10 Proofs of Why Businesses Need to Be Regulated: In Photos
By Gerri, Business Pundit, 13 January 2014.
By Gerri, Business Pundit, 13 January 2014.
Businesses are not, despite what new laws may say, human - but the people who run them are. For over a hundred years and increasingly so over the past few decades, the people who have run large businesses have been caught making decisions that are morally and ethically corrupt, greedy, ruthless, and even cruel in the name of turning a bigger profit. The dire need for safety, damage control and the simple fact that regulations protect the lives of employees and those effected by large companies’ actions all point to the fact that businesses need to be regulated. Here are ten unfortunate examples of why businesses need to be regulated.
1. BP Oil Spill
When BP’s Deepwater Horizon oil rig, located in the Gulf of Mexico, exploded and killed eleven BP employees and then spewed approximately 4.9 million barrels of oil into the ocean, it changed the world forever. Sea life, surrounding beaches and their inhabitants, relative businesses and thousands of lives were effected by this disaster which is recognized as the largest marine oil spill in all of history. And it all happened because of ‘regulatory failures’ - in other words, not enough regulation.
Federal investigators took only a year to release a report stating that dangerous shortcuts and a general rush to finish the behind-schedule Macondo well lead to the BP oil spill. Beginning with a problem with the cement located at the bottom of the 18,000 foot deep well and ending in a domino effect of ‘human and mechanical’ errors, the resulting gas build-up exerted a pressure that was so great it caused the explosion, fire, and consequential spill that couldn’t be controlled for weeks after it occurred.
“The loss of life at the Macondo site on April 20, 2010, and the subsequent pollution of the Gulf of Mexico through the summer of 2010 were the result of poor risk management, last-minute changes to plans, failure to observe and respond to critical indicators, inadequate well control response and insufficient emergency bridge response training by companies and individuals responsible for drilling at the Macondo well and for the operation of the Deepwater Horizon,” stated the report.
The report notes that multiple regulation violations played a big role in this tragedy, including but not limited to disregard of safety measures, failure to perform safety tests and failure to take measures to protect the environment. Had BP been regulated more closely and forced to adhere more strictly to the rules they carelessly ignored, the BP oil spill may have been avoided.
2. Private Armies and Lack of Regulation
Private armies are both somewhat unknown and the subject of incredible controversy, and for good reason. Businesses want to keep their use of private armies somewhat under wraps due to the vicious and cruel nature these for-hire guns seem to have unspoken in every contract they take on - and governments use them, too.
Behind WalMart, the second-largest private employer in the world is a private army called G4S, employing 625,000 and working jobs as tame as airport security and as frightening as land-mine clearance at stations in the most dangerous parts of African and Latin America.
The booming business of private military companies is hardly regulated at all; operating overseas, for multiple governments and businesses makes regulation of private armies difficult. Self-regulation, as The Economist notes, is unlikely due to its literal “cut-throat competition.” Since the UN also hires private armies, international regulation becomes even more muddled.
Private armies have been accused, time and time again, of ravaging the land they were hired to protect, embarking on racist and murderous crusades, and using deadly force when absolutely unnecessary.
3. Air Pollution
Air pollution is a huge problem in America and all over the world, which is why the EPA created the Clean Air Act, a federal law which attempts - but doesn’t always accomplish - the task of controlling national air pollution vomited into the atmosphere by big businesses. Without these regulations, companies can create as much atmospheric pollution as is profitable without concern for the lives suffering beneath the smog and cancerous by-products of their factories.
Even with the existence of the Clean Air Act, businesses such as Archer Daniels Midland Company and other coal-burning companies are constantly under investigation and subjected to fines reaching into the millions for polluting the atmosphere despite knowing the rules and regulations against indifferently releasing hazardous chemicals into the air in great quantities. This blatant disregard for the environment (and the lives of those living in it) proves beyond a doubt that businesses need regulation. And what’s more, that big business needs closer regulation and enforcement of the rules designed to save lives - something that they have repeatedly demonstrated that they will continue to violate unless watched over carefully.
Coal, one of the largest culprits when it comes to air pollution, still contributes 40% of America’s electricity. How might this be different if air pollution regulations were stricter, forcing coal burning companies to take better care of the environment and therefore decrease profits as a consequence?
4. West Fertilizer Company
The West Fertilizer Company in West, Texas, didn’t want to alert safety officials of the inappropriate and dangerous amount of highly explosive chemical ammonium nitrate hoarded in storage tanks within their facilities - if they did, that would mean flying within the radar of Homeland Security.
But this was only discovered after a fire and consequent explosion at West Fertilizer Company killed 15 people and lead many people to cry out asking for more and closer regulations of businesses. The blast, The Dallas Morning News found, was the result of multiple safety failures including lack of fire code regulations which could have forced West Fertilizer Company to install sprinklers, or regulations which required scheduled safety inspections. West Fertilizer Company had not been inspected since 1985.
5. MF Global
What happened to the US$600 million that mysteriously went missing from MF Global’s customer funds? CEO Jon Corzine claimed that he simply didn’t know, but that didn’t stop him from resigning and becoming subject to investigation by the FBI, Securities and Exchange Commission and the Commodities Futures Trading Commission.
Called the “largest Wall Street bankruptcy since the financial meltdown,” MF Global’s astronomical crash has been blamed on regulatory failures. Corzine did, after all, stave off the CFTC’s attempt to implement regulations (via lobbying efforts) that allegedly could have prevented this US$600 million disaster.
But even CFTC’s proposed laws wouldn’t have been enough; MF Global was hardly regulated at all. No one was overseeing their largest financial operations, and no one was telling them not to leverage US$44.4 billion against only US$1.4 billion in equity. Furthermore, a lack of financial records made the company even harder to keep track of. With stricter regulations on leveraging and record keeping, MF Global may not have crashed and burned - and taken US$600 million down with them in the process.
6. Failure of the Toxic Substances Control Act
The Toxic Substances Control Act of 1976, or TSCA, was implemented in an attempt to regulate new and already existing chemicals being used in household products being sold nationwide. However, it has been criticized as a complete failure since its creation.
The EPA’s Office of the Inspector General called TSCA “inconsistent and presents a minimal presence,” also claiming that it was “predisposed to protect industry information rather than to provide public access to health and safety studies.” When regulations are failing, who is regulating the regulations?
TSCA, as pointed out in The Guardian, has regulated only five chemicals and assessed only 195 others in the 40 years it has been in effect. There is no law requiring chemicals to be tested prior to going to market, despite the fact that 1,000 new ones are introduced on a yearly basis. The EPA is responsible for proving that a chemical is harmful, and only after that can it be pulled from shelves where it will have undoubtedly been the cause of damages already. While TSCA is failing to regulate chemicals such as cancerous flame retardants present in household cleaning supplies from carpet shampoo to products like mattresses and computers, Congress is merely considering creating a Chemical Safety Improvement act that would implement more much needed regulations.
7. JPMorgan’s US$3 Billion Loss
Regulatory failure was to blame yet again when JP Morgan saw a trading loss of over US$3 billion in May of 2012. Regulators were accused of knowing about this financial crisis beforehand and failing to report it, and of doing a poor job of inspecting JP Morgan as well as regulations called for. Despite the existence of the Dodd-Frank reform act, a law designed to prevent JP Morgan to use its own money to invest in risky endeavours, JP Morgan did exactly that - by capitalizing on a loophole and claiming they were only “hedging.”
Treasury Secretary Tim Geithner called the loss “a pretty significant risk management failure,” and called for stronger and closer regulations that would have prevented the company from utilizing this multi billion dollar loophole.
8. Massey Energy’s Upper Big Branch Mine Disaster
Massey Energy’s non-union mine at Upper Big Branch coal mine in Montcoal, West Virginia, sustained the second-worst mining disaster in history after an explosion claimed the lives of 29 miners in 2010.
The explosion was ultimately attributed to safety violations and failures by the MSHA, or Mine Safety and Health Administration. Massey Energy had been fined over US$350,000 in 2009 for “serious and unrepentant” violations after their mines were found to be lacking in proper ventilation and plans as well as failing to utilize their safety plan - a total of 57 infractions that, due to regulatory failures, lead to the explosion in 2010.
Because the mine was non-union, less regulatory rules required proper inspection and regulation of the operation. Massey was eventually found to be illegally keeping two separate sets of books - one containing the truth and the other containing what they had patched and doctored to show to federal safety officials. The incriminating truth, which eventually came out, exposed the truth about the hazardous conditions that lead to the disaster and made it clear that businesses like Massey need closer regulation to force them to tell the truth since they can’t be trusted to do it on their own - even when the lives of their own employees are at stake.
9. CF Industries’ Multiple Regulatory Violations
CF Industries is one of the world’s largest nitrogen fertilizer producers, meaning that they deal with an incredible amount of toxic, hazardous, and explosive material. And they haven’t been doing a great job of making sure that the process is safe.
In one incident, a ruptured container at a Louisiana CF Industries nitrogen plant killed one and injured at least seven others. Another explosion at a plant in Donaldonville in 2000 claimed the lives of three CF Industries employees and left the company with fines over US$150,000. And then there was the explosion in West, Texas, which exploded and damaged multiple surrounding buildings, facing CF Industries with an additional US$1 million in fines after a complaint claimed that the facility was improperly inspected and not properly equipped with safety equipment. Oh, and that time that CF Industries was fined US$12 million for “grossly mismanaging” a facility in Florida.
Not only would stricter regulations been able to prevent some of these tragedies, but a lack of regulation at all could have lead to even more. Businesses like CF Industries need regulation to ensure that they are following the rules - at least sometimes.
10. Chicago Board Options Exchange Proves Self-Regulation Doesn’t Work
The Securities and Exchange Commission recently fined the Chicago Board Options Exchange in June of 2013 after it was found that they could not be trusted to self-regulate when “various systemic breakdowns” as a self-regulatory business lead to short selling violations, among other regulatory and compliance failures over the course of four years.
Since the CBOE is a self regulatory organization, or SRO, they are trusted to enforce trading rules for all members independently - a task they failed egregiously.
“An SEC investigation found that CBOE failed to adequately police and control this conflict for a member firm that later became the subject of an SEC enforcement action,” the SEC noted in a statement after fining the CBOE US$6 million for their infractions.
In response, CBOE Holdings Inc claimed to strengthen their self-policing team, but was it good enough? The safest way to ensure that CBOE is following the rules, it seems, would be to require outside regulation instead of trusting this multi-million dollar operation of policing itself.
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