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Blackstone Child Labor in Slaughterhouses and Low-Road Capitalism 2

edited February 2023 in Other Investing
Packers Sanitation Services had children doing Blackstone's dirty work:
https://nbcnews.com/news/us-news/feds-find-100-children-cleaning-slaughterhouses-pssi-rcna71171
Federal officials say more than 100 children worked in dangerous jobs for slaughterhouse cleaning firm....The Labor Department says the children who were working overnight shifts used “caustic chemicals to clean razor-sharp saws.”
Packers was acquired by Blackstone in 2018. The company was just fined only $1.5 million by the DOL for having 102 children as young as 13 working hazardous overnight jobs cleaning slaughterhouses in eight states. This in my view makes such fines just a cost of doing business. BlackStone's stock is already up 27% year-to-date, despite this announcement. Meanwhile, workers in general at the slaughterhouses have said conditions have been unsafe since Blackstone acquired it:
https://pestakeholder.org/wp-content/uploads/2022/03/Packers-Sanitation-Blackstone-Leonard-Green-PESP-March-2022.pdf

• In July 2021, the US Department of Labor’s Occupational Safety and Health Administration (OSHA) cited PackersSanitation Services Inc, and three other companies in connection with a nitrogen leak that tragically caused the deaths of six workers and injured almost a dozen others at a Georgia poultry processing plant.
• OSHA’s 2021 investigation found 17 serious and two repeat violations by Packers at the plant.
• Packers Sanitation Solutions Inc. has been acquired by four different private equity firms since 2007.
• Blackstone and Leonard Green/ AlpInvest extracted hundreds of millions of dollars from PSSI through
transactions known as dividend recapitalizations, in which the private equity firms added debt to Packers
Sanitation’s balance sheet in order to collect dividends for themselves.
• According to a 2017 report by the National Employment Law Project (NELP) looking at OSHA severe injury data, PSSI stood out as a particularly dangerous workplace with one of the highest numbers of serious injury reports compared to its relatively small number of employees.
Again, the fact that the stock is up strongly this year indicates Wall Street doesn't care.

Comments

  • So disgust by Parker in today’s age. The $1.5 million fine is way too small for labor violations. Is that considered human trafficking?
  • @LB. “ Wall Street doesn’t care.”” Perhaps this isn’t the appropriate place to talk about it but how should caring guide our own investment policy? Build our own ESG fund? Find the best ESG fund? Skip Wall Street completely? That would have been my answer in 1971. But that was then.
  • edited February 2023
    @larryB In aggregate, Wall Street doesn't care. Individual ESG managers do care, much like individuals of conscience throughout the world care about issues most overlook. It is also worth noting that deeply flawed though they may be, ESG ratings services do not rate either Blackstone or Norfolk Southern highly:
    https://morningstar.com/stocks/xnys/bx/sustainability

    https://morningstar.com/stocks/xnys/nsc/sustainability

    The answer to these problems I would say in the investment world is true stakeholder capitalism, a term that has become anathema to the right-wing: https://investopedia.com/stakeholder-capitalism-4774323
    Are there money managers who truly care about stakeholder capitalism? There are some. Most, though, merely play lip service to the idea. I would say one of the best fund shops that considers other stakeholders is Green Century Funds, especially when it comes to environmental issues:
    https://greencentury.com/about-us/
    Support of Environmental and Public Health Nonprofits: One hundred percent (100%) of the profits earned managing the Green Century Funds belong to our non-profit owners who run critical environmental and public health campaigns.

    The organizations which founded and own Green Century Capital Management Inc are: California Public Interest Research Group (CALPIRG), Citizen Lobby of New Jersey (NJPIRG), Colorado Public Interest Research Group (COPIRG), ConnPIRG Citizen Lobby, Fund for the Public Interest, Massachusetts Public Interest Research Group (MASSPIRG), MOPIRG Citizen Organization, PIRGIM Public Interest Lobby, and Washington State Public Interest Research Group (WASHPIRG).

    We are one of the first fossil fuel free, diversified and environmentally responsible mutual funds.
    But the money management industry, especially in the U.S., has a long way to go before it takes what stakeholder capitalism means seriously. Shareholders will need to demand that it does for things to truly change. But also, there must be pressure outside the investment world on government to truly regulate business again, to give our regulators teeth, and insist they be utterly separate from industry with regard to influence.

    I would add that Teddy Roosevelt basically had the roots of stakeholder capitalism way back when he gave his State of the Union I linked previously:https://let.rug.nl/usa/presidents/theodore-roosevelt/state-of-the-union-1902.php
    We can do nothing of good in the way of regulating and supervising these corporations until we fix clearly in our minds that we are not attacking the corporations, but endeavoring to do away with any evil in them. We are not hostile to them; we are merely determined that they shall be so handled as to subserve the public good. We draw the line against misconduct, not against wealth. The capitalist who, alone or in conjunction with his fellows, performs some great industrial feat by which he wins money is a welldoer, not a wrongdoer, provided only he works in proper and legitimate lines. We wish to favor such a man when he does well. We wish to supervise and control his actions only to prevent him from doing ill.
    The notion that these companies will do what's best for society, consumers, labor and the environment, if they're unregulated is absurd to me. In reality, unregulated business isn't even just bad for labor, consumers, communities and the environment. It's bad for every stakeholder, even shareholders and capitalism itself. Unregulated businesses cut corners, do things for short-term profits and bonuses for executives at the expense of long-term shareholder value and brand value when the scandals are revealed. And CEOs are sometimes comfortable hurting every stakeholder, including investors, as well as the general public.
  • 'The notion that these companies will do what's best for society, consumers, labor and the environment, if they're unregulated is absurd to me."

    Not just to you, sir... not just to you. Not by a long shot.
  • @LewisBraham. I want to thank you for your consistently thoughtful and well reasoned contributions to this and other threads. I am sure I speak for many others as well who look forward to your remarks.
  • "Brought to you by the Democratic Socialists of America"
  • @baseball fan, it is socialist now to be against child labor? I hope I have misinterpreted what your comment means.
  • @baseball_fan. Is that a bad thing?
  • edited February 2023
    "I hope I have misinterpreted what your comment means."

    @Dutch- No sir, you haven't misinterpreted anything... he is what he is. Making money rules all. Not uncommon, actually.
  • edited February 2023
    @larryb Thanks, Larry. I try to be helpful.

    @Baseball_Fan It is not far-left socialism to believe the capitalist game should have rules and be played fair for all stakeholders--shareholders, employees, consumers, communities, the environment. There are still winners and losers, and wealthy people. It is only the propagandists who believe that the system should have no rules, and, in reality, everybody but executives loses in a completely deregulated system, even shareholders. We had stricter regulation once and America still thrived. The pendulum has swung too far in one direction.
  • Evidently Baseball Fan has no use for umpires.
  • @Old_Joe. Outstanding insight . And the fan is an embarrassment to baseball fans everywhere ..
  • edited February 2023
    Old_Joe said:

    Evidently Baseball Fan has no use for umpires.

    Yep, MLB teams don't need umpire interference!

    What could go wrong?
  • The US does not have capitalism. What we live under is a "corporate socialistic welfare" where huge corporations get federal and state benefits of all kinds ( tax breaks, regulatory pass throughs, sweetheart laws etc) as long as they pay off the politicians with campaign contributions, do nothing lobbying jobs and secret stock deals. Federal bailouts are available if company policies prove incorrect and the company is failing.

    As a prime example I give you ABBV who has played the patent system to control Humira for decades, making billions.

    The only goals of most CEOs is to increase their salaries and perks and stay in the job as long as they can. The average CEO compensation has increased 1322% since 1978 and they make 350 times the average worker.

    True capitalism would have forced Merrill Lynch, Citi etc to go bankrupt in 2008, and sent their CEOs to jail for fraud, and many companies would have shut their doors forever in the pandemic.

    @baseballfan

    A Democratic socialist system would have the State control these excesses, partly though ownership of essential industries and partly though effective regulation. We have none of that.

    Can't wait to see how "free enterprise" handles the PFAS contamination of drinking water throughout the US. Anybody think 3M will go bankrupt and it's CEOs all go to jail?
  • @LewisBraham

    Thanks for tip on Green Century. Quick look shows they have about matched SP500 while avoiding fossil fuel etc. As 2% is ABBV and MRK 1.5% they are not too focused on inflated drug costs as a social issue.

    Their fees are rather high. Do you know how much of their "profit" they have sent to the Public Interest Research Groups? Another idea would be to find a similar cheaper fund and donate the fee difference to pubic interest groups or environmental organizations.
  • edited February 2023
    @sma3 Green Century has a particular focus on environmental issues so they will have exposure to some other problematic companies in industries like pharma. There is no perfect solution here. That said, even when they own problematic companies, they often engage with them, including by filing their own shareholder resolutions to change the companies' policies, and supporting other activist campaigns: https://greencentury.com/impact/

    Regarding the percentage of their profits that goes to non-profit environmental groups, my understanding is it is 100%, perhaps the most interesting fact of all: https://greencentury.com/about-us/
    Support of Environmental and Public Health Nonprofits: One hundred percent (100%) of the profits earned managing the Green Century Funds belong to our non-profit owners who run critical environmental and public health campaigns.

    The organizations which founded and own Green Century Capital Management Inc are: California Public Interest Research Group (CALPIRG), Citizen Lobby of New Jersey (NJPIRG), Colorado Public Interest Research Group (COPIRG), ConnPIRG Citizen Lobby, Fund for the Public Interest, Massachusetts Public Interest Research Group (MASSPIRG), MOPIRG Citizen Organization, PIRGIM Public Interest Lobby, and Washington State Public Interest Research Group (WASHPIRG).

    We are one of the first fossil fuel free, diversified and environmentally responsible mutual funds.
    Regarding investing in a different lower-cost fund and donating the difference to a charity, I doubt a different fund would do this: https://greencentury.com/wp-content/uploads/2022/10/NEW-SA-2-pager-season-higlights-9.30.22.pdf Engagement campaigns cost money. I agree the fees are high here, but I find some of their campaigns impressive, particularly the Apple one:
    Apple* announced in November 2021 that it would provide individual consumersaccess to replacement parts, tools and repair manuals needed to perform common repairs to its products, marking a notable reversal for the company. Apple had vigorously lobbied against legislation that would require them to allow others to fix their products. The announcement came after discussions with Apple and on the same day that Green Century had to decide whether to press forward on a right-to-repair shareholder proposal. Apple launched the program in April.

    McDonald’s* has been a target of Green Century’s shareholder advocacy in recent
    years because of the fast-food giant’s reliance on unsustainable factory farming
    practices. In 2022, Green Century’s President Leslie Samuelrich was nominated
    to McDonald’s board of directors, and the U.S. Humane Society has credited the
    McDonald’s board fight with helping pressure CVS* and Walgreens* to accelerate
    their transitions to cage-free eggs and pushing General Mills* and Denny’s* to
    move towards elimination of gestation crates in their pork supply chains.

    Nearly 70% of Costco shareholders in January voted in favor of a Green Century
    proposal requesting that the company set greenhouse gas emission targets.
    Green Century’s proposal prompted Costco to announce an expedited timeline for
    disclosing supply chain emissions, to commit to developing a Scope 3 action plan
    and reduction targets, and to announce its first reduction targets for its operational
    and purchased energy (Scope 1 and 2) emissions.
  • Even well regarded ESG friendly BWIAX has 2% in Blackstone. It is unclear what the relative impact of an egregious practice such as allowing unsafe child labor practices has on these ESG ratings.

    The ratings are generally vague and rather opaque, unfortunately. Many things that would really upset some people are of little concern to others. The dramatic increase in health care costs and medical debt is driven to a significant extent by the private equity take over of hospitals and ambulances, and manipulation of the patent system but Big Pharma yet it is unclear if these companies practices have any impact on their "ESG" ratings.

    There is also the problem of "watch what I do not what I say". Many corporations have lots of nice policy statements about gender equality, abortion rights, gay rights etc but contribute heavily to politicians who vehemently oppose all of this.
  • edited February 2023
    I agree that there is a tremendous amount of greenwashing going on. This is why the investment community and companies themselves can't be trusted to solve these problems on their own. "Self-regulation," an oxymoron if you ask me, just doesn't work. Government and citizens must be involved, demanding and passing stricter regulations. But it is also a mistake to just cynically assume every corporate or investment manager effort is useless. To do that is to make the perfect the enemy of the good. I would also read the description of Green Century's activist campaigns, which I added later to my above post.
  • I admit I am cynical about the goals of the CEOs of corporate America, but there are lots of small efforts that make a huge difference if focused. Look at "Judd at Popular Information"

    Impressive results from Green Century.

    Also interesting and impressive is "Engine No 1" a hedge fund that manages ETFs focused on "decarbonization" NETZ and influencing better practices among SP500 companies VOTE

    They are the group that got three activists on the board of Exxon to force Exxon to deal with climate change, and are now working to stop methane leaks.
  • edited February 2023
    Great article in NYT today about child labor in the U.S. It’s actually pervasive:
    https://nytimes.com/2023/02/25/us/unaccompanied-migrant-child-workers-exploitation.html
    These workers are part of a new economy of exploitation: Migrant children, who have been coming into the United States without their parents in record numbers, are ending up in some of the most punishing jobs in the country, a New York Times investigation found. This shadow work force extends across industries in every state, flouting child labor laws that have been in place for nearly a century. Twelve-year-old roofers in Florida and Tennessee. Underage slaughterhouse workers in Delaware, Mississippi and North Carolina. Children sawing planks of wood on overnight shifts in South Dakota..,.
    …In town after town, children scrub dishes late at night. They run milking machines in Vermont and deliver meals in New York City. They harvest coffee and build lava rock walls around vacation homes in Hawaii. Girls as young as 13 wash hotel sheets in Virginia….
    ….Migrant child labor benefits both under-the-table operations and global corporations, The Times found. In Los Angeles, children stitch “Made in America” tags into J. Crew shirts. They bake dinner rolls sold at Walmart and Target, process milk used in Ben & Jerry’s ice cream and help debone chicken sold at Whole Foods. As recently as the fall, middle-schoolers made Fruit of the Loom socks in Alabama. In Michigan, children make auto parts used by Ford and General Motors.
    The number of unaccompanied minors entering the United States climbed to a high of 130,000 last year — three times what it was five years earlier — and this summer is expected to bring another wave….
    …One of the nation’s largest contract manufacturers, Hearthside [Food Solutions] makes and packages food for companies like Frito-Lay, General Mills and Quaker Oats. “It would be hard to find a cookie or cracker aisle in any leading grocer that does not contain multiple products from Hearthside production facilities,” a Grand Rapids-area plant manager told a trade magazine in 2019.

    General Mills, whose brands include Cheerios, Lucky Charms and Nature Valley, said it recognized “the seriousness of this situation” and was reviewing The Times’s findings. PepsiCo, which owns Frito-Lay and Quaker Oats, declined to comment.
    Three people who until last year worked at one of the biggest employment agencies in Grand Rapids, Forge Industrial Staffing, said Hearthside supervisors were sometimes made aware that they were getting young-looking workers whose identities had been flagged as false.

    “Hearthside didn’t care,” said Nubia Malacara, a former Forge employee who said she had also worked at Hearthside as a minor….

    …While many migrant children are sent to the United States by their parents, others are persuaded to come by adults who plan to profit from their labor.

    Nery Cutzal was 13 when he met his sponsor over Facebook Messenger. Once Nery arrived in Florida, he discovered that he owed more than $4,000 and had to find his own place to live. His sponsor sent him threatening text messages and kept a running list of new debts: $140 for filling out H.H.S. paperwork; $240 for clothes from Walmart; $45 for a taco dinner.

    “Don’t mess with me,” the sponsor wrote. “You don’t mean anything to me.”

    Nery began working until 3 a.m. most nights at a trendy Mexican restaurant near Palm Beach to make the payments. “He said I would be able to go to school and he would take care of me, but it was all lies,” Nery said.

    His father, Leonel Cutzal, said the family had become destitute after a series of bad harvests and had no choice but to send their oldest son north from Guatemala….
    …Teachers at the school estimated that 200 of their immigrant students were working full time while trying to keep up with their classes. The greatest share of Mr. Angstman’s students worked at one of the four Hearthside plants in the city.
    The company, which has 39 factories in the United States, has been cited by the Occupational Safety and Health Administration for 34 violations since 2019, including for unsafe conveyor belts at the plant where Carolina found her job. At least 11 workers suffered amputations in that time. In 2015, a machine caught the hairnet of an Ohio worker and ripped off part of her scalp.

    The history of accidents “shows a corporate culture that lacks urgency to keep workers safe,” an OSHA official wrote after the most recent violation for an amputation.

    Underage workers in Grand Rapids said that spicy dust from immense batches of Flamin’ Hot Cheetos made their lungs sting, and that moving heavy pallets of cereal all night made their backs ache. They worried about their hands getting caught in conveyor belts, which federal law classifies as so hazardous that no child Carolina’s age is permitted to work with them….
    …But these jobs — which are grueling and poorly paid, and thus chronically short-staffed — are exactly where many migrant children are ending up. Adolescents are twice as likely as adults to be seriously injured at work, yet recently arrived preteens and teenagers are running industrial dough mixers, driving massive earthmovers and burning their hands on hot tar as they lay down roofing shingles, The Times found.
    Unaccompanied minors have had their legs torn off in factories and their spines shattered on construction sites, but most of these injuries go uncounted. The Labor Department tracks the deaths of foreign-born child workers but no longer makes them public. Reviewing state and federal safety records and public reports, The Times found a dozen cases of young migrant workers killed since 2017, the last year the Labor Department reported any.

    The deaths include a 14-year-old food delivery worker who was hit by a car while on his bike at a Brooklyn intersection; a 16-year-old who was crushed under a 35-ton tractor-scraper outside Atlanta; and a 15-year-old who fell 50 feet from a roof in Alabama where he was laying down shingles.
    Note like the Packers company owned by Blackstone above, Hearthside is owned by a private equity fund shop, this one called Charlesbank Capital Partners.

  • But of course @Baseball_fan has no problem with any of this, because he's a genuine patriot, man, unlike all that Democratic Socialist scum.
  • Great article in NYT today about child labor in the U.S. It’s actually pervasive:
    That is truly disturbing in today’s age. They are just kids.
  • BTW Blackstone's CEO and 20% Owner, Steven Schwarzman, took home $1.27 BILLION last year, although the stock dropped 40%.

    "Behind every great fortune there lies a great crime"

    He also was the third largest individual donor to GOP "election deniers" in 2020, and earlier equated Obama's plan to eliminate carried interest to the Nazi invasion of Poland

    I wonder if Yale and Oxford and the NY Public Library will now return the millions he has given them?
  • @sma3 - you forgot to mention ""In 2022, Blackstone delivered record distributable earnings, $226 billion in inflows, and realized a number of the most profitable fund investments in our history," a Blackstone spokesperson said in an emailed statement to Reuters." Any guesses on what those kids got paid?
  • Does becoming a billionaire require you to support actions that if not criminal, are morally repugnant?

    Sure seems like that in many cases. Slave labor, child labor, locking employees into the factory, union busting, fighting minimal train safety requirements and climate change, supporting human rights abuses etc.

    I wonder if Warren Buffett told his railroad to install electric brakes?
  • edited February 2023
    @sma3
    Does becoming a billionaire require you to support actions that if not criminal, are morally repugnant?
    I know you are being somewhat facetious, but what you’re asking is actually a vital question regarding executive fiduciary duty to shareholders and the important distinction and fascinating rise of “B Corps” or Benefit Corporations as opposed to traditional C Corps.

    Benefit corps can and are actually supposed to put each stakeholder on equal footing, including labor and consumers. But traditional C Corps have a legal fiduciary duty to always prioritize shareholder profits, even at the expense of labor, consumers or the environment.

    There is however an important nuance even within C Corps. If a company has a significant brand value and pricing power over its products, it is advantageous long-term to shareholders to consider the other stakeholders. It is for instance damaging to Apple’s brand for consumers to discover that Apple is mistreating its employees in China or here as has been the case in the past. Consumers can opt for a different phone. If Apple cleans up its act, it can boast of this and say see we treat labor well, and that makes more consumers likely to pay the extra money for a premier brand. It benefits all parties including shareholders of companies with premium luxury products to treat labor and consumers well. Otherwise, the brand is damaged.

    Now consider a commoditized business with thin profit margins like, say, making cotton undershirts, or “fast fashion.” The margins are thin, there is no brand value, so the executives in charge will do whatever they can to produce profits, including abusing labor in sweatshops. It becomes a race to the bottom of what is legal, and, often, illegal to produce profits.

    The executives who are enlightened in such commoditized industries and try to treat their employees well end up being driven out of business in many cases as less scrupulous competitors undercut them on price. Moreover, they have a fiduciary legal duty to maximize profits any way they can.

    Without appropriate regulation, such low margin businesses inevitably become hotspots for abuse that goes beyond individual executive cruelty. It’s systemic in nature.

    I should add, in this admittedly long post, that the difference between executives who think of long- term profitability and ones who only think short-term is a vital one, even within the luxury goods industries. The short-term thinkers only care about the next quarter’s profits even if their actions damage the brand and profits consequently long-term. Private equity firms are notorious for thinking short-term, looking for exit strategies to boost profits before they sell that sometimes in the long- term destroy companies. I don’t think it’s an accident that some of these abuses with labor are associated with private equity.
  • PBS Newshour aired a segment regarding migrant child labor this evening.
    Geoff Bennett had a discussion with the New York Times reporter (Hannah Drier)
    who recently broke the story about this.
    Video
  • @LewisBraham

    I agree, at least in theory that commoditized product producers are probably more easily rewarded for such abuses if they improve the bottom line. But for companies with brand vale and pricing power to be different requires that their customers expect they will be different, are a tuned to the scandals and are ready to vote with their feet.

    Apple's Foxconn factories abuses where well publicized, and I abhorred them, but I didn't switch to Android because of the switching costs etc. Ford was recently shown to sourcing their aluminum for the F-150 electric truck from an awful bauxite mine in Brazil with terrible human rights and environmental record. This may dent the stock a bit temporarily, but how many customers are likely to notice?

    I think a big source of this abuse is the focus on pushing up the short term stock price, so all of the options based compensation management gets ( as an off the balance sheet expense BTW ) is vested. The buy backs people think are supporting their dividends and earnings do little to decrease the number of shares in most cases because of the volume of new shares created.

    Oh and if your options still turn out to be underwater, we will just re-price them, as Apple did.
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