May 7, 2021

A Respite in Efforts by Wal-Mart in New York

The company has pulled back after its push to open a store in the East New York section of Brooklyn fell through and after it terminated its contracts with five lobbyist-consultants it had hired to help it win approval for that project.

The plans have stalled during this year’s intensely fought mayoral primary in which several of the Democratic candidates are fierce critics of Wal-Mart and have backed union efforts to block the retailer’s entry to New York. Having saturated many suburban and rural areas, Wal-Mart has long had its eyes on New York City, the nation’s largest center for consumerism, as part of its effort to expand into highly populated urban areas.

Steven Restivo, a Wal-Mart spokesman, acknowledged a partial pullback.

“Once we knew we weren’t moving forward in East New York, we made a common-sense decision to scale back some of our Brooklyn-related activities,” he said. He confirmed that Wal-Mart had cut back on the lobbyists and consultants it used for the Brooklyn project.

One of those consultants, who insisted on anonymity for fear of angering Wal-Mart officials, said the retailer had all but shut down its efforts in New York. “They’ve not pushing at all,” the consultant said in an interview. “They’re all but packed it up and left.”

However, a person familiar with Wal-Mart’s plans in the city, who asked not to be named because publicly speaking about the company was not authorized, said it was now interested in sites already zoned for retail to minimize conflict with public officials.

“Coming to New York’s a big deal, and if you do it, you want to get it right and to be successful,” this person said.

Many public officials say they will continue to fight a Wal-Mart city store. They hailed the latest developments, asserting that Wal-Mart had been beaten by union and community opposition.

Mr. Restivo said Wal-Mart was not giving up. “We remain committed to opening stores all across the U.S., including in large cities,” he said, adding that Wal-Mart would continue to evaluate opportunities in the city.

Wal-Mart’s reputation has been undercut by recent bad publicity, including accusations reported in an investigation by The New York Times that Wal-Mart executives had bribed many Mexican officials and that some of its suppliers were major customers of an apparel factory in Bangladesh where a fire killed 112 workers in November. Labor unions have done their utmost to keep Wal-Mart out of New York City, asserting that its wages and benefits are too low and that it could put union supermarkets out of business.

Wal-Mart, the world’s largest retailer, was long rumored to become a tenant at the Gateway II development in Brooklyn, but in September, the company said it would not open there after all. Wal-Mart officials said its East New York plans fell through because it could not come to financial terms with the developer.

Nevertheless, Christine Quinn, the City Council speaker and a Democratic candidate for mayor — and a frequent critic of Wal-Mart — said, “However Wal-Mart wants to spin it, they were up against tremendous political and community opposition that made it impossible for them to open a store in New York.”

“As long as Wal-Mart’s behavior remains the same, they’re not welcome in New York City,” she added. “New York isn’t changing. Wal-Mart has to change.”

Bill de Blasio, the New York City public advocate. who is also running for mayor, said Wal-Mart was no longer nearly as loud or visible in New York as it was a year or two ago.

Mr. de Blasio, who has issued several anti-Wal-Mart reports, including one that argued that Wal-Mart’s entry would cause a loss of jobs in New York, said Wal-Mart mounted a vigorous public relations campaign in 2010, 2011 and part of 2012. Radio ads, direct mail and targeted charitable donations were made to try to win community support.

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Common Sense: At Martha Stewart Living, Martha May Be the Problem

Among America’s corporate leaders, there are surely few whose interests are more closely aligned with their shareholders’ than the homemaking icon Martha Stewart. She owns 26 million shares and controls nearly 90 percent of the voting rights of Martha Stewart Living Omnimedia. She’s the company’s nonexecutive chairwoman and serves on the board. Martha Stewart, the company, is inseparable from Martha Stewart, the person.

Her net worth is inextricably tied to the value of the shares. That would seem obvious to everyone except, perhaps, Ms. Stewart herself. She continues to collect lavish multimillion-dollar compensation and perks while her company teeters under the weight of huge losses, its shares trading for a fraction of their former value. The paradox is that if the stock had risen even $1 a share in recent years, Martha Stewart would be wealthier now than if she had taken only nominal compensation from the company.

“You’d think there’d be very little need for board oversight because of the strong alignment of the company’s interests with her personal wealth,” Paul Hodgson, a compensation expert and senior research associate at GMI Ratings, told me this week. “Everything should be pushing her to make sure the company succeeds. For some reason, that’s not happening.”

Last week, Ms. Stewart’s company reported a $50.7 million quarterly loss, a staggering amount considering it exceeded total revenue, which was just $43.5 million. That was a 17 percent drop from revenue in the same quarter last year. Although the loss included a $44.3 million noncash write-down related to the shrinking value of two of its magazines, the company until recently has been bleeding cash, which dropped from $38.5 million to just $17.4 million in the quarter. The company said it would lay off about 70 employees, 12 percent of its work force, and discontinue its stand-alone print version of the magazine Everyday Food.

None of this bad news has made much of a dent on Ms. Stewart’s own compensation. Her base annual pay rose from $1.7 million in 2009 to $2 million in 2010 and 2011, and she received a $3 million retention bonus when she signed her new contract in 2009. She gets an additional minimum of $2 million a year under an “intangible assets license agreement,” which gives the company the rights to “Martha Stewart’s lifestyle and the public perception of Martha Stewart’s lifestyle,” including such details as how she arranges her outdoor furniture.

Her corporate perks are well known, and she has long blurred the line between business and personal expenses. She submitted as a business expense the $17,000 cost of her now-infamous holiday trip to the Mexican luxury resort Las Ventanas al Paraiso. She arrived at the resort the day she dumped her shares in the biotechnology company ImClone upon learning, en route, that the company’s chief executive was trying to sell his shares ahead of a negative Food and Drug Administration decision on the company’s principal drug. (She settled charges of insider trading brought by the Securities and Exchange Commission after being convicted of making criminal false statements to cover up the reason for the sale.) Then she had her accountant tell her companion on the trip that she’d have to pay her “fair share” of the costs, according to testimony in her 2004 trial.

The company doesn’t break out Ms. Stewart’s reimbursed expenses, but general and administrative expenses amounted to a lofty $11 million in the last quarter. That number, of course, includes many expenses besides Ms. Stewart’s, like other executives’ salaries.

The company does reveal what it calls other compensation for Ms. Stewart, which in 2011 included a personal trainer and other expenses for personal fitness; a weekend driver; security services; fees for on-air appearances; unspecified personnel costs not otherwise reimbursed by the company; insurance premiums; and an unidentified charitable contribution, which added up to over $1 million.

Ms. Stewart also receives stock options, nearly $1.8 million worth in 2009 through 2011, though she has not received any options so far this year. Still, as Mr. Hodgson put it, “Why is she even getting stock options? Her interests are already thoroughly aligned with the company, given her ownership stake.” Moreover, the intangible license agreement “is very unusual,” Mr. Hodgson said.

All told, Ms. Stewart’s compensation was $9.8 million in 2009, $5.9 million in 2010 and $5.5 million in 2011, or $21.2 million over the last three years, even as the company was in a downward spiral. Just before Ms. Stewart got out of prison in 2005, her shares were trading at over $34 and she was a billionaire. After plunging during the financial crisis, they were above $8 a share in September 2009. They traded this week at about $2.80.

Asked about the issues raised in this column, a spokesman for Martha Stewart Living Omnimedia declined to comment and said Ms. Stewart had no comment.

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Common Sense: As a Watchdog Starves, Wall Street Is Tossed a Bone

A few weeks ago, the Republican-controlled appropriations committee cut the Securities and Exchange Commission’s fiscal 2012 budget request by $222.5 million, to $1.19 billion (the same as this year’s), even though the S.E.C.’s responsibilities were vastly expanded under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Charged with protecting investors and policing markets, the S.E.C. is the nation’s front-line defense against financial fraud. The committee’s accompanying report referred to the agency’s “troubled past” and “lack of ability to manage funds,” and said the committee “remains concerned with the S.E.C.’s track record in dealing with Ponzi schemes.” The report stressed, “With the federal debt exceeding $14 trillion, the committee is committed to reducing the cost and size of government.”

But cutting the S.E.C.’s budget will have no effect on the budget deficit, won’t save taxpayers a dime and could cost the Treasury millions in lost fees and penalties. That’s because the S.E.C. isn’t financed by tax revenue, but rather by fees levied on those it regulates, which include all the big securities firms.

A little-noticed provision in Dodd-Frank mandates that those fees can’t exceed the S.E.C.’s budget. So cutting its requested budget by $222.5 million saves Wall Street the same amount, and means regulated firms will pay $136 million less in fiscal 2012 than they did the previous year, the S.E.C. projects.

Moreover, enforcement actions generate billions of dollars in revenue in the form of fines, disgorgements and other penalties. Last year the S.E.C. turned over $2.2 billion to victims of financial wrongdoing and paid hundreds of millions more to the Treasury, helping to reduce the deficit.

But the S.E.C. has become a favorite whipping boy of those hostile to market reforms. Admittedly the agency has given them plenty of fodder: revelations that a few staff members were looking at pornography on their office computers; a questionable $557 million lease for new office space, subsequently unwound; and the agency’s notorious failure to catch Bernard Madoff. Nonetheless, in the wake of the recent Ponzi schemes, evidence of growing insider-trading rings involving the Galleon Group and others, potential market manipulation in the still-mystifying flash crash, not to mention myriad unanswered questions about wrongdoing during the financial crisis, the need for vigorous securities law enforcement seems both self-evident and compelling.

A bribery scandal at Tyson Foods — a scheme that Tyson itself admitted — resulted in charges against the company earlier this year. But no individuals were charged. While the S.E.C. wouldn’t disclose its reasons, the case involved foreign witnesses and was therefore expensive to investigate and prosecute. The decision not to pursue charges may have involved many factors, but one disturbing possibility was that the agency simply couldn’t afford to, given its limited resources.

Robert Khuzami, the S.E.C.’s head of enforcement, told me his division was underfunded even before Dodd-Frank expanded its responsibilities and that the proposed appropriation would leave his division in dire straits. The S.E.C. oversees more than 35,000 publicly traded companies and regulated institutions, not counting the hedge fund advisers that would be added under the new legislation. While he wouldn’t comment on Tyson, he noted that with fixed costs like salaries accounting for nearly 70 percent of the agency’s budget, “you have to squeeze the savings out of what’s left, like travel, and especially foreign travel, at a time we see more globalization, more insider trading through offshore accounts. It’s highly cost-intensive.”

An S.E.C. memo on the committee’s proposed budget warns: “We may be forced to decline to prosecute certain persons who violate the law; settle cases on terms we might otherwise not prefer; name fewer defendants in a given action; restrict the types of investigative techniques employed; or conclude investigations earlier than we otherwise would.”

It’s not just that cases aren’t being adequately investigated and filed. Under Mr. Khuzami and the S.E.C.’s chairwoman, Mary L. Schapiro, the enforcement division has tried to be more proactive, detecting complex frauds before they cost investors billions. Mr. Khuzami stressed that analyzing trading patterns involves a staggering amount of data, especially the high-frequency trading that crippled markets during last year’s flash crash, and requires investment in state-of-the-art information technology the S.E.C. lacks. Sorting through the wreckage of the mortgage crisis, with its complex derivatives and millions of mortgages bundled into esoteric trading vehicles, is highly labor-intensive.


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U.S. Orders Airlines to State Fees More Clearly

Although the rules do not set limits on how much carriers can charge for items like bags, ticket changes and seats, they do require airlines to more clearly disclose these and other fees in advertisements and on their Web sites. Ads will have to cite the full price, including government taxes that now are often relegated to the fine print.

Other provisions increase the compensation carriers must pay passengers who are involuntarily bumped from flights (from up to $800 to as much as $1,300 for the longest delays). They also require the airlines to refund checked baggage fees if luggage is lost, and require airlines to promptly notify customers of delays over 30 minutes. The provisions impose a four-hour limit on time spent on the tarmac for delayed international flights, expanding a policy that has been in place for domestic flights for a year.

The Department of Transportation proposed these and other passenger protections last June, soliciting public comment on the ideas, and ultimately adopted most of the rules under consideration, despite objections raised by the airlines.

“Airline passengers have a right to be treated fairly,” Ray LaHood, the transportation secretary, said in a statement Tuesday. “It’s just common sense that if an airline loses your bag or you get bumped from a flight because it was oversold, you should be reimbursed. The additional passenger protections we’re announcing today will help make sure air travelers are treated with the respect they deserve.”

The government is trying to deal with a growing frustration for travelers: confusing ticket prices and hidden fees.

When the new rules take effect in late August, airlines will have to prominently disclose all potential fees on their Web sites, including surcharges for baggage, meals, canceling or changing reservations and seat assignments. Although the overview of the new rules provided by the Transportation Department did not specify how these fees would have to be displayed during online fare searches or purchases, the government did single out baggage fees — which have become increasingly complicated — for special attention.

The new rules require the airlines and ticket agents to refer passengers to up-to-date information about baggage charges, both before and after a ticket purchase. Airlines must also include bag fees in e-ticket confirmations sent to passengers.

Another new rule that is sure to spur debate requires airlines and ticket agents to include all government taxes and fees in every advertised price. That would change the longstanding practice of allowing advertisements to list government taxes and fees separately — usually as part of a lengthy, small-print disclaimer.

The Transportation Department also noted that it planned to issue a proposal later this year that would require extra fees to be displayed at all points of sale, not just on airline Web sites. That is another hot issue, as travel agencies have been asking the government to force airlines to share fee data with databases that make it easier for customers to compare ticket prices.

Since the Transportation Department released a preview of the new rules on the condition that the details not be shared until Wednesday, the airlines’ reaction to the policies could only be gleaned from responses they and their trade associations filed during the public comment period last year.

The Air Transport Association, the airlines’ trade group, objected, for instance, to the full-fare advertising requirement, calling the proposal “likely illegal” and pointing out that other businesses like hotels or telecommunications companies were not forced to include government taxes in their advertised prices.

“Given the wide and varied practice of unbundling services and advertising such services, it is not clear why the aviation industry should be treated differently,” the Air Transport Association wrote.

More pithily, Spirit Airlines said in its filing that forcing carriers to advertise prices including additional fees “would be akin to McDonald’s being required to only advertise burgers including the price of fries and a Coke.”

The Air Transport Association also objected to a rule, which was ultimately adopted, that will require airlines to hold a reservation at the quoted fare without payment, or offer cancellations without penalty, for at least 24 hours after a reservation is made.

Spirit Airlines wrote that this proposal would be “like allowing a customer at a grocery store to take home a carton of milk without charge, leave it out in the sun and then bring back the spoiled milk the next day.”

In a concession to the airlines’ objections, the government did limit the 24-hour rule to reservations made one week or more previous to a flight’s departure date. The Transportation Department also decided not to force airlines to incorporate their customer service plans into their contracts of carriage, which would have given passengers grounds for legal action if carriers violated their service commitments. The department also did not require baggage fee refunds when luggage is merely delayed.

Although the Air Transport Association opposed extending tarmac delay limits to international flights, the government adopted this rule, which will apply to domestic and foreign carriers. The Transportation Department cited the extended tarmac delays passengers experienced on foreign carriers during a snowstorm last December at Kennedy International Airport in New York as an “important factor” in its decision.

The airlines have warned that this rule will probably increase flight cancellations. That issue is currently in dispute as analysts, airline representatives and government officials debate whether the threat of hefty penalties for tarmac delays for domestic flights has resulted in more cancellations in the last year.

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