £7.20.

Commentary:When living in the second most expensive city in the world any raise is a welcome one. We’re talking about a place where a meal at McDonalds can cost you over £6 (nearly $12).

In a filing with the SEC, Nabors said, “We are reviewing certain transactions with this vendor, which provides freight forwarding and customs clearance services, and intend to cooperate with the Department of Justice inquiry. The ultimate outcome of this review cannot be determined at this time.”

Nabors is the the world’s largest land driller. You can read additional coverage by the Houston Chronicle here.

The worldwide recall affects 967,000 Nickelodeon and Sesame Street toys, including such popular items the Big Bird, Elmo, Dora and Diego characters.

In an interview with the Associated Press on Wednesday, David Allmark, general manager of Fisher-Price, said the problem was detected by an internal investigation and self-reported to the consumer product safety commission (CPSC).

Under current U.S. regulations, children’s products found to have more than .06 percent lead accessible to users are subject to a recall.

Commentary: Understandably, Fisher-Price spun the positives hard to this: an internal probe discovered the contamination and they were able to ‘quarantine’ two-thirds of the toys before they reached store shelves, and that the company would use the recall as an opportunity to put even better monitoring systems in place.

Reportedly, the three lower-level managers were taking large bribes from flooring vendors out of Asia in return for featuring these vendors’ products in Home Depot stores.

Home Depot is cooperating with law enforcement authorities who are looking into the situation – prosecution against these employees is a possibility.

The company released a statement adding to their stance on the situation:

“Maintaining our ethical standards is of utmost importance to the Home Depot and is something we enforce strongly.”

O RLY?

Unfortunately, crashing housing and home renovation markets aren’t the only things buffeting Home Depot. The company has also been fighting ethics, compliance and governance scandals on multiple fronts:

(1) Paying a CEO $225 million while employees were continually laid off and the stock declined (Nardelli, who was later terminated after he refused to answer questions at the annual shareholders’ meeting).

(2) The subject of wrongful termination lawsuits by former employees in Maryland and Alabama who claim that they were fired in retaliation for blowing the whistle on Home Depot, accusing the company of pumping up its financials with fraudulent product return procedures (which the SEC is now investigating).

(3) Admitting this past December that the company had engaged in improper stock option backdating for 26 years.

Commentary: We talked to a number of companies that have done business with Home Depot, and many of them repeated stories that indicated a broad culture of ‘browbeating’ and unreasonable demands being made by purchasing personnel at the company. Interestingly, such culture doesn’t appear to be limited to store merchandising – it extends elsewhere in the company as well. For example, we heard about the IT department demanding free products from vendors for the company simply so the vendor can promote Home Depot as a client.

We are also told that the company has virtually ZERO ethics and compliance training or programs.

Commentary:This represents the latest in a series of headaches for Dean Foods The wild card is whether this civil action will encourage investigations by the DOJ or Tennessee’s Attorney General’s office.

Other recent problems for the company include a consumer backlash/boycott for lobbying for lowered standards for the definition of “organic,” as well as substantial penalties paid to the SEC over allegations that Dean Foods helped publicly-traded Fleming Companies falsely inflate profits by issuing side letters.

Allegedly, soon after Coca-Cola launched Dasani in Argentina in late 2005, the bottled water has been smeared as “bottled tap water” and “cancer water” on the Internet. It is Coke’s position that there is strong evidence linking Danone and Euro RSCG to the two-year long campaign.

And, as the Internet has “no borders”, the campaign appears to have spread to other Spanish-speaking Latin American countries such as Mexico, Colombia, Costa Rica, Chile, Peru, and Ecuador. Coca-Cola said that this has negatively impacted their business.

Commentary: Want to know a few interesting facts?

Interesting fact #1 – - While, theoretically, the penalties could be huge (up to $10,000 per consumer), they won’t be. This is in part because under Argentine law, any fines/penalties/damages in this case would not be paid to Coca-Cola but instead to the Argentine state treasury. Coca-Cola probably isn’t looking for big fines so much as to make a statement, offset some bad publicity, and to have the practice stopped.

Interesting fact #2: Unfortunately, the history of Dasani is not crystal clean, which will cloud up Coca-Cola’s case. In fact, back in March 2004 the company had to recall it from the shelves in the UK due to excessive levels of cancer-causing bromate being present in the bottled water.

Interesting fact #3 – - Evian is a huge bottle water brand/supplier (owned by Danone). Guess who the U.S. distributor is? Answer: Coca-Cola.

below-cost selling in certain situations;

illegal collusion with suppliers;

advertising prices on products which were later not sold at that price in the stores;

promoting products with special prices, but not having sufficient quantities of the product at retail locations to meet demand

advertising products which did not match the description in the company’s sales catalog.

Commentary: Quite a shopping list of violations (yes, lousy pun intended). While the fine is tiny considering the size of Carrefour, what must be of particular annoyance to the company is the court’s requirement that this ruling be hung AT ALL THE CHECKOUT REGISTERS of Carrefour’s 213 hypermarkets spread across France. That alone could be motivation for Carrefour to appeal.

The French campaign group SOS Racisme brought the case against the Garnier division of L’Oréal over a marketing campaign where it sought saleswomen to demonstrate its Fructis Style shampoo line in supermarkets outside Paris.

At issue was a secret code that L’Oréal and Adecco had used in materials that detailed the desired profile of the sought-after workers: women should be 18 to 22 in age, of a certain size, and be “BBR.”

Prosecutors argued that “BBR” stand for for bleu, blanc and rouge: not only the colors of the French flag, but a common shorthand notation used by the far right Nationalist Front political party and employers to mean “white” French people – excluding those of North African, African and Asian backgrounds.

The Garnier division and Adecco were both fined €30,000. A former Adecco employee was given a three-month suspended jail sentence.

Commentary: Ouch, that’s going to leave a stain. This case is particularly interesting in that, while French culture has long been known for its racial undertones (overtones, in fact, as a recent employer survey in France found that three out of four firms preferred white workers), this is the first and only case of systemic discrimination against a major ‘blue-chip’ company within France. The fallout on this case has been limited to pockets within the EU and the news has not made it into any U.S. media outlets. However, as the spokesperson for SOS Racisme told the Guardian, “Consumers of L’Oréal products in the UK and the U.S. would be horrified to learn about the racial discrimination.”

The case also serves as a reminder that in today’s age of increased outsourcing of “non-core competencies” to third-party providers, a company is still liable for the agents of its agents – as in this case with Adecco. “Out of hands” or “out of sight” does not mean “out of potential trouble.”

While FTS said it will replace as many of the tires as it can, it will be forced to declare bankruptcy after only replacing approximately 10% of the tires impacted.

Background story: Last week, the NHTSA ordered FTS to recall the light truck/SUV radials produced by China-based Hangzhou Zhongce Rubber Co. Apparently, the tires were either missing gun strip or it was deemed insufficient. The failure by the manufacturer to place these adhesive strips between the tire belts caused the tires to degrade and eventually separate, resulting in fatal crashes. Some of the brand names under which the tires have been sold include Compass, Telluride, Westlake and YKS.

Tires which have been marketed as designed to last 40,000 miles are actually coming apart after only 25,000 miles. Some tests allegedly have found that the Zhongce tires also had dangerously thin inner liners, permitting air to leak and damage the outer walls of the tires.

Commentary: It gets worse. The lawyer behind the recall (he sued FTS, who then notified NHTSA, who then ordered the recall) say that there may be five other similar distributors of these tires… and that there are up to five million on the road. Read about in the Philadelphia Inquirer.

Memo to procurement: when they said buy “exploding Chinese fireworks for the holiday” they did not mean for you to confuse “fire” with “tire.”

Johnson’s attorney, when discussing the business practices of Supervalu to jurors, drew a comparison to the move “The Godfather” – Supervalu repeatedly forced agreements onto Johnson, and he couldn’t refuse. Johnson slowly slipped into debt that was unmatched by his sales performance, a key component of what his attorneys insisted was a long-term plan to phase Johnson out of the picture and expand their own retail business.

Commentary: This is an interesting and cautionary tale about contractual relationships with customers. Some organizations are extremely supportive and integrated with their customers. Other are more cutthroat (the grocery business overall is a relatively ‘cutthroat’ business due to the extremely low gross and net margins). You will have the be the judge as to where this case lays. An interesting and thorough piece on it was written by the Richmond Times-Dispatch.

Throughout the trial, prosecutors pushed for a punishment of up to 20 years in prison and described Kaiser’s fraud as “an astonishing degree of corruption at the highest levels of corporate America.” Kaiser reportedly orchestrated a fraud that would overstate earnings by $800 million over the years 2000 to 2003 by falsifying supplier rebate reports – all of which left the fraud participants with more significant bonuses.

Kaiser was convicted in November of all six charges, which included one count of conspiracy, one count of securities fraud and four counts of making false filings with the SEC. In addition to his 84 month sentence, Kaiser was sentenced to two years of supervised release and ordered to pay a $50,000 fine.

Ahold, the holding company of Foodservice, claims that the fraud at Foodservice is mostly to blame for its own overstatement of earnings by more than $1 billion in 2003. As a result, Ahold stock value dropped by 60 percent and nearly bankrupted the company. According to reports, Ahold is in the midst of selling the subsidiary as a result of the scandal.

Commentary: Hopefully this helps close the book on this massive fraud and is part of the process to allow US Foodservice to focus on the future and not the past. On a side note, we were particularly amazed that the CEO of US Foodservice was never swept up in this scandal, despite the fact that it happened on his watch. Lucky Charms to him!

Answer: 5.08

In response to criticism that the company contributes to water shortages in the emerging markets in which is operates, Coca-Cola announced a set of water-recycling and environmental initiatives with the goal of becoming “water neutral”.

According to the company…

The Company will focus its actions in three core areas: 1) reducing the water used to produce its beverages, 2) recycling water used for beverage manufacturing processes, and 3) replenishing water in communities and nature.

The pledge was announced at the annual meeting of WWF in Beijing, where the Company launched a multi-year partnership with WWF to conserve and protect freshwater resources. This $20 million (US) commitment from The Coca-Cola Company to WWF will be used to help conserve seven of the world’s most important freshwater river basins, support more efficient water management in its operations and global supply chain, and reduce the Company’s carbon footprint.

Commentary: Interesting initiative. We have been beaten over the head with “carbon neutral” (haven’t we all) over the past two years. However, this is the first that we have heard of “water neutral” (despite the fact that we are headquartered in the desert). We suspect that we will begin to hear a lot more about water neutral in the future and advise CEOs and CSR professionals to stay abreast of it. Just because the glaciers may be melting doesn’t necessarily mean that there will be enough clean water to go around!

At the core is a 100-point five-year plan to re-engineer itself to become a carbon neutral, zero-waste-to-landfill, ethical-trading, sustainable-sourcing, health-promoting business. Elements of the plan include…

• using of bio-diesel in its trucks (aiming for 100% of fleet to run on at least half bio-diesel);
• promising is that all polyester will be made from recycled plastic bottles instead of oil;
• requiring that “new builds” will have 20% on-site generation from renewables;
• sourcing food from more local and regional sources where possible;
• increased rail-freighting of produce (as opposed to via air; and labeling air-freighted products as such);
• sourcing raw materials like wood and foodstuffs from sustainable sources;
• putting a greater emphasis on animal welfare at farms,;
• phasing out loads of pesticides; and
• increasing support of fair-trade suppliers.

Commentary: The headline of the BBC piece pretty much summed it up in “Rose [the company's Chairman] Goes Green in Pursuit of Profit.” We have been impressed by Marks & Spencer’s ethical leadership initiatives for several years. They have a charismatic and outspoken CEO, Stuart Rose – who brings humor and fervor to it (calling the 100 point plan “Plan A” as there is no “Plan B” for either M & S or the planet)

M & S is saying that the 100 point initiatives should cost roughly $400 million over the next five years. The wildcard however is the consumer reaction… research indicates that while consumers claim that they will pay more for ethically produced product, in practice oftentimes they don’t live up to what they (*the consumer that is) say they will do.

All the same M & S has gotten endorsements from Greenpeace and the WWF on the plan, and has agreed to monitoring. It will be interesting to see how it pans out.

- increasing purchasing of eggs produced by free range chickens, with a goal of at least 5% of purchases being such by year end;

- increasing purchasing to at least 20 percent of its pork from producers that do not confine breeding pigs in gestation crates; and

- implementing a purchasing preference for producers that use a controlled atmosphere, lower-suffering in the killing of chickens used for meat.

Commentary: When the PETA is complimentary of your corporation, you know that they must really be doing something different. Some interesting things/PR coming out of this story. (1) there is no announcement about it on the Burger King website (not even at investor relations), so they are not trumpeting it (maybe they weren’t trying to get a lot of press about it); (2) the folks who are bragging talking about it are the NGOs such as PETA’s press release and the Humane Society’s announcement; and finally the actual genesis of this announcement was that Burger King’s product safety manager, Steve Weiffenbach, had sent PETA two letters, dated March 14 and 20, outlining the company’s new supply guidelines. PETA forwarded copies of the letters to the Associated Press and the NY Times. However, the media didn’t believe it and had to independently confirm with Burger King. For whomever is preparing to criticize Burger King, that certainly doesn’t sound like an orchestrated PR greenwash campaign to us.