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For decades, Switzerland has been a favorite headquarters for global corporations, and for good reason: It transformed its tiny Alpine country into an economic powerhouse, in good part by keeping business secrets and asking few questions.
But that could be about to change—as soon as this weekend.
In a nationwide referendum on Sunday, Swiss voters will decide whether companies headquartered there should be held legally liable for whatever environment wreckage and human rights abuses occur as a result of their operations, no matter where. The so-called Business Responsibility Initiative, or BRI as the Swiss call it, has been nearly a decade in the making, and would compel companies to report on non-financial aspects involved in every part of their global supply chain—a potentially mammoth undertaking for giants like pharmaceutical manufacturer Novartis or oil trader Trafigura. Those are just two of the 29,000 or so companies headquartered in Switzerland. In the future, all would be held accountable under Swiss law for transgressions across the world.
Depending on who you are, the idea is either long overdue, or a catastrophe in the making.
Human-rights advocates, trade unions and NGOs argue that the BRI would finally force companies to make sure that their suppliers and sub-contractors do not use child labor, expel people from their land, or pollute local rivers and air; those are among the accusations leveled against Nestlé (headquartered in Vevey, Swizerland), commodities trading house Glencore (headquartered in Zug, Switzerland) and cement giant LafargeHolcim (also in Zug).
“If we can only be competitive by ignoring human rights, by ignoring the basic laws of environmental protection, that means our country has really lost all dignity,” Dick Marty, the former Swiss Senator who spearheaded the proposal, told a local journalist earlier this month. He says that by far the majority of Swiss-based businesses are good global citizens, but that the abuses committed by a small number of them are “damaging to the local population and environment, as well as to the image of Switzerland and its economy.”
“Change is coming”
Surprisingly, Switzerland’s business organizations largely agree with that sentiment, saying that clearly something needs be done about the human-rights violations, corruption, and environmental problems in global supply chains. For years, multinationals have been able to wash their hands of such issues, arguing that they lie beyond the control, and too remote from their corporate decision-makers.
But that argument is unlikely to survive much longer.
“I completely agree that change is coming,” Erich Herzog, executive board member of Switzerland’s umbrella business federation economiesuisse, told Fortune by phone on Friday. “There are some very sensitive areas into which companies have to make specific efforts.”
Beyond that broad agreement, however, lies deep division over how to compel companies to change, and most Swiss-based businesses and Swiss politicians have rejected the BRI proposal in Sunday’s referendum as putting much too big a burden of proof on companies.
“The BRI is dangerous,” says Herzog, who heads the organization’s competition and regulation department. “Swiss companies have to do vast due diligence on its whole supply chain,” he says. “It is something that companies cannot really work with. There might be a withdrawal of investments in countries where the risks are too high.”
It could, say some execs, even lead companies to move countries. “It will perhaps drive businesses not to install themselves in our home [Switzerland],” Beat Hess, President of LafargeHolcim told the Swiss paperLe Temps this month. “This will cause us to spend a lot more money to lawyers and communications people.” He calls the BRI “a gigantic absurdity.”
What the polls say
Even so, recent polls show wide support among Swiss voters for the BRI proposals—a sign that Sunday’s referendum could pass. In Herzog’s opinion, that is because many voters believe companies are likely committing abuses elsewhere in the world, yet they do not realize how arduous it will be to enforce the law. “We are in a very ambiguous and very toxic environment, which companies, even if they try to do good, they cannot cope with,” he says.
Predicting that the referendum could well succeed, the Swiss parliament has drafted an alternative proposal that it would try to pass during the coming months—stopping the BRI measures from being turned into law.
The politicians’ counterproposal would still force companies to monitor human-rights and environmental issues across their global supply chains, and issue regular due diligence reports on a range of non-financial factors. But crucially, it does not threaten legal action against Swiss-based companies for any violations they find.
That, says Marty, the former senator who drafted the BRI, gives companies complete protection from the law. “It does not give the injured party which suffers damage any opportunity to assert its rights,” he told the news site SwissInfo. “It is total impunity.”
In recent note earlier this month, the accounting firm EY says parliament’s proposed law would nonetheless compel Swiss-based companies to hugely increase its due-diligence reporting (a service, it adds, that EY would be happy to offer prospective clients). If the parliament’s new law is approved, “the according nonfinancial report would need to be approved and signed by the highest management and administrative body, and approved by the body responsible for annual accounts,” EY says. Companies would also need to monitor all minerals and metals in conflict zones and audit its suppliers for child labor.
Either way, as Herzog says, change is coming in Switzerland—no matter what Swiss voters decide in Sunday’s referendum.
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The last day Regina Lee was in the office, she was coughing so badly it rattled her whole body. The Costco Travel agent didn’t often work on Saturdays, but she’d picked up an extra shift on March 14 to help field the barrage of calls from customers trying to cancel cruises amid the coronavirus pandemic. Beloved in the office, the 59-year-old rarely missed a day of work in her 20 years at the company. That day, though, her coworkers kept wondering why she was there.
Ten days earlier on March 4, officials in King County, Washington — home to Costco’s headquarters and the initial epicenter of the US outbreak — called on businesses to let their employees work from home during a “critical moment in the growing outbreak.” Major Seattle-area companies like Microsoft and Boeing heeded that warning, shuttering their corporate operations and shifting employees to remote work. Costco did not. That same day, Costco CEO Craig Jelinek emailed thousands of workers at the company’s sprawling corporate campus in Issaquah, Washington, to say that allowing corporate employees to work remotely wouldn’t be fair to the “great number of Costco employees locally and across the country” in its stores who could not. “Our jobs here are to support our retail business, and we’re not prepared at this point to have corporate employees work from home,” he wrote.
“‘We take care of employees.’ Bullshit.”
Throughout her Saturday shift, Lee, who had diabetes, struggled to control her dry, hacking cough while processing refunds for some of the hundreds of customers calling Costco’s 20-year-old travel business. “She should go home,” Lee’s concerned colleagues whispered among themselves as she struggled to catch her breath. A supervisor eventually checked on her, but the agent remained at her desk until the end of her shift at 3 p.m. By Monday morning, she was dead.
Lee was the first known Costco employee in the US to die of COVID-19, the disease caused by the novel coronavirus, after she collapsed at the Everett, Washington, home she shared with her sister, Willa, and their mother, Susie. Two weeks later, they were dead too. The Lees are now three of the more than 31,000 people who have died in the US — and nearly 140,000 people globally — from the novel coronavirus.
With 547 retail warehouses across the US, Costco has become a lifeline for millions of people during the pandemic. However, more than 100 employees and contractors told BuzzFeed News that the $140 billion global retailer placed thousands of workers at its corporate offices and stores at risk through its lack of transparency on confirmed cases, disregard for warnings, and inability to adjust long-standing policies during a critical period. These people, most of whom asked for anonymity for fear of losing their jobs, said Costco left its workers unprotected and uninformed on the front lines of the worst global health crisis of their lifetimes.
“Is business that much more important?” Regina’s brother Raymond Lee told BuzzFeed News. “Shame on Costco. They say, ‘We take care of employees.’ Bullshit.”
“No higher priority than your own well-being”
Costco employees said the company should have seen this coming.
In conversations with BuzzFeed News, both corporate and warehouse workers wondered why Costco management was so slow to enact firm coronavirus protocols at its North American locations, given what the global retail giant had seen in its stores in Asia, where the pandemic first spread.
And that hesitation may have let the virus spread further than it otherwise would have.
According to interviews and internal memos obtained by BuzzFeed News, at least 21 people at Costco’s corporate offices and at least 62 workers at warehouses across the US have tested positive for COVID-19. According to employees, at least two have died after contracting the disease.
Meanwhile, workers at Costco’s warehouses — what the company calls its stores — said the retailer didn’t do enough to prepare or protect them from thousands of customers who flooded in to stock up on toilet paper, cleaning supplies, and bulk groceries as coronavirus fears ramped up in March. Some employees who spoke to BuzzFeed News said warehouse managers failed to properly inform them of confirmed coronavirus cases among their colleagues and were slow to shut down or professionally sanitize their stores — leaving them and their members at risk.
“Working for Costco during this devastating point of time has become a living nightmare,” a Los Angeles–based warehouse employee told BuzzFeed News, noting that the company’s coronavirus response has disillusioned workers. “They will continue to prioritize the needs of the business over their employees’ well-being, even when we are in a state of emergency. We were never prepared for this.”
“Working for Costco during this devastating point of time has become a living nightmare.”
Costco, its CEO, and members of its leadership team did not respond to repeated requests for comment on a detailed list of questions regarding its response to the coronavirus pandemic. In a March 21 memo obtained by BuzzFeed News, Jelinek suggested he would not be responding to press inquiries. “As we’re dealing with this unprecedented situation we aren’t spending a lot of time engaging with the media and other occasional critics,” he wrote.
While many companies in the US, including Starbucks, Trader Joe’s, and Amazon, were slow to respond, in part because their leaders followed the federal government’s haphazard messaging and response, Costco’s management had plenty of warning. On an earnings call 11 days before Lee died, the company’s chief financial officer touted its response to the spread of the coronavirus in China and South Korea, both countries where it has stores. Costco has also weathered previous health crises, including the 2002–03 SARS outbreak.
In conversations with BuzzFeed News, Costco workers from an array of positions across the US detailed circumstances they deemed irresponsible. Two pregnant women in Texas were so concerned about their working conditions they took extended, unpaid leaves, their manager said. In Ohio, a manager described the “carelessness” of ignoring social distancing protocols by keeping every checkout register open. Employees in Las Vegas wondered why their stores were letting customers mill around and touch nonessential items like clothes and patio furniture. A manager in Michigan said elderly hourly workers were made to sanitize an area of the store where an infected employee had been without being told what and why they were cleaning.
“I do think Costco has implemented some good practices now, but it just took too long,” the Michigan manager said. “They were reactionary the entire time instead of taking the opportunity to be a leader in the industry.”
Since BuzzFeed News first reported on working conditions at Costco facilities during the outbreak, the company has strengthened its response. More than a week after Lee’s death, it enabled most of its corporate employees to work remotely. It also confirmed it would temporarily boost warehouse pay by $2 an hour, promised to provide masks and gloves, shortened store hours, required plexiglass shields on registers, and limited how many customers were allowed in a store at a time, though some employees say those aren’t being followed. BuzzFeed News obtained an internal memo sent earlier this month that shows that Costco now monitors employees’ temperatures in accordance with federal guidelines. The company has also ramped up its messaging to employees and its CEO has visited multiple warehouses to thank his workers.
“While we should be very proud of serving our communities, at the same time I know Costco employees have personal concerns and anxiety as well,” CEO Craig Jelinek said during a rare company-wide video address on March 30. “So I want to be clear about this: The business of Costco is important, and our communities and coworkers depend on us. But there’s no higher priority than your own well-being and the well-being of your families.”
“We are all expendable.”
For some workers, Jelinek’s message seemed like damage control. Many people worked at Costco for years, citing the company’s health care benefits, retirement plans, and relatively high pay as reasons why it was a good place to work. The company’s delayed and deficient handling of the coronavirus pandemic, however, has dampened those sentiments, making employees feel as if they had to choose between their health and their livelihoods. Without accumulated holiday or sick pay, some employees living paycheck to paycheck said they were told they had to come to work or take unpaid leave — even if they thought they had been exposed to the disease.
“We are all expendable,” said one Costco shift supervisor in Oregon. “Who talks about protecting us? I am not hearing anyone stand up for us.”
“Everyone is sharing gloves”
Detailing potential risk factors in its 2019 annual earnings report, Costco warned of potential “public health issues” that “could disrupt our operations … or have an adverse impact on consumer spending and confidence levels.” But the coronavirus pandemic, at least in its early weeks, seems to have had the opposite effect.
As people flocked to warehouses to stock up for weeks of self-isolation, Costco’s sales jumped more than $1.6 billion, or 11.7%, in the five weeks leading up to April 5, according to a recent financial report. E-commerce sales were up nearly 50%. Those numbers were “strong,” said CFRA Research analyst Garrett Nelson, who noted that the pandemic was an “opportunity for them to pick up customers” and build upon its membership count of some 100 million cardholders.
Costco had seen crisis-inspired sales booms before. In 2003, as SARS wreaked havoc on Asia, its stores in Taiwan — where it now has 13 locations — not only weathered the storm but thrived. “People would come to Costco to buy food because they trusted it,” Richard Chang, Costco’s senior vice president of Asia, said in a 2018 interview.
So as the coronavirus outbreak gained momentum in China and South Korea, company leaders who’d been through the SARS crisis temporarily closed and cleaned affected locations while implementing strict daily disinfecting and social distancing regimens.
“Our warehouses have overall remained open with only a few total days of closures at a couple of locations in Korea, as well our Shanghai location, [and] there has been some limitations required on the number of people in the facility at a given time,” Costco Chief Financial Officer Richard Galanti said on a March 5 earnings call.
In the US, Costco’s workers aware of the measures taken to protect their foreign colleagues wondered why the same wasn’t being done for them. In private Facebook groups for employees and in interviews with BuzzFeed News, they fumed about the disparity between the precautions taken abroad and what was happening in the US.
“When you look at the Costcos in [South] Korea, they shut down the entire store and cleaned it,” one employee at the company’s Hayward, California, warehouse told BuzzFeed News in mid-March. “We only shut down to control how many people were in the store. There hasn’t been one deep cleaning. The employees there are decked out with masks. [There’s a] commitment to protection.”
“We were having 3,500 people allowed to come in at a time and no masks have been required.”
Meanwhile, as wave after wave of customers clamored for paper towels and pasta at US locations, employees at a number of Costco warehouses said managers floundered amid a lack of clear direction from higher-ups about social distancing and customer limits.
At the store in Culver City, California, on March 13, two days after Gov. Gavin Newsom advised citizens to avoid large crowds, door count sheets provided to BuzzFeed News illustrated the chaos. From 9:30 a.m. to 11:30 a.m., employees at the door checked in 4,015 Costco cardholders. The total door count for that day was 10,371 members, which does not account for the fact that multiple people can enter the store on the same membership card.
“We were having 3,500 people allowed to come in at a time and no masks have been required,” a supervisor at that location told BuzzFeed News on March 19. “Everyone is sharing gloves. We’re bringing our own, and if we have enough we give them to each other.”
At one point, as Costco stores racked up banner days, with some regularly exceeding sales of $1 million every 24 hours, employees struggled to buy supplies for their own families. They’d often find that crucial items like baby formula and disinfecting wipes were sold out by the time their shifts ended. Multiple warehouse workers told BuzzFeed News they felt expendable.
“I feel like we weren’t considered and we are like little guinea pigs looking at sales,” said one Culver City warehouse employee, adding that management took nearly a day to tell them about a colleague’s positive COVID-19 test, after cleaners in hazmat suits wiped down the areas where they worked. “The store will manage $600,000 to $1 million on a normal day. The other day we were at $1.4 million.”
At the end of March, Costco mandated that every location let employees shop from 8 a.m. to 9 a.m. every Friday, according to internal documents seen by BuzzFeed News.
“Business as usual”
Gregory Ulrich had just acclimated to his new warehouse in Norwalk, Connecticut, when he abruptly called in sick around mid-March. His colleagues immediately worried that the manager, an esteemed Costco veteran of nearly 20 years, had contracted the virus. The affable 57-year-old had been “coughing up a storm” for a few days, an employee told BuzzFeed News, explaining that “Norwalk had a huge outbreak, so people were getting a bit on edge.”
On Friday, March 27, Ulrich was rushed to the hospital, a friend told BuzzFeed News. He died the following Monday from complications associated with the novel coronavirus. Alicia Ramnarine, a former Costco colleague, told BuzzFeed News that Ulrich was always cheerful, kind, and “a gentle man in a place full of chaos.” Ulrich’s family declined to comment.
According to two employees, warehouse leaders held two “emergency meetings” addressing the coronavirus panic. At the first, around March 16, management told staff that no one at the store had the virus and that people who spread rumors to the contrary could be fired because of the “severity of the misinformation,” a worker in attendance said. At the second meeting, about a week later, management said they “did not know about his positive results” and that they were going to enact more safety measures. Norwalk, Connecticut, had 17 confirmed COVID-19 cases at the time. That number has since swelled to 747 cases and 32 deaths.
In a note posted in the warehouse break room the day Ulrich died, management called his death “a great loss” and said that the longtime employee would be “profoundly missed.” As the store closed for the night, workers watched as a hazmat crew came in and disinfected the store’s cash registers.
The following day, the Norwalk store’s general manager posted a second letter in the break room, saying he did not know Ulrich had the coronavirus because “his doctors did not feel he had it, nor would they test him.” The store leader told staff in bold letters to “DEMAND” to be tested if they were feeling symptoms as “doctors are waiting far too long to test people on their assumption that their patients don’t have it.”
A spokesperson for Greenwich Hospital of the Yale New Haven Health System declined to comment on Ulrich’s case, citing patient privacy laws.
At the time, his Norwalk colleagues had been hearing about coronavirus cases at other warehouses and saw every cough as a potential danger. Two employees who worried Ulrich had the virus feel that management should have been more vigilant in monitoring for early warning signs and done a better job enforcing social distancing rules.
“I remember posts in our employees group page about measures some warehouses were taking, and many of us did wonder what we were waiting for. It was like business as usual,” one employee told BuzzFeed News, adding that his colleagues were “scared” to come into work.
However, another worker there said he was “happy” with the warehouse’s response. Costco did not respond to requests for comment on safety protocols at the Norwalk location.
As of April 6, three other workers have tested positive for COVID-19, according to documents obtained by BuzzFeed News, bringing the Norwalk warehouse’s total case count to at least four.
“His doctors did not feel he had it, nor would they test him.”
The experience of the employees in Norwalk is not unique. At more than a dozen warehouses across the country, workers told BuzzFeed News that management at their locations was often slow to implement safety measures and failed to adequately inform them of new or suspected coronavirus cases among their colleagues. Some workers have taken it upon themselves to tally the cases, using a private, employee-only Facebook group to share information about coworkers who have reportedly contracted or died from COVID-19.
Labor advocates said the federal government’s own dismissiveness of the virus, blundered response, and weak guidelines set the tone for Costco and other major retailers. Protocols from the CDC and FDA offer “very minimal guidance” on how to protect workers and could enable businesses to pressure employees to return to work even if they’re sick, Peter Dooley, senior project coordinator for the National Council for Occupational Safety and Health, told BuzzFeed News, calling essential workers the “most at-risk and the most neglected.”
“The messaging from the top was of total denial for action or precaution, and the shame of it is that we had examples of what had been put in place in other countries,” Dooley said. “The real problem is the deception for people to think that they’re not at risk, or in the low-risk category, and now we have grocery workers dying from the virus. If a worker gets sick with the illness it should be a presumption it was work exposure.”
Costco’s corporate leaders have been issuing new temporary operational guidelines for all its US warehouses. On March 27, they told managers that they’re required to provide masks, gloves, and plexiglass screens at checkout stands, sanitize registers every 15 minutes, and limit common contact points like silverware dispensers in break rooms. Some changes are happening, workers said, but many feel it’s too late. In New York, the Westbury warehouse on Long Island has at least eight infected workers, according to company notices provided to BuzzFeed News.
Amanda Rosado, a deli worker at Costco’s Port Chester, New York, location told BuzzFeed News that by this month four of her coworkers had tested positive for COVID-19, a situation she described as “a holy fucking clusterfuck.”
The 31-year-old told BuzzFeed News that during a recent Saturday shift, she noticed that a supervisor overseeing the registers was coughing and had red eyes, but he continued to work without gloves, handling cash that was later touched by dozens of employees. Later, he went home sick. Another colleague she worked with recently in the meat department had tested positive for the coronavirus, according to letters sent by another employee to BuzzFeed News.
And she couldn’t help but wonder: “How many people might have gotten sick because they walked into my warehouse?”
“How many people might have gotten sick because they walked into my warehouse?”
Rosado has worked for Costco since she was 19. Now a single mom with three kids who also cares for a brother with HIV, she said she felt vulnerable because of her managers’ lax approach to safety. She told BuzzFeed News that one person she’s worked closely with in the small deli room has been sick, and that another coworker went home with a terrible cough, only to come back a week later. The warehouse where Rosado works is just 15 minutes away from New Rochelle, New York, an early coronavirus hot spot and containment zone, but it only started giving employees masks at the beginning of April, she said.
Fearful of contracting the virus and bringing it home to her kids and immunocompromised brother, Rosado decided to take a leave of absence, using some of her vacation days to cushion the financial blow. At first, she said she was told she did not “fall under the criteria” to apply for a coronavirus-related break, where employees could request unpaid time off if they’re high-risk, concerned about working, or have symptoms — though she said she’d been in contact with an infected coworker and has chronic asthma.
“I want to do what I feel is right for me and my family,” she said. “Working at Costco is like fighting an invisible enemy with a blindfold and no weapons.” Costco did not respond to requests for comment on the exchange.
Among the most marginalized workers at Costco are its contractors, some of whom were thrown into difficult roles to keep up with demand, from packaging to loading supplies in crowded distribution centers. After Costco shuttered its famous food sample stations in early March, it placed the sample servers, who were employed by a third-party company named Club Demonstration Services, on sanitization teams to keep them on the payroll.
It was a tough spot to be in, several former CDS sample servers told BuzzFeed News. They needed the money — but some of the tasks, including walking the length of warehouses to clean where a potentially sick person had been, were difficult for the workers, many of whom were over 65 and had preexisting health problems. Less than a month later, CDS abruptly fired all 30,000 workers, as BuzzFeed News first reported, without warning or severance. In an announcement, Costco said it would be using its own employees to clean.
Employees out, seasonal workers in
Costco’s response to the coronavirus pandemic varied across its 547 locations in the US. Employees at some warehouses told BuzzFeed News their managers have been proactive, strictly enforcing limits on customers allowed in stores and mandating social distancing in the break rooms.
But for every story of the company’s success, there seems to be another of its failures. In Hayward, California, home to the second-largest Costco warehouse in the Bay Area, employees continue to complain of lax safety measures. Minutes after management announced its fifth COVID-19 case at the end of March, half of one manager’s employees walked off the floor. Most haven’t come back, and the manager told BuzzFeed News he doesn’t blame them. Over the past few weeks, he has logged and photographed what he believes to be at least 10 sanitization and safety failures at the 154,000-square-foot warehouse.
The manager told BuzzFeed News that Costco’s decision to expand open hours at an already overworked store has made things worse. Hayward, which used to open its doors at 10 a.m., now officially opens at 7:30 a.m. and closes at 6:30 p.m. But hours before that, at 3 a.m., it welcomes health care workers and first responders who are unable to shop during normal business hours. At 6 a.m., seniors and Instacart workers can begin shopping. It’s a grueling schedule that makes coronavirus safety protocols tougher to manage.
“We’re not taking care of the community if none of the employees are protected.”
Since the end of March, about 100 of the Hayward store’s 330 employees have taken leave, the manager said, some forgoing pay after exhausting their sick days and paid time off. To supplement the loss of full-time employees, the warehouse, like many others across the US, has hired scores of seasonal hourly workers who require training. These temporary employees said they, too, have become essential parts of the workforce but have remained largely invisible, with no hazard pay or sick time. Some contractors said they were given scant protections for working in crowded environments and handling supplies.
“The aggressiveness is not there. You hear it from [the governor], but it’s not trickling down to the businesses and their essential workers,” the manager in California said. “I do like Costco — in dire times we take care of the community — but we’re not taking care of the community if none of the employees are protected.”
“Costco … won’t close for anything”
By early February, Regina Lee and her Costco Travel colleagues were already feeling the impact of the coronavirus on their work. As news filtered to the US that hundreds of passengers on the Diamond Princess cruise liner had been quarantined in Japan, customers began flooding the phone lines, asking if they should cancel trips or if there were any deals to be had.
Agents told BuzzFeed News that, at times, more than 850 people would be waiting on lines for up to three hours, overrunning their systems. To manage the volume, some travel employees worked 12-hour shifts, while others came in seven days a week, even as the state of Washington received early signs of what lay ahead.
“Here we are in a very close working environment amid the outbreak, and we’re right up the road from Kirkland, [Washington,] and that retirement home where all the first deaths came from,” one travel employee told BuzzFeed News, referencing Life Care Center, a nursing home that accounted for the nation’s earliest coronavirus cases and fatalities. “I pass it every day on my way to work [and] wondered what happens when it hits here at Costco Travel. It would be like a bomb going off.”
“What happens when it hits here at Costco Travel. It would be like a bomb going off.”
By Friday, March 13, Washington had recorded 694 cases of COVID-19 and more than 100 deaths, the majority of which were in King County. The news deeply unsettled employees at Costco Travel and the company’s corporate offices, who told BuzzFeed News of their mounting anxiety as coworkers developed coughs or flulike symptoms. The risk for contagion was high, they said, pointing to their open floor plans with close-quartered pods, crowded shuttles that ran between parking lots and other buildings, and shared eating areas.
Many employees wanted to work from home but were forbidden from doing so. Some told BuzzFeed News that Costco’s resistance to remote working stemmed from its “old-school” culture, where long-serving executives didn’t understand its merits. Employees said management refused to give them laptops and often cited solidarity with their warehouse colleagues as justification for forbidding remote work. The stores were renowned for staying open in harsh weather, and if warehouse workers could brave snowstorms, management said, so should office employees. If you got snowed in, that counted as a sick day.
“Costco thinks it is the USPS and won’t close for anything,” one former employee of 15 years said. “You have to bring your butt into work, despite the conditions.”
As the coronavirus spread across King County, executives stuck to the same logic, sending emails that they were monitoring the outbreak, telling sick employees to stay home, and suggesting that those people who were considered “high-risk” use paid time off. The majority of office workers, though, were expected to come in if they wanted to collect a paycheck, and those without vacation time were left in difficult positions.
Costco did not respond to repeated requests for comment about these policies.
The death of Lee shocked her coworkers. She was a favorite among colleagues, who remembered her smile and knack for leaving chocolates on people’s keyboards. On the Monday she died, Lee’s fellow agents had been answering the onslaught of calls when at around 11:30 a.m., management cut off their phone lines. The office became abruptly, eerily quiet. Then an email arrived in their inboxes.
“I was so mortified that they didn’t close the office when my friend died.”
“As soon as I read her name, I leaped out of my chair,” one agent who sat near Lee for years said. “My headset was still on my head, and I pointed to her nameplate, which was still on her cubicle.”
In announcing her death, Costco Travel Vice President Peter Gruening said Lee died “unexpectedly” and that the company had “no information that this was related to COVID-19.” As a precaution, the company would close the building for a cleaning, he wrote, adding, “As of now, we expect to open tomorrow as usual.”
Shortly after the announcement, supervisors came to the floor and ushered everyone out. Agents remembered checking their phones all night for a message, wondering if they’d be quarantined at home. “The next morning, they said, ‘We are open just as usual,’” a current employee told BuzzFeed News. “There was so much confusion and anxiety. So many people didn’t show up.”
Those who did come back on Tuesday furiously wiped down their desks while wondering aloud if they should have stayed home. Later that afternoon, corporate leadership confirmed in an email that Lee had tested positive for the novel coronavirus, acknowledging that the news “causes a great deal of concern and anxiety among employees.” The building, though, remained open.
Tuesday 3/17/20 To: All Home Office employees From: Ron Vachris and Peter Gruening Subj: Important Update on Costco Travel Employee
We are following up on yesterday’s notice about the Costco Travel employee who passed away at home Sunday night. We received confirmation this afternoon that the employee tested positive for COVID-19. In the interests of privacy, we are not disclosing the employee’s name here.
We understand this new causes a great deal of concern and anxiety among employees, particularly those at Costco Travel.
Yesterday and last night, we took the precaution of bringing in a professional cleaning crew to perform a thorough cleaning and sanitation of the Costco Travel building (LP-2). Following the cleaning, the building reopened today. Additional sanitation will continue daily.
“I was so mortified that they didn’t close the office when my friend died,” said one travel employee who has been with the company for more than a decade. “Costco is my family, and I love them — but that really tore it for me right there.”
The morning after Lee’s death, CEO Craig Jelinek said in an email that company leadership was “now encouraging more employees at the Home and Regional office to work remotely.” Later that evening, the retailer posted a message from Jelinek on Facebook addressed to Costco members, noting that it “is firmly committed to the health and safety of our members and employees” and was “complying with public health guidance.” At the time, Washington Gov. Jay Inslee had closed schools and banned gatherings of more than 250 people in certain counties but had yet to issue a stay-at-home order.
According to corporate employees, Costco began disclosing confirmed COVID-19 cases in company-wide emails three days after Lee’s death, sometimes sending multiple notes in a day. It kept employees at its corporate offices until March 25 — long after its corporate peers had shuttered theirs and two days after Inslee’s executive order mandating residents stay home. The campus, though, has remained open and some employees have told BuzzFeed News that they’ve seen colleagues and their managers taking conference calls from the offices.
On March 25, Gruening congratulated his team on the shift to working from home. By the end of that workday, Costco corporate had confirmed that at least nine of its employees, including a worker at a campus deli, had tested positive for COVID-19.
“Frankly, it is absolutely amazing that we’ve been able to transition from 100% onsite to a fully functioning remote-work program in under two weeks,” the Costco Travel vice president wrote in an email to staff. “It is a testament to the hard work, quick thinking and resourcefulness of many.”
Wednesday 3/25/20 From: Peter Gruening Subj: Costco Travel Update – March 25
Please also continue to be patient and understanding as we work through this new world of remote work. We are all navigating this for the first time. Frankly, it is absolutely amazing that we’ve been able to transition from 100% onsite to a fully functioning remote-work program in under two weeks. It is a testament to the hard work, quick thinking and resourcefulness of many. The support, patience and understanding by all has been phenomenal thus far and it is definitely appreciated.
As of April 9, at least 21 corporate and travel employees have tested positive for COVID-19, according to internal emails obtained by BuzzFeed News. Ten of those people work in the travel department, and four of them sit on the same floor as Lee. One of those agents, who was officially diagnosed March 19, had been complaining on Facebook about her high fever and loss of taste two weeks earlier. “This is what happens when people are so afraid and they can’t afford to stay home and they come in,” an employee told BuzzFeed News.
Workers said they’re infuriated and frustrated that their leaders did not enact stronger precautionary measures. Some, like an IT employee who worked in another building down the road from Lee and contracted the virus, wondered what would have happened if management had simply listened.
The first week of March, when the total of coronavirus cases in King County surpassed 70, the IT employee had come down with aches and a fever but couldn’t get tested due to the scarcity of kits. Reading headlines about hospitals rationing masks and infected Washington residents quarantined in motels, the employee sent multiple emails to several leaders notifying them about their coronavirus-like symptoms, expressing fear for the worker’s close-quartered colleagues, and asking to work from home. It was going to get bad, the employee warned in emails, and no one was taking it seriously.
In response, this employee said, they were reprimanded for overreacting. It took nearly four days, but they were approved to work from home right before Lee died.
Shortly after, the employee tested positive for COVID-19. Now their entire family is sick too. So far, according to internal emails, eight people who work in the same building have told Costco they have the virus.
“I was sick and trying to shout from the rooftops: ‘This is serious!’” the employee said, voice breaking. “I was sitting there, absolutely helpless.”
The Costco family
It’s been nearly a month since the pandemic brought the country to a tumultuous halt, forcing millions of Americans out of work and to stay at home. As the initial panic subsided, so too has the early chaos at Costco’s warehouses. Though stores often see significant lines, the people who work at them are better protected and better compensated. There are fewer shoppers in stores and more masks, and temperature checks.
In certain states, lawmakers have heard and acted upon food service workers’ fears and concerns. Washington state passed new protections on April 13, prohibiting companies from forcing high-risk employees into unsafe conditions or penalizing or firing them for refusing to work in them. The governor’s proclamation came just days after the Trump administration announced that employers do not have to officially document coronavirus cases.
Back in Issaquah, Costco’s corporate employees have settled into their new remote working routines. Travel staffers are still fielding calls, occasionally from people inquiring about deals on cruise packages.
On April 3, agents received a message about Regina Lee. Kathy Robinson, Costco Travel’s associate vice president of operations, sent an email to employees noting that the “rapid transition to work from home did not allow us to fully digest the news of Regina’s passing.” In her note, the executive called the 59-year-old a “quiet and beautiful person” who “always included your name when she walked by and said hi.” She included a link to her obituary page for people to share their thoughts.
They did. Although Lee was soft-spoken, she lit up the office with her giggle, kind gestures, and giant cookie trays. She will be greatly missed, they wrote. They’re in shock that she’s dead.
Raymond Lee is too. He continues to struggle with the idea that most of his immediate family is dead. His sisters, Regina and Willa, were getting ready to retire, he told BuzzFeed News, and they had just paid off the mortgage on the home they shared with their mother.
“I’ve lost a total of two younger sisters and my mother in two weeks,” he said. “The week before, I buried my baby sister. And the following Friday, I buried my mother and my other baby sister.”
Some of his sister’s colleagues have called him to offer condolences. It’s been nice, he said, but it’s not the call he’s been waiting for.
“No one from Costco has made one call to say that they’re sorry for the loss of Regina,” he said. “Isn’t that something? Costco says they treat their employees like family.” ●
After publication, more Costco warehouse employees sent us documents confirming 9 more COVID-19 cases at stores in New York and Colorado.
is offering millions of dollars in credits to some advertisers after discovering a glitch in a tool that tells advertisers how effective their ads may be in driving results, such as getting consumers to download an app or purchase a product.
Facebook’s “conversion lift” tool overestimated some campaign results for 12 months, the company quietly told its advertisers this month. The glitch skewed data that advertisers use to decide how much money to spend with the company.
It isn’t the first problem Facebook has discovered in its systems to measure advertisers’ campaigns, and it is not likely to dent Facebook’s ad revenue. But some ad buyers said the latest gaffe has hurt confidence in the company’s metrics at a time when many businesses are navigating the pandemic by trying to cut costs and make sure their ad spending performs.
Omnicom Group Inc.
media agency OMD Worldwide is looking into how the error has affected some clients’ investments before accepting credits, said Florian Adamski, OMD’s global chief executive.
“This is not an easy fix,” he said. “It’s not like, pay a couple thousand or million bucks and it’s over. This goes a lot deeper and we need to find out how to rectify the damage done and make sure it doesn’t happen again.”
“If there is no governance or third neutral party looking at our investment tools, I can’t sleep well at night and my clients can’t sleep,” he added.
CMO Today delivers the most important news of the day for media and marketing professionals.
The issue is particularly acute for certain categories such as retail, where marketers are spending as much as 5% to 10% more on Facebook and other performance-centric advertising channels to recover business lost during the early stages of the pandemic, said the chief executive of one digital agency that spends hundred of millions of dollars advertising on Facebook every year.
“Being able to attribute where sales are coming from is hugely important right now,” the executive said. “Every dollar spent has got to map back to data points and performance. If we can’t map that back, it becomes more difficult to justify spending dollars when clients are trying to manage their costs as effectively as possible—and media spend is a cost that needs to generate revenue.”
Facebook’s offer of credits extends to some advertisers that used the tool when the error went undetected, from August 2019 through August 2020.
“While making improvements to our measurement products, we found a technical issue that impacted some conversion lift tests,” said a Facebook spokesperson in an email. “We’ve fixed this and are working with advertisers that have impacted studies.”
At one large buying agency, the size of ad credits will be around 0.5% of affected clients’ annual budgets around the time of the glitch, according to a memo that the agency sent to clients that was obtained by The Wall Street Journal.
“More so than past measurement problems with Facebook’s ad platform, this error has the potential to be extremely serious,” the agency wrote in the note to clients. “The fact that it led to a systematic overstatement of ad performance, combined with the yearlong duration of the error, likely misinformed media budget allocations. These misallocations came at the expense of both advertiser media efficiency and Facebook’s competitors.”
Facebook, which said it fixed the error in September, told advertisers about it this month, according to a memo that Facebook sent clients. The company is basing the amount of credits it is issuing to advertisers on an analysis that shows how much the error may have affected their actual investments during the period following the lift study.
Some ad buyers are also questioning the analysis Facebook is using to determine advertisers’ compensation—criticizing the tech giant for not being transparent enough in how it determined who receives ad credits and how, exactly, compensation was calculated, as well as details on steps Facebook is taking to ensure such errors don’t occur again.
“This can’t just be covered with a one-time compensation in credits,” said OMD’s Mr. Adamski. “It needs that reconciliation for every single client on how did it influence the investment decisions we made.”
Marketers aren’t likely to turn away from Facebook despite the incident, said Kevin Simonson, vice president of social for digital marketing agency Wpromote LLC, which spends more than $100 million a year on Facebook ads on behalf of clients.
“This particular error would impact strategy regarding what creative to use and what audiences to spend against, which could be significant to some extent, but it’s not going to be significant to a degree that’s going to cause any brand (in this day and age) to not do Facebook,” Mr. Simonson said in an email. “It’s more like to what degree.”
News of the glitch was reported last week by industry publication AdExchanger.
Write to Alexandra Bruell at email@example.com and Sahil Patel at firstname.lastname@example.org
The 2020 holiday season is going to be a little different, to say the least. We won’t be traveling. We won’t be hosting cocktail parties or soirees. And many of us won’t be able to visit our loved ones. But what we can still do is give a special gift, and let those near and dear to us know we’re thinking about them.
Explore a world of new tastes.
Clockwise from top left: Our Place The Always Pan The pan that took Instagram by storm. Sauté, steam, sear, or sizzle; $150. Poketo Jazz up a picnic or dinnertime at home with these designer bamboo plates in a variety of bold designs; $48 for four. Group Partner Faces Planter Whimsy up a houseplant. Designed in Brooklyn and made in Portugal. ;$65. Sabah Shearling Babas Turkish-made slippers for warming winter toes; $205. Our Place Drinking Glasses; $50 for four. Vellabox A subscription that sources hand-poured candles from across the country; starts at $10 per month.
More than ever, ’tis the season to get cozy.
Clockwise from top left: East Fork Pottery “The Mug” Handmade in Asheville, N.C.; $38. Trade Coffee Pair coffee lovers with beans from the country’s top roasters; $60 for three bags. Winc A wine subscription based on a personal flavor profile; from $60. Snowe Wineglasses; $60 for four. Marble cheese board; $75. Russ & Daughters American Caviar Gift SetThree 50-gram tins of the finest domestic caviar, complete with crème fraîche and blinis. Decadent; $375.
For an aspiring YouTuber, podcaster, or music producer.
Gifts to inspire the next Carroll Shelby or Lewis Hamilton.
Clockwise from top left: AMMO Hoseless Car Wash KitKeep the salt off this winter when you really don’t want to run the hose; $150. Autodromo IntereuropaA hand-wound watch with a dial inspired by the gauges of vintage Italian race cars; $1,250. Ettinger Key RingBecause your car deserves better than the free key chain from your last oil change; $100. CXC SimulationsThe most advanced racing simulators for the home; from $57,000. Lego Technic Lamborghini SiánFeatures Lamborghini’s iconic scissor doors, a faithful V-12 engine, and eight-speed gearbox; $380.
A version of this story appears in the December 2020/January 2021 issue of Fortune with the headline, “Holiday Gift Guide.”
Dive into stories from Fortune’sprint edition:
How the NBA kept the bubble from bursting
How Jane Fraser broke banking’s highest glass ceiling
Keurig is a machine: How the beverage giant is leveraging A.I. to fuel growth
What the World’s 25 Best Workplaces have in common
The holidays used to be UPS’s busiest time. Then came COVID-19
Facebook and Google will be forced to pay media organisations for news under a bold new plan from the Australian government.
Treasurer Josh Frydenberg said on Monday that Australia would seek “to become the first country in the world to successfully require payment for content”.
“It is only fair that the search engines and social media giants pay for the original news content that they use to drive traffic to their sites,” he wrote in an op-ed.
In Australia’s $9 billion online advertising market, Google grabs around 47% of the spend, Facebook 24%, and 29% is shared among other players.
The coronavirus crisis has worsened conditions for media organisations, with a steep decline in advertising revenue leading to pay cuts, stand-downs, reduced hours and foreshadowed layoffs.
The plan is to impose a mandatory code of conduct on digital platforms to address the imbalance in bargaining power between them and media companies.
The code will include provisions relating to value exchange and revenue sharing, transparency of ranking algorithms, access to user data, presentation of news content, and penalties for non-compliance.
The coronavirus crisis led the government to abandon earlier plans to get the digital platforms and media organisations to negotiate a voluntary code of conduct to govern the relationship between them.
Negotiations had been underway since December, facilitated by government agency the Australian Competition and Consumer Commission (ACCC), but were moving too slowly, the government announced on Monday. Multiple media outlets operating in Australia, including BuzzFeed News, had participated in consultations.
There had been “no meaningful progress” on the “fundamental issue” of the digital platforms paying for content in those negotiations, treasurer Josh Frydenberg wrote in an op-ed announcing the policy shift. The ACCC had told him there was “no expectation of any even being made”.
The mandatory code is set to be unveiled in July and legislated soon after.
The ACCC spent 18 months on a landmark inquiry, published in mid-2019, which found Google and Facebook had become unavoidable trading partners for Australian news media businesses who wanted to reach audiences online.
It also found that news was a key part of the platforms’ business, with 8-14% cent of Google search results including news reports.
The code will “create a level playing field where market power is not misused, companies get a fair go and there is appropriate compensation for the production of original news content,” Frydenberg said.
President-elect Joe Biden plans to nominate former Federal Reserve Chairwoman Janet Yellen, an economist at the forefront of policy-making for three decades, to become the next Treasury secretary, according to people familiar with the decision.
If confirmed by the Senate, Ms. Yellen would become the first woman to hold the job. Mr. Biden’s selection positions the 74-year-old labor economist to lead his administration’s efforts to further the recovery from the destruction caused by the coronavirus pandemic and shutdowns.
Ms. Yellen, who was the first woman to lead the Fed, would become the first person to have headed the Treasury, the central bank and the White House Council of Economic Advisers.
Ms. Yellen declined to comment on Monday.
Separately, Mr. Biden’s transition team said he would nominate Alejandro Mayorkas to lead the Department of Homeland Security and Avril Haines as director of national intelligence. Both are former Obama administration aides. John Kerry, who was secretary of state under President Barack Obama, will serve as special presidential envoy for climate change.
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For better or for worse, 2020 is chaos.
A raging pandemic smashed into a seemingly unending U.S. presidential election. And while the economy remains uncertain, dealmaking and megafunds (ahem just look for a16z below) have returned with a vengeance.
Embracing the chaos—or rather Innovating in Times of Crisis—is the central theme of Fortune’s Brainstorm Tech Conference on December 1 and 2. Typically hosted at the height of the summer in Aspen, when tech aficionados fly in from all over, this year’s conference is all virtual.
Among those ringing in from the comforts of their homes and offices will be Paul Ryan, 54th speaker of the U.S. House of Representatives, who will discuss his new SPAC; SoftBank Opportunities Fund’s Stacy Brown-Philpot on investing in the pandemic; Slack CEO Steward Butterfield; the CEO of SoftBank’s sometimes rival Raukten, Mickey Mikitani; and many others.
If you’re interested in attending this year’s Brainstorm Tech event, please sign-up here. Would love to speak with you there.
IPO STANDS FOR INTERMINABLE PROCESSION OF OVERLY LARGE UNICORNS ALL GOING PUBLIC AT THE SAME TIME: Do you remember last week? I hardly do because it felt like an entire month. Consumer-facing unicorns decided this was their moment, with Airbnb, Roblox, and Affirm filing for IPOs following DoorDash the week earlier. Then on Friday, e-commerce marketplace Wish also filed for its IPO.
Its differentiator? It is a discount retailer competing with the likes of Dollar General and TJ Maxx as well as Amazon and Alibaba, keeping prices low by largely using merchants in China. Wish posted revenue of $1.7 billion in the nine months ending September 2020, up 32% from the year prior, and a net loss of $176 million, up from $12 million.
The company’s largest shareholders include DST Global, the Founders Fund, Formation8 Partners, GGV Capital, and Temasek.
The journalists at BuzzFeed News are proud to bring you trustworthy and relevant reporting about the coronavirus. To help keep this news free,become a memberand sign up for our newsletter,Outbreak Today.
A federal crisis fund of $350 billion established to keep small businesses afloat during the coronavirus pandemic ran out this week, leaving thousands of companies waiting desperately for help.
But several giant companies with hundreds of stores, thousands of employees, and whose executives make millions announced they’d received the maximum possible payouts under the small business program.
“Unfortunately, they were in line as soon as the window opened for this program and took a lot of resources away from those small business owners where this was their only option,” Holly Wade, director of research with the National Federation of Independent Business (NFIB) lobby group, told BuzzFeed News.
Sandwich maker Potbelly and Ruth’s Chris Steak House successfully obtained loans worth $10 million and $20 million, respectively, according to filings this week with the Securities and Exchange Commission (SEC). Taco Cabana, which has at least 164 stores across the country and is owned by parent company Fiesta Restaurant Group, also received a $10 million loan.
All loans were from JP Morgan bank but will be backed by the US government as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The act provided up to $350 billion in loans to businesses with 500 employees or less for payroll purposes.
But the law provided some flexibility to restaurant and hotel groups by stating they could apply as long as they had no more than 500 workers at a single location.
Under the Paycheck Protection Program (PPP), the government will forgive the loans if the money is used on payroll, rent, or utilities — and workers aren’t laid off.
Potbelly, Ruth’s, and Fiesta Restaurant Group are publicly traded companies so their SEC filings were made public, but private companies do not have to disclose any loans.
Potbelly’s chief people officer, Matt Revord, told BuzzFeed News in a statement, “Every penny will be used to financially support the employees in our shops. Congress specifically qualified restaurants for the PPP loan program because restaurant workers are vital to our economy.”
In the very same SEC filing that revealed its PPP loan, Potbelly announced it had promoted Steven W. Cirulis to the roles of chief financial officer and chief strategy officer, paying him a $425,000 yearly salary, which has been temporarily reduced by 25% due to the pandemic. Just for signing on, Cirulis was awarded a $100,000 bonus and will be eligible for a year-end bonus worth up to 60% of his base salary.
A Ruth’s spokesperson told BuzzFeed News the company took the loans to provide additional liquidity. “As a franchised organization, it is our responsibility to our nearly 30 small business owners, team members, customers and shareholders, to do everything we can to ensure Ruth’s Hospitality Group is well positioned to emerge from this situation a strong and viable entity,” the spokesperson said. “We will be following all guidelines set forth by the [Small Business Administration] in how the funds are being leveraged including payroll assurance for our team members in individual locations running our takeout and delivery business.”
Negotiations to extend it have stalled in Congress, but advocacy groups say more needs to be done to protect actual small businesses.
Wade, the NFIB research director, said the behavior of the large companies was “going against the spirit of the law.”
“They have lines of credit and other available loans and they can work with their bank,” she said.
The average NFIB business, Wade said, has just five employees. “This was one of the very few options where they could go for financial assistance,” she said.
Derek Martin, a spokesperson for the watchdog group Accountable.US, told Politico that “big Wall Street-backed restaurant chains that pay their executives super-sized bonuses” did not deserve to be first in line for payments.
“What a slap in the face to the untold thousands of legitimate small businesses that will not survive this crisis,” he said, “many because they couldn’t get the help they were promised from the president soon enough, if at all.”
The NFIB says 90% of US small businesses have been negatively impacted by the coronavirus outbreak. NFIB President Brad Close said the “smallest businesses [were] most disadvantaged.”
“We’ve been hearing from our members, every day, worried the $349 billion lending program would run dry before help gets to them,” said Close in a statement on Wednesday. “Today, their worries became a reality.”
A Taco Cabana spokesperson said they had no further comment beyond their SEC filing.
The Small Business Administration has begun asking some Paycheck Protection Program borrowers to document why they needed the loans, drawing concern from advocacy and trade groups that say such disclosures weren’t required when the businesses applied for aid.
The Loan Necessity questionnaire is aimed at borrowers that took loans of $2 million or more under PPP, the federal government’s main coronavirus-aid initiative for small businesses. It directs them to answer questions about business activity and liquidity.
The form says the questions will help the SBA evaluate a certification borrowers made when they applied for aid. The certification stated that economic uncertainty made the loan request necessary to support business operations. But the loan application didn’t specify what the SBA meant by “economic uncertainty” or how borrowers would demonstrate their need, according to Mike Kennedy, general counsel at the Associated General Contractors of America, a trade group.
Mr. Kennedy said the questionnaire “essentially moves the goal post.” For example, it asks borrowers whether they have been subject to a government-mandated, coronavirus-related shutdown and how much cash they had on hand before taking the loans, questions that weren’t part of the original application.
“The loan necessity review only applies to a limited number of loans, and it is necessary given that American taxpayers are providing billions of dollars in forgivable loans to these borrowers,” said SBA Administrator Jovita Carranza. “Using this questionnaire helps ensure that the SBA is maintaining program integrity and ensuring the program works as intended.”
The recent election gave voice to millions of Americans frustrated with their economic circumstances—a concern that predates the devastation wrought by COVID-19. On one side are the blue-collar victims of deindustrialization who, as in 2016, voted for Donald Trump. On the other side are young college graduates struggling to get ahead who, unable to vote for Bernie Sanders, plumped for Biden.
Whatever their political leanings, a vast number of Americans have lost faith in capitalism. A May 2020 JUST Capital and Harris poll found that only 25% of those surveyed agreed that “capitalism works for the ordinary American.”Doubts about capitalism are not limited to the U.S. In a 2020, pre-COVID Edelman survey of 34,000 individuals across 28 countries, 56% of respondents agreed with the statement that “capitalism as it exists today does more harm than good.”
Capitalism is charged with being fixated on shareholder returns, myopically short term, inherently monopolistic, antidemocratic, amoral, rootless, and bad for the planet. But these indictments confuse the concept of capitalism with its implementation.
Capitalism is simply a tool—one that channels savings into investment and rewards risk-takers. Blaming capitalism for its misapplication is like blaming sex for overpopulation, teenage pregnancies, and sexually transmitted diseases. We can address these problems without all becoming celibate.
So it is with capitalism. You don’t have to be a Marxist to believe we need more vigorous antitrust enforcement, higher standards of environmental accountability, more incentives for people to buy and hold their investments, and stronger laws aimed at preventing tax avoidance and corporate interference in politics.
Yet as sensible as such measures might be, they fail to address what many see as capitalism’s most egregious fault—its failure to equitably distribute the rewards of economic growth and prosperity.
While investors and entrepreneurs have done exceedingly well in recent years, the salaries of ordinary workers have stagnated. The rich have become richer, and the poor poorer. The relative decline in the fortunes of mid- and low-income workers has exacerbated social divisions, fueled the fires of populism, and convinced millions of young people that socialism is their best hope.
But what if the problem is not too much capitalism, but too little? What if the problem is that we have too many wage slaves and not enough owners? At the time of its founding, America was a “republic of the self-employed,” as Roy Jacques put it in his wonderful book, Manufacturing the Employee.
Today, nearly two and half centuries later, a vast majority of Americans still share the dream of working for themselves. In one poll, 77% of millennials said they hoped to start their own business. Sadly, though, the rate of new business creation has been declining in recent years, while the percentage of Americans who work in companies with more than 1,000 employees—41% in 2019—has been growing. For millions of individuals at work, the entrepreneurial dream seems out of reach.
Yet our research suggests they shouldn’t give up hope. A small group of vanguard companies have proven that it’s possible for every employee to enjoy the fruits of ownership—for everyone at work to be a self-managing “micropreneur” blessed with autonomy and a shot at the brass ring.
Consider Nucor. With annual revenues of more than $22 billion, Nucor is America’s most innovative and consistently profitable steel maker. The company is organized into more than 75 autonomous divisions that operate independently but compete collectively. Each division is a self-contained business with a P&L that’s entirely free of corporate cost allocations.
Nucor trains every employee in the economics of the steel industry, and its hyper-empowered operating crews take the lead in business development, customer service, product innovation, process improvement, and cross-plant coordination. Frontline employees participate in a generous bonus system that rewards teams when they boost capital efficiency. Base pay is about 75% of the industry average, but once a team’s output exceeds a threshold, typically 80% of the plant’s rated capacity, the bonus plan kicks in.
The incentive threshold is fixed and gets adjusted only when capital investments increase the rated output of a particular piece of machinery or the entire plant. Since the only way to increase their bonus is to produce more steel for a given amount of capital, team members have a powerful incentive to “sweat the assets.” In practice, this means using their ingenuity to shrink costs, speed up workflows, and search for ways of producing higher-margin products.
To keep employees free of bureaucratic meddling, Nucor has chosen not to centralize functions like R&D, sales, marketing, strategy, safety, engineering, compliance, and purchasing. It also has about a third as many managers per capita as its major competitors. Nucor’s headquarters, for example, has just 100 staffers—about 10% of the number who work in the head office of Nucor’s next biggest U.S. competitor. Nucor’s general and administrative expenses hover around 3%, or roughly half that of the industry average. As a plant leader put it, “At Nucor, being a manager is the least noble thing you can do.”
The trust Nucor’s leaders place in their frontline teammates pays big dividends—for shareholders and employees. Nucor’s return on capital exceeds industry norms by 50% and its revenue per employee is a whopping three times the industry average. In return for this performance, Nucor’s factory workers earn significantly more than their peers. They also enjoy a high degree of job security. One of Nucor’s most famous mottos is “Do your job well today, have it tomorrow.” The company has never laid off employees at its steel mills, a remarkable feat in a highly cyclical industry that shed 40% of its employees in the last decade.
Haier, the global home appliance leader, is another case study in workplace capitalism. (Disclosure: with Haier, we co-host an annual conference on the future of management. We’ve also co-developed a free online course for management innovators).
With 45,000 employees in China, Haier has divided itself into more than 4,000 microenterprises, or MEs. These include roughly 200 market-facing MEs that design and sell appliances, and thousands of distribution and “node” MEs that sell R&D, manufacturing, marketing, and HR support to internal customers. Market-facing MEs contract with nodes for critical services, and each contract contains a clause that links payout to the success of the final product in the market. In this way, every employee’s pay is tied to market outcomes.
As self-governing businesses, MEs are guaranteed “three freedoms:” the freedom to set direction; the freedom to hire, fire, and organize as they see fit; and the freedom to distribute rewards within the team.
As with Nucor, base pay at Haier is modest, but when employees hit ambitious “leading targets,” they have the chance to multiply their income several times over. Employees are also able to invest their own money in their ME, and can receive a hefty dividend when certain targets are met.
Zhang Ruimin, Haier’s pioneering CEO and chairman, describes the goal of Haier’s unique management model as “giving every employee the opportunity to become their own CEO.”
Other companies that have built a league of owners include Stockholm-based Svenska Handelsbanken and Vinci, the fast-growing French infrastructure firm.
As these and other companies demonstrate, the recipe for turning employees into capitalists isn’t complicated. Key ingredients include:
Dividing the organization into small operating units that coordinate activities via internal contracts or peer-to-peer networks
Upgrading the commercial and general management skills of frontline employees
Giving employees accountability for a full-fledged P&L, rather than for a hodgepodge of top-down “KPIs”
Empowering employees to make meaningful business decisions and ensuring they have control over the key variables that drive performance
Granting employees a significant financial stake in the performance of their businesses
Dramatically shrinking corporate staff groups and the ranks of middle managers
This recipe, if consistently applied, yields a highly energetic workforce, above-average compensation, and a business that can beat all comers, both foreign and domestic.
That more companies haven’t adopted this winning formula isn’t the fault of capitalism, but of bureaucracy—a 150-year-old mash-up of military command structures and workforce engineering that underpins virtually every large-scale organization on the planet.
Here are some defining features of bureaucracy:
Power is vested in positions
Authority trickles down
Senior executives set strategy
Resources are allocated at the top
Big leaders appoint little leaders
People are slotted into roles
Managers assign tasks and assess performance
Staff functions set rules and enforce compliance
Employees compete for promotion
Compensation correlates with rank
With its authoritarian power structures and rule-choked processes, bureaucracy is a caste system that empowers the few at the expense of the many. It stratifies organizations into thinkers versus doers—executives versus employees—and in so doing, squanders vast quantities of human initiative. Slotted into narrow roles, immobilized by petty rules, and regarded by their superiors as mere “resources,” millions of employees have been deprived of the opportunity to develop their entrepreneurial talents; they’ve never had the opportunity to work with colleagues in a business that feels like it’s theirs.
Surveys tell us that only one in five employees believe their opinions matter at work. Only in one in 10 feel they have the freedom to experiment with new methods, products, and solutions. These sentiments are backed up by data from the U.S. Bureau of Labor Statistics, which calculates that 70% of jobs in the economy require little or no originality—a fact says nothing about the abilities of the individuals in those jobs, and everything about the tendency of managers to treat employees like semi-programmable robots.
Moreover, data compiled by Great Places to Work shows the only one in five of the reporting companies pay out bonuses to frontline workers—and these are, reputedly, the most progressive U.S. employers. More generally, across the economy, non-production-based bonuses, such as profit sharing, amount to barely 2% of total compensation.
As long as the vast majority of employees are denied both autonomy and upside, the bounties of capitalism will continue to be narrowly distributed. To change this, every organization needs to commit itself to building a top-to-bottom culture of ownership. This is the secret to turning dead-end jobs into get-ahead jobs, to upgrading wages across the economy, and to ensuring that capitalism works for everyone.