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Feb. 21, 2005

Chamber President Tom Donohue Has Vested Interest in Campaign to Limit Consumers’ Legal Rights as Steward of Two Scandal-Marred Companies

Public Citizen Report Details Donohue’s Questionable Performance on Two Corporate Boards

WASHINGTON, D.C. – Tom Donohue has a vested interest in the national campaign to limit corporate accountability because the U.S. Chamber of Commerce president sits on the boards of two scandal-ridden corporations, according to a Public Citizen report released today.

Though Donohue has proclaimed the importance of board members serving as watchdogs for the corporations they manage, he sits on the boards of two publicly traded companies – Qwest Communications International Inc. and Union Pacific Corp. – whose reputations have been marred by serious misdeeds that have prompted the type of civil lawsuits that Donohue is trying to limit. Between them, the two companies have engaged in a monumental deception of investors, violated federal and state regulations on a massive scale, jeopardized public safety, and perverted the American judicial system through alteration and destruction of evidence.

Under Donohue’s leadership, the Chamber has been one of the most outspoken supporters of pro-business tort law changes. It has supported anti-consumer class action legislation and spent millions of dollars in state races to defeat judicial and attorney general candidates sympathetic to consumer and investor rights. Donohue has called for a massive overhaul of the tort system and reduced regulatory oversight by government agencies – the same authorities that have held Qwest and Union Pacific accountable for a long string of corporate misdeeds.

“Using tens of millions in corporate money, Tom Donohue is systematically trying to disarm the public institutions that hold corporate violators accountable – the liability system, the courts, state attorneys general and regulatory agencies,” said Public Citizen President Joan Claybrook. “He sits on boards of two companies that serve as vivid examples of why we need strong law enforcement for crime in the corporate suites.”

Among Public Citizen’s findings:

  • Qwest has paid $250 million to settle fraud charges brought by the Securities and Exchange Commission (SEC) for overstating earnings, has paid $25 million to settle five lawsuits concerning alleged insider trading and still faces billions of dollars in potential civil litigation liabilities.
  • Since Donohue joined Qwest’s board, the company has been assessed more than $114 million in fines by 10 states and the Federal Communications Commission for defrauding consumers and for failing to disclose secret business dealings.
  • Instead of punishing Qwest’s corporate executives, Donohue and his fellow board members rewarded them with higher pay packages. Qwest’s board of directors has received dismal ratings from two independent research organizations for furnishing executives with exorbitant pay packages despite poor corporate performance. Donohue sits on the board’s compensation committee.

Since Donohue joined the Union Pacific board in 1998, the company has repeatedly been found liable in accidents resulting from poor training or unsatisfactory upkeep of tracks, has pressured workers not to report accidents, and has been deemed responsible by courts for manipulating or destroying evidence:  

  • The Arkansas Supreme Court said in a 2004 decision involving a fatal accident, “the record in this case reflects the development of a corporate policy at Union Pacific that put company profits before public safety.”
  • A federal judge in Arkansas fined Union Pacific $168,000 in 2001 for destroying evidence in a case stemming from another railway crossing crash that left a motorist dead.
  • In Washington state, a federal judge sanctioned Union Pacific in February 2002 after it was revealed that a manager secretly fixed a faulty railway crossing after a motorist was killed there. The judge labeled the actions “egregious” and said “severe sanctions are appropriate” since the manager’s “actions were not that of a rogue underling.” Union Pacific had sought compensation from the estate of the driver in this case, claiming the crash had left one of its locomotives damaged.    

Again, Donohue and fellow board members appear to have rewarded Union Pacific executives with ever higher pay. An independent research organization last year recommended against retaining Donohue as a board member because of his role on the compensation committee in boosting executives’ pay.

Donohue has acknowledged the responsibility of board members to make sure companies behave responsibly. In 2000, he was quoted as calling for board members to perform “due diligence” and be active in understanding the company so they can provide the best possible advice. “Save me from a bunch of people on a board who are going to tell me what I want to hear,” he said.

“The hypocrisy hits you like a train,” said Frank Clemente, director of Public Citizen’s Congress Watch division.  “Donohue has called for board members to exercise proper oversight of companies, yet he has responded to wrongdoing in companies he oversees by hiking executive pay. Donohue’s crusade to limit the ability of consumers to hold companies accountable for wrongdoing takes on a new light when you look at his activity on these corporate boards.”

Public Citizen’s report also draws attention to the Chamber president’s opposition to the SEC’s proposed shareholder access rule, which would allow shareholders holding a significant portion of a company’s shares to place nominees for the corporate board on the official company ballot. Currently there is no practical way for shareholders to elect directors not nominated by the incumbent board. Donohue has a vested interest in keeping things as they are, since his continued tenure on Qwest’s board has been challenged and some shareholders indicate they would like to challenge it again in the near future.

To view Public Citizen’s complete report, Tom Donohue: U.S. Chamber of Commerce President Oversees Renegade Corporations While Pushing for Limits to Corporate Accountabilityclick here.

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