Massey Energy - The Case for Campaign Finance Reform

Massey Energy, the 4^th largest coal company in the United States has a long history of safety and environmental violations. The only thing more shocking than Massey's safety and environmental record, is their uncanny ability to skirt and appeal EPA and MSHA fines and win court battles. You see, Massey Energy doesn't believe they have to play by the rules. Their unwillingness to play by the rules, and the West Virginia Supreme Courts unwillingness to hold them accountable has alloted Massey huge profits - all at the expense, burden and lives of American citizens.

Massey has been involved in a number of legal and environmental disputes including mountaintop removal mining. In January 2008, Massey Energy agreed to pay $20 million to the EPA, the largest civil penalty ever for water permit violations. Massey also lost a contract dispute by jury award to a rival competitor, Harman Coal. The contract dispute stemmed from Massey purchasing United Coal, then discontinuing a long term supply contract of its subsidiaries, Wellmore Coal, to Harman. In addition, Massey is appealing a $1.5 million dollar fine instituted by the MSHA (Miners Safety and Health Administration) as the result of a mine fire that killed two miners in early 2006.

Because the government does not have the resources to regulate compliance in all instances, federal judges are given the power to impose fines on an organization based on the seriousness of the offense and the culpability of the organization. Obviously, this punitive system largely depends on the assumption that the federal judges are purely objective and will make appropriate decisions that serve the best interest of the public.

However; recently, members of the West Virginia Supreme Court have been under pressure to remove themselves from hearing a case involving Massey Energy due to blatant conflicts of interest.

Last November, the West Virginia Supreme Court overturned the lower courts contract dispute jury verdict referenced above in a 3-2 decision, ultimately relieving Massey Energy of a $76.3 million liability. The plaintiff, now-defunct Harmon Mining, requested the court reconsider hearing the case after presenting photographs of Chief Justice Elliot Maynard and Massey CEO Don Blankenship together on vacation in the French Riviera during the time the case was being heard.

As a result, Chief Justice Maynard was asked recuse himself from this case. Both Maynard and Blakenship reiterated that they have not hidden their friendship and have been friends for over 30 years. Ironically, Massey Energy has been vocal in seeking to get Justice Larry Starcher to recuse himself from the proceedings for some time, because he loudly criticized Massey (he called Blankenship a ‘Clown’) for allegedly ‘buying’ a seat on the State of West Virginia Supreme Court expending $3.5 million in 2004 to elect Supreme Court Justice Brent Benjamin.

Chief Justice Maynard finally removed himself last month after the photos surfaced. In following, Justice Starcher voluntarily removed himself due to his public criticism of Massey, stating that they have not been a good corporate citizen. In removing himself from this case, Starcher also recommended that Justice Benjamin also recuse himself, given that Massey helped him get elected in 2004. Justice Benjamin has twice refused to remove himself from this case.

As stated so eloquently in an online discussion about the matter, one reader states, “Seriously, what’s the point of buying a judge if he up and recuses himself when you need him…”.

Alone, in their attempts to remove Justice Starcher, Massey clearly demonstrated their comprehension of the concept “conflict of interest” yet, doesn’t seem to realize how their relationships with Justice Benjamin or Chief Justice Maynard presents a problem.

Given Massey’s history of violations and disregard for environmental protections, a reasonable, objective court would find them significantly culpable. But because Massey ‘has’ the West Virginia Supreme Court, they have no incentive to self-monitor or engage in an Ethical Compliance Program.

Now, here we are a couple of years later, and Massey Energy is responsible for the deaths of seven miners in a mine blast that occurred on April 5, 2010. Mine Safety and Health News, claimed that the Massey Mine has had a number of violations related to its ventilation plan over the past years.

This company has no incentive to conform to any safety standards, laws or social contracts because they're not held accountable. The people of West Virginia have been burdened with the residue, costs - and now lives - of Massey's disregard for the rules.

This is an excellent example of why we desperately need Campaign Finance reform. When corporations influence elections, people lose. And die.

Firms Use "Socially Responsibility" as Means To Price Gouge

In defining Social Responsibility, Milton Friedman provides an example in his article, “The Social Responsibility of Business Is to Increase Profits”, of a corporate executive refraining from increasing price in order to contribute to the social objective of preventing inflation - even though a price increase would be in the best interest of the corporation.

The LA Times reported that Exxon and Chevron both saw record earning profits for 2007. Exxon’s net income exceed that of any corporation ever came while the economy grows unstable, either on the verge of, or possibly already in a recession. This recession, or possible recession, is often attributed to the rising price of fuel. These record earnings have brought much criticism from politicians and consumer rights organizations. The criticism is largely fueled by the large tax subsidies that the industry receives from the government. Exxon company spokesman, Ken Cohen, indicated that they were challenged by meeting the increase in oil demand, prompting the price increases. He further commentated that the industry has always been the focus of attention.

Exxon is failing to optimally balance the interests of all stakeholders. I contend that Exxon is exploiting social concerns in order to increase their profits through what amounts to false regulatory taxation. In response to criticism, Exxon spokesperson Ken Cohen explains that they are attempting to “meet increased demands that are also consonant with people’s expectations in the environmental area…..” Essentially, they are using society’s environmental concerns to substantiate their price increases to curb demand, when in fact; I believe they are simply using it as an opportunity to increase profits. Regulation is a function of the government, and here, Exxon is assuming a regulatory role. If the government needed to curb oil consumption, they may decide to implement additional taxes – this is not an activity that should be used by a private corporation involving such a captive market. However asinine, it reminds me of McDonald’s opportunistic method of reducing portion sizes when they received some heat for America’s obesity problem

One of Exxon company spokesperson, Ken Cohen’s, rebuttal to criticism was that they spent $20.9 billion on exploration and other projects. Again, I believe Exxon is using representing these expenses under the false pretense that they are socially driven. Just like Friedman describes, this is a way for Exxon to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest. Here, Exxon is translating profit-generating research and development expenditures into an opportunity to bolster their public image.

In Hasnan's “Two Normative Theories of Business”, he points out that laissez faire should not be argued to demonstrate the vulnerability of the utilitarian’s defense of stockholder theory, for the lack of a true free market renders the point moot. Here, Exxon’s business is not only subsidized by the government and lacks competitors. There is no true market, but a captive, dependent marekt. Many consumers are unaware as to which oil companies products they are buying. There is no market for oil by the end consumer.

While Freeman says that the laws have been progressively increasing the rights to those groups that have a claim in the firm, this is the opposite when it comes to the oil industry. In fact, the government capitalizes on our dependence of oil through taxation.

While I can say that Exxon is failing to optimally balance the interest of all stakeholders, they have a fiduciary responsibility to maximize profits for shareholders-and I believe they did just that. Exxon distributed more than $35.6 billion to its shareholders through dividends and stock buy-backs throughout the year 2007.

As far as known information permits, Exxon played within the “rules of the game” - the game just needs better rules.