This article originally appeared in Bloomberg View on September 19th, 2011.

In a dusty, Wichita, Kansas, re-creation of a frontier town last week, while state securities regulators slapped at mosquitoes and swapped stories about cagey financial crooks over cocktails, a spurs-and-boots-clad sheriff drew his weapon and staged a faux gunfight in the town square.

It was a perfect metaphor for the way things have been going in the real-life work of securities cops.

State regulators, the steadfast advocates of mom-and-pop investors, helped sentence crooks to 1,100 years of jail time and returned more than $12 billion to victims last year. Especially in these times when commerce at any price seems to trump protecting your Aunt Matilda, state investment watchdogs are often a lonely and unwelcome force pushing for tough rules. The nerdy investor advocates even have a geeky name: the North American Securities Administrators Association, or Nasaa.

Kansas was the choice for the group’s annual meeting this year because 100 years ago a Wichita politician pushed through legislation that made the state the first to enact laws to regulate securities — a shield against “fakers with worthless stock to sell,” in the words of Joseph Dolley, Kansas’s banking commissioner at the time.

Were he alive, Dolley probably would be taking to his Twitter account to malign the marquee-name U.S. politicians who work for Wall Street, not Main Street, and to blast federal securities regulators who have let the public down. His successors have their hands full with today’s regulatory battles.

Confused Customers

Few issues have been more important to the Nasaa folks in recent months than the push to ensure that stockbrokers work in the best interest of customers — a so-called fiduciary standard — and improving the regulation of investment advisers. Last week, they faced off against representatives from Wall Street and the insurance industry at a hearing of a subcommittee of the U.S. House Financial Services Committee. Stockbrokers since the 1990s have been working the word “adviser” into their job descriptions, leaving confused customers to believe that stockbrokers and registered advisers were pretty much the same even though only advisers have a fiduciary duty. Nasaa’s point is that all people who give advice to investors should be expected to act in their clients’ interest. Brokers — no matter what they call themselves — aren’t usually obliged to.

Reasonable People

Although a reasonable person — in short supply, needless to say, at a government hearing — might conclude that a broker should do what’s best for the client who’s paying him, the hearing was replete with reasons that could be a really bad idea. Particularly if you’re the broker.

A second question at the hearing was whether federal securities regulators or so-called self-regulatory organizations paid by financial firms should inspect the investment advisers. Sadly, the best option — to use a federal regulator accountable to the public — comes up short when that agency is the Securities and Exchange Commission. This month, the agency’s inspector general plans to release four investigations that stand a good chance of making the SEC look even worse than it already does.

Years of embarrassing failures at the SEC are leading some policy makers to conclude that the best way to police advisers is by outsourcing to the Financial Industry Regulatory Authority, which is technically overseen by the SEC but funded by financial firms. If this isn’t a formula for the lame leading the conflicted I don’t know what is. Making it even better for Wall Street is that, as a private corporation, Finra over the years has said that it can’t supply investigative information about its members. How cool is that if you’re a Finra member getting into some mischief?

Good Fight

It’s reassuring, I guess, that those state regulators at least continue to fight the good fight. But I can’t help but get the feeling they aren’t so welcome in the debate about what’s best for investors. Those Washington hearings last week coincided with the third and last day of the states’ meeting in Wichita, and if I didn’t know better, I’d wonder if the politicians didn’t want them there. The finance committee members “were aware of the timing of the Nasaa conference and they chose not to accommodate them,” said Barbara Roper, director of investor protection at the Consumer Federation of America, a frequent ally in Nasaa’s causes.

Here’s My Card

After a somber opening ceremony on Sept. 11 and a lot of angst over battles with financial firms looking to defang the Dodd-Frank Act and its efforts to police the financial industry, Nasaa’s 100th year didn’t exactly ring in with champagne corks popping. But the scrappy investor advocates haven’t lost their spirit.

Keith Woodwell, a division director with the Utah securities regulators, told colleagues the story of finishing up a meeting in his office with a rogue broker one day only to have the fellow hand over his business card “with the longest string of credentials I ever saw.” Woodwell looked at the alphabet soup of dubious pedigrees and spotted an accreditation he hadn’t come across before. “I asked him what ‘C.H.S.G’ stood for,” he recalled. The broker blushed, then came clean: It was an abbreviation for “Certified High School Graduate.”

The group roared in the standing-room-only session. It was no doubt a packed house because it covered matters dearest to the state cops’ hearts: fraud, sales practice abuses and the vast inventory of deceptions that take money out of the pockets of citizens.

This article originally appeared in Bloomberg View on September 1st, 2011.

If you’re like most consumers of business and financial news, you gobble up those useless lists of “Best Leaders” and “Most Admired Companies,” trusting that people in my line of work have the right formula to measure what’s “best.”

Over the years, I’ve been in the room when some business “best” lists were put together, and the creators of David Letterman’s Top Ten look like a Nobel Prize jury by comparison.

I got to wondering why so many of us do such a bad job of evaluating the quality of our leaders after Warren Buffett and Howard Schultz made news last month for doing what chief executive officers rarely do. They used their bully pulpits to take stands that weren’t, on their face, self-serving, and that had the potential to benefit people outside the privileged class. Who knew that business leaders could step up to lead?

Buffett, head of Berkshire Hathaway Inc., wrote an op-ed in the New York Times on Aug. 14 saying that mega-rich Americans like him ought to pay more taxes. The story went viral.

Schultz, CEO of Starbucks Corp., went public Aug. 12 with a proposal that business cease making political contributions until Congress and the president come up with a “fiscally disciplined long-term debt and deficit plan.” Ditto the viral story thing.

You can love or hate their proposals, but you’ve got to admit that Schultz and Buffett are a breed apart from their CEO brethren. Somehow, though, we keep putting the wrong executives on a pedestal. Why do we fawn over glitz and future felons instead of seeking out real leaders?

For one thing, we love those dopey lists, which sometimes aggrandize people or companies that may have satisfied a publication’s set of metrics, but may not be worthy of our adulation. To help discriminating readers get smarter about who deserves, and doesn’t deserve, our admiration, I’ve compiled — what else? — a list, including tips on how to see through flawed news coverage of CEOs and companies. Would somebody out there please consider tracking some of these?

No. 1. The Five Most Self-Serving Op-Eds List

If you really want to learn something about business executives, watch how they use the platform that comes with the job. Are you seeing their bylines on op-eds that whine about over-regulation, or are they, like Buffett, putting themselves on the line writing controversial articles that recommend policies that might benefit the public at large, even at their own personal expense? A theme that wily CEOs love: ranting about how they will have to cut back on all the wonderful products they offer to consumers if regulators crack down.

No. 2. The Most Flawed CEO Metaphors List

CEOs make lots of proclamations, but not all of them ring true. A favorite of mine was in a New York Times magazine story in December 2010 titled “America’s Least-Hated Banker,” an uncomplimentary compliment of a headline if ever there was one. JPMorgan Chase & Co. CEO Jamie Dimon — a winner in “best” executives lists over the years and the subject of the article – – compared his bank’s offering of loans, credit cards and investment products to what customers get at Wal-Mart. If they’re really comparable, is Dimon willing to let customers belly up, Wal-Mart style, to the bank’s customer-service desk for full refunds whenever those loan agreements or credit cards prove to be defective? My guess is customers are more likely to be greeted with a copy of the bank’s mandatory arbitration policy.

No. 3. Business’s Greatest-Ever No-Comments List

As Sherlock Holmes discovered, there’s a lot to be learned from the dog that doesn’t bark. I called media relations at the U.S. Chamber of Commerce, a business lobbying group that isn’t exactly shy about voicing its opinion, and asked what it had to say about the recent proposals by Buffett and Schultz. “At this point, we are not weighing in on either one of those,” said spokesman Bryan Goettel. Is that what you should expect from a group whose membership is chock-full of well-known business leaders and has lots to say about things like taxes? Warren Bennis, a professor at the University of Southern California’s Marshall School of Business, isn’t surprised the group ducked the question. “The Chamber of Commerce is doing its job,” which is apparently to avoid calling attention to its own policies on taxes and the deficit amid the constructive talk by Buffett and Schultz. The Business Roundtable, the CEO group that says on its Web page that “businesses should play an active and effective role in the formation of public policy,” went for radio silence when I called and e-mailed with questions.

No. 4. The Lamest Contrary for the Sake of Being Contrary Writers of the Year List

If you want to be a very cool journalist, you come out fastest with an argument about corporate and political big shots that runs counter to the prevailing news. This does nothing to advance public policy, but it can activate an ego gratifying Twitter-fest celebrating the clever writer. Dominique Strauss-Kahn is a loser-rat-womanizer in the headlines? Then be first to write that he’s a victimized hero. Buffett is getting praise for calling the fat cats to task? Then get out a story telling him to go write a check if he wants to pay more taxes. This instant contrarianism is usually filler on slow days when the writer had nothing else to go with.

No. 5. The Lists You Shouldn’t Pay Attention to List

This is a very long list, and to get on it, you have to produce a feature story replete with breathless and hyperbolic language describing the people or companies who have made the cut as “best.” Steve Jobs didn’t just make Apple Inc. the most valuable technology company in the world, according to Fortune magazine’s “Businessperson of the Year” feature published in November 2010. He made it “the most valuable tech company in the galaxy.”

No. 6. The Real Leaders List

This is as short as the previous list is long. Paul Janensch, professor emeritus of journalism at Quinnipiac University, says that Buffett’s call for higher taxes on the wealthy was a big splash because it was a man-bites-dog story. But “don’t hold your breath waiting for CEOs of utilities and manufacturing companies to lobby for tighter environmental restrictions or hedge fund titans to demand tougher regulation of the markets,” he says.

No. 7. The Top 100 Financial Advisers Who Made Money for Their Clients List

Wall Street is a place where a lot of people make a lot of money because they know how to measure things. So how come we get lists that measure financial advisers based on the revenue they make (see the Aug. 27 Barron’s) but not based on the money their customers make? On second thought, I take it back. You will never see a list like this.

No. 8. The Top Mutually Beneficial Relationships List

Lists are catnip for readers with short attention spans, an advertising bonanza for publishers (last year’s winners are natural targets for sales calls to run ads in next year’s feature) and a boon to any public-relations staff navigating a crisis. When reporters call with a tough question about the boss, flacks can cut them right down to size with a sneering, “You know that Mr. Indicted CEO is on the Top Leaders in the Universe List for 2011, didn’t you?” List articles have legs, says Alec Klein, a professor at Northwestern University’s Medill School of Journalism. “Those stories are disseminated widely by PR folks afterward,” he says. “It’s kind of a symbiotic relationship.”

No. 9. The Most Boring CEO List

Now we’re getting serious. Nancy F. Koehn, a business historian at Harvard Business School, says list-mania doesn’t always produce losers; it’s just that you have to look past the executives riding a momentary wave to find the gems. “On all those lists there are always serious hitters,” she says, citing A. G. Lafley, who retired as CEO of Procter & Gamble in 2010, as a “very, very serious leader” who is “completely unsexy,” but still makes all the lists. Happily, Koehn is predicting that Buffett and Schultz will inspire other executives to speak up about what’s wrong with government, calling the two CEOs “canaries down what will become a much more crowded mine shaft.”

No. 10. I don’t have a No. 10. Be wary of the list that has to add up to a nice round number, because it will be padded with filler. How do I know this? Because I’ve whipped up Top Ten stories before.

As Koehn notes, the ubiquitous lists don’t get it all wrong. Buffett and Schultz have for years found their way to the top of the inventories of excellence.

But so did Mark Hurd, the former CEO of Hewlett-Packard Co., who resigned after an investigation found he’d had a personal relationship with a contractor who had received inappropriate payments from HP. Businessweek, purchased in 2009 by Bloomberg LP, parent of Bloomberg News, named Hurd 2007 Businessperson of the Year in an online story in January 2008. (A spokeswoman said the magazine doesn’t publish that feature today, though it publishes other “best” lists.) Others the article honored as great leaders were Rupert Murdoch, whose News Corp. has been under fire for phone-hacking, and John Thain, who famously spent $1.2 million to decorate his Merrill Lynch & Co. office even as the firm was verging on collapse before Bank of America Corp. bailed it out. Similarly, the 1999 book “Lessons from the Top” listed Bernie Ebbers, Dennis Kozlowski and Kenneth Lay among 50 of America’s “Best Business Leaders.”

Ebbers and Kozlowski are in prison. Lay was awaiting sentencing for securities fraud when he died in 2006. If you insist on paying attention to roundups of the best and greatest, read them for their entertainment value. To really understand who the great leaders and companies are takes more than fancy metrics and a show of hands at an editorial meeting.

This article originally appeared in Bloomberg View on August 5th, 2011.

A thriving, sex-and-gossip newspaper has been shuttered, big shots in media, politics and law enforcement have resigned, and arrests have been made. It has resulted in a lot of headlines, but considering how old the real news is, I wonder what all the fuss is about.

The worst-kept secret in recent business history is that News Corp. is an underachiever when it comes to matters of corporate governance. Long before hacked phone messages and bribed London cops replaced Dominique Strauss-Kahn as the hot global story, the people who analyze how well public companies manage themselves were holding their noses whenever they perused regulatory filings from Rupert Murdoch’s media empire. Now, shares of the company are themselves a scandal, losing 19 percent since the scandal heated up July 4.

Garbage in — that is, a board encumbered with conflicts of interest — turns out to be a reliable predictor of garbage out.

To recap: It has been five years since newspapers reported that a journalist at Murdoch’s now-defunct News of the World had hired an investigator to hack the phones of Prince William and others. Armed with the royals’ messages, the paper imparted to readers an international scoop of history-making proportion: The prince had hurt his knee.

The reporter, Clive Goodman, and the investigator, Glenn Mulcaire, both did time in prison for that and other hacking crimes in 2007. News Corp. portrayed the matter as an example of isolated rogue reporting. Then on July 4 of this year the Guardian published a story detailing how News of the World staffers had also hacked into the mobile phone of missing teenager Milly Dowler in 2002, deleting some of the girl’s messages to make room for new voicemails in hopes of getting an exclusive. The girl’s distraught parents thought Milly herself must be deleting the messages, and thus was still alive. She wasn’t.

What a Prince

It’s one thing to mess with public figures like a prince, but it’s another to hack the mobile phone of a murdered teenager, providing hope to her traumatized parents and sidetracking police on the case — all in the name of breaking a story that has no public-policy value. The Guardian article marked the start of a deluge of news coverage that put to rest the implausible rogue-reporter theory. On July 31, News Corp.’s Wall Street Journal reported that U.K. police had expanded their criminal investigations of the company to add possible computer hacking to what was initially a probe of phone hacking and police payoffs. Jack Horner, a spokesman for the company, declined to comment.

There is much more to this sordid tale, but if you are a shareholder the only fact you really need to get your head around is why you hadn’t braced yourself for trouble in the first place. News Corp., as it turns out, is a case study in why corporate governance should matter to investors.

Case for Crisis

The details of all this couldn’t have been foreseen by even the most prescient of analysts, of course, but the prediction that News Corp. would at some point land in a crisis was clear to experts in corporate governance. “If you wanted to make up the sort of company that will fail in the future, this is the sort of board you’d put together,” said Paul Hodgson, managing director at GovernanceMetrics International, a New York-based governance consulting firm and rating service. GMI tracks 3,000 publicly held companies in its database. Only 36 of them now carry an “F,” the rating News Corp. has had since GMI began grading corporate governance in 2003.

It’s easy to understand why when you scroll through the list of the company’s 15 directors. Among nine directors deemed independent are Jose Maria Aznar, the former prime minister of Spain, who was 50 percent owner of a consulting firm that was paid 120,000 pounds ($195,000) for advisory services to News Corp. in the fiscal year that ended June 30, 2006; he and the company terminated the agreement on June 20, 2006, just before he joined the board, according to a News Corp. proxy. Aznar couldn’t be reached for comment.

Kenneth E. Cowley, another independent director, was a senior executive at News Corp.’s News Ltd. subsidiary in Australia from 1964 to 1997, according to a regulatory filing. He has been a director since 1979 and is on the corporate-governance committee. Rod Eddington, a member of News Corp.’s compensation committee and chairman of its audit committee, used to be chairman of Ansett Holdings Ltd., an Australian airline in which News Corp. had a financial interest until 2000. At least shareholders can take solace that independent director Natalie Bancroft comes with no strings attached. Put on the board as a condition of the deal when Murdoch purchased Dow Jones & Co. from the Bancroft family in 2007, she is a professionally trained opera singer. That might come in handy should Murdoch ever stage a hostile takeover of the Metropolitan Opera.

(Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.)

Getting F’s

News Corp. might get F’s when it comes to corporate governance, but you can’t say the operation is lacking for family values. Rupert and sons James and Lachlan sit on the board. James is deputy chief operating officer. Rupert Murdoch’s wife, Wendi Murdoch, was on the payroll from 2006 to 2010 for providing what company regulatory filings describe as “strategic advice” to develop MySpace in China. (After buying MySpace for $580 million in 2005, News Corp. sold it for $35 million this year). A Murdoch son-in-law, Alasdair MacLeod, worked for the News Ltd. news division until last year. Another son-in-law, Matthew Freud, runs a publicity company that in each of the past five years has been paid between $350,000 and $669,202 by News Corp., according to proxy filings.

Rupert Murdoch intends to add his daughter Elisabeth, the wife of Freud, to the board. News Corp. purchased her production company, Shine Group Ltd., for $673 million earlier this year, prompting a shareholder lawsuit in March that accused Murdoch of using the company as if it were “a wholly owned family candy store.” News Corp. called the suit “meritless.” Oh, and I almost forgot: JPMorgan Chase & Co. advised Elisabeth Murdoch on the transaction to sell Shine to her father’s company. Eddington is nonexecutive chairman of JPMorgan Australia Group.

Family Thing

Even non-Murdochs have that family thing going. David F. DeVoe is the chief financial officer; his son, David F. DeVoe Jr., is executive vice president of News Corp.’s Fox Entertainment Group Inc.

None of this would matter if News Corp. were a private company. But there’s this old-fashioned idea out there that managements of public companies report to boards of directors, and that shareholders are owners who have a say in things. Good luck with that if you hold News Corp. stock. Murdoch and his trust own 39.7 percent of the Class B shares, the only ones with a vote. “With a 40 percent holding, it’s very difficult for public shareholders unless they are in absolute concert to vote against him,” said Hodgson, the governance expert.

Fighting Back

That’s not to say shareholders haven’t tried to fight back. In a letter to shareholders on Oct. 7, 2004, News Corp. responded to a flap raised by shareholder advisory groups by making several changes, among which was a policy covering so-called poison pills, which are often used to deter hostile takeovers. If the board were to establish a poison pill without shareholder approval, it would expire after one year “unless it is ratified by stockholders,” the company said at the time. On Aug. 9, 2005, though, News Corp. broke that promise, extending its poison pill for two years without putting it to a stockholder vote. John Malone’s Liberty Media had accumulated an unwelcome 18 percent stake in News Corp., and Murdoch used the pill to keep him at bay long enough to cut a deal in 2008 to get Malone’s $11.3 billion stake in exchange for cash and certain News Corp. assets. With Malone out of News Corp.’s hair, the board dropped the pill later that year.

No Kidding

Bloomberg News reported on July 27 that News Corp. had asked New York-based public relations firm Sard Verbinnen & Co. to survey the biggest shareholders about the independence of New Corp.’s board, its dual-class share structure and its corporate governance. Why bother? News Corp. has known for years what shareholders think about those issues. And shareholders have known — or should have — what they were getting when they purchased News Corp. shares. Hodgson says companies with all the governance problems News Corp. has “will get away with it for a certain period, and then it comes home to roost.”

So who’s kidding whom here? When you buy shares of a company where more than one person on the board has the same last name, and spouses, in-laws, and directors cash in on job appointments, contracts and asset sales to the company, you should expect to get what you pay for. The best favor News Corp. could do for shareholders is to make sure nobody named Murdoch sits in the C-suite. Barring that, shareholders with a complaint about the downside of investing in a family dynasty have only themselves to blame.

This article originally appeared in Bloomberg View on July 7th, 2011.

For a moment, I wondered if my phone had gone dead.

I was talking to Deondrea Thomas, who works as a sales associate in the shoe department at the Duncanville, Texas, Wal-Mart. She’d been chatting away for 10 minutes when I asked whether she’d ever used Wal-Mart’s “Open Door” policy for employees who have a complaint about their job.

Suddenly, there was dead air. Then, a burst of nervous laughter. “Nobody likes that policy,” she said, her cheerful tone turning abruptly dark. Take a concern to management and “your hours will be cut or there will be some kind of retaliation.”

Wal-Mart women aren’t doing a lot of laughing since the Supreme Court banished their class-action sex discrimination suit to a litigation dumpster. On June 20, the court said that the million-and-a-half women suing for pay and promotion discrimination could not proceed as a single class.

Individual women, 12,000 of whom contacted lawyers after the case was filed in 2001, can still carry on with lawsuits or complaints to the Equal Employment Opportunity Commission. Smaller groups may also band together against a store or a region. But the high impact of a single court case — a public affair that would shine a spotlight on the grisly anecdotes and the out-of-proportion statistics — will never happen.

‘Wal-Mart Effect’

If there was any question that the little gal has been squashed to the benefit of big-company interests, consider the exuberance of Larry Kudlow, the ferocious booster of capitalism at CNBC. “Today’s stock market rally was the Wal-Mart effect,” he wrote of the 76-point rise in the Dow Jones Industrial Average on the day the women lost. Noting that business would save “billions and billions of dollars” as a result, Kudlow declared the decision a “huge defeat for frivolous class action lawsuits.”

It’s a partisan stretch to suggest that the Wal-Mart suit, with its stack of persuasive affidavits and trove of gender-lopsided statistics, was frivolous. But I can’t argue with the notion that it’s a coup for business. Companies, in fact, get a double win. There is the giant reduction in lawsuit risk that’s been the focus of many a headline. Equally important to the corporate bottom line: Employers can continue to tap a huge pool of female labor at a discount to the market price for men.

Fallen Short

Here are some of the statistics that the court dismissed as having fallen “well short” of showing that managers were exercising pay and promotion discretion in a common way, which the women needed to prove to proceed as a class. When the suit was filed, women filled 65 percent of the hourly jobs, but only 14 percent of store manager positions. It took 4.4 years for the average woman to advance to assistant manager, while men got there in 2.9 years. Among those in hourly jobs, men made $1,100 a year more than women in similar positions. Among salaried managers, men out-earned women by $14,500 a year.

Along with the tooth fairy, we can now believe in the notion that those “Little Janie Q’s,” as the Wal-Mart women were called by male co-workers, wound up with inferior paychecks by way of some fluky black swan event at the big box store.

Wal-Mart spokesman Greg Rossiter says the anti-discrimination policy is “part of the company’s culture” and breaching the rules can lead to punishments “up to suspension or termination.”

Wal-Mart Argument

A key Wal-Mart argument was that its individual store managers, bestowed with abundant authority to make pay and promotion decisions without policy guidance from headquarters, couldn’t possibly have all been discriminating against women. Well, don’t be so sure about that.

The court minority of three women and one man referenced social science research that gave a clear example of how male bosses can overlook women during the hiring process. In a footnote, the four offered the example of a study that examined hiring by symphony orchestras. When judges were able to see the musician during an audition, fewer women were hired. When musicians played behind screens, and only musical abilities entered into the decision, suddenly more women made the cut.

Out-of-Touch

Studies like that could have played a part in shaping the court’s thinking, but instead, the majority had its own take on management behavior that must have seemed out-of-touch to any victim of sex discrimination. My personal favorite: That, “left to their own devices most managers in any corporation — and surely most managers in a corporation that forbids sex discrimination — would select sex-neutral, performance-based criteria for hiring and promotion that produce no actionable disparity at all.” Float that idea around the water cooler in the morning and stand back for the guffaws from your female co-workers.

If you take the time to flip through the 120 affidavits that accompanied the plaintiffs’ complaint, you will enter a world where a boss’s hunting and fishing buddy gets on the fast track, where multiple complaints about a sexual harasser are received with advice to “grin and bear it,” and where a black woman is advised: “We’re all rednecks here, so you might as well get used to it.”

Katheryn Johnson, who was hired at the Troy, Alabama, Wal-Mart in 1999, couldn’t even get her district manager to read her application for the management training program. She buttonholed him at work one day to ask if he’d read it yet. “Naw, Shug, I sure haven’t,” he said. She quit, and then called the 1-800-WALMART line to complain about how she’d been treated, according to her affidavit.

The ruling makes it difficult to bring class-action discrimination cases in the future, says Melissa Hart, associate professor at the University of Colorado School of Law. “One of the things that’s troubling about the decision is they seem to say you have to prove discrimination occurred in order to get certified,” she says. “It flips the order of things.”

Hart is referring to the part of the decision discussing the need for “significant proof” that an employer had operated under a policy of discrimination. Hart says that language came from the footnote of an earlier ruling that has never been considered a requirement for proving commonality of a class. Knowing that fewer women will be allowed to fight as a class, she predicts companies will monitor their diversity standards less.

Women’s groups and labor unions are mobilizing to promote two politically unpopular fixes that would outrage business: passage of the Paycheck Fairness Act, which would lift the cap on damages in pay discrimination suits and ban companies from penalizing workers who share salary information, and a fresh push for a union at Wal-Mart.

Already, a worker support group, Organization United for Respect at Wal-Mart, or OUR Wal-Mart, has attracted former employees like Dawn Littman, who says she’s ready to assist. If a Wal-Mart woman ran into difficulties at work, “I’d tell them I’m part of an organization, Our Wal-Mart, and if you have problems, here’s my phone number.’’

Ernestine Bassett, an Our Wal-Mart member who works at the Laurel, Maryland, store, said in an e-mail that members pay $5 a month to belong. Although she said the group is not a union recruiting attempt, Our Wal-Mart received seed money — it won’t disclose how much — from the United Food and Commercial Workers International Union, and individual members including Bassett have supported unionization. Thomas, the Duncanville, Texas, sales associate, said a union tried to organize at her store several years ago, but didn’t get enough signatures. “I did sign last time,” she said. “And if they came again, I’d sign again.”

‘War on Women’

To bolster the union efforts, National Organization for Women president Terry O’Neill is talking to the UFCW “about going into specific stores and getting community support through NOW chapters.” O’Neill is furious about the Supreme Court decision, which she calls the latest attack in “a war on women that’s absolutely raging at the moment.”

NOW’s 500,000 members will be learning that what happened to Wal-Mart’s Janie Q’s could happen to them, too. If the group gets its way with legislation and a new union push, maybe the joke won’t wind up being on women after all.

This article originally appeared in Bloomberg View on June 24th, 2011.

The hundreds of thousands of Americans who own shares in publicly traded mutual-fund companies — not to mention fans of corporate accountability — should be feeling a little unsettled by a recent U.S. Supreme Court ruling.

Janus Capital Management LLC, a mutual-fund adviser, was sued for fraud in 2003 by shareholders who said Janus and its publicly traded parent company, Janus Capital Group Inc., had lied in mutual-fund prospectuses, and that those lies had cost them a lot of money. On June 13, the Supreme Court threw out their case.

Here’s why they sued: Investors dumped shares of Janus, the parent company, in September 2003 after the New York State Attorney General’s Office accused the Denver-based group of entering into secret agreements to help hedge funds and other favored customers engage in market timing. This is a controversial — but legal — practice in which select investors trade in and out of funds to take advantage of pricing inefficiencies. As far as Janus investors knew, it wasn’t happening at Janus, which said in several of its prospectuses that it deterred market timing.

The firm wound up settling various regulatory complaints for $226 million. The settlements may have addressed the alleged wrongs to buyers of the mutual funds. But investors who were stuck with sunken shares of the parent company were never made whole. Now, the Supreme Court has said they never will be, either.

Copycat Suit

Mark Perry, a lawyer for Janus, said it “paid a significant amount of money” to resolve cases with New York and the Securities and Exchange Commission, and that the “copycat suit” was properly dismissed.

To understand why the decision is a slap in the face for Janus shareholders, and potentially those of other mutual-fund companies, you need to know a little about the strange corporate structure that most mutual funds use. There are the mutual funds that investors actually purchase, such as Janus’s Mercury Fund. Investors own the funds, which generally have no employees but “retain” a separate investment adviser to run the business and decide what the funds will invest in. In this case, Janus Capital Management played the adviser role. If the fund is publicly traded, there can also be another entity, a parent corporation like Janus Capital Group.

Suing Yourself

If something goes awry, this nifty arrangement makes it impractical to sue the fund — what’s the point of suing yourself? — and with the new Supreme Court ruling, it has now become exceedingly difficult for a shareholder to take action against the company that runs the fund, too. Thus, you purchase shares of companies in the mutual-fund business at your own risk because managements are no longer answerable to shareholders if the investment vehicles they “advise” get caught in a fib. (I garnish the words “advise” and “retain” with quotation marks because mutual funds have about as much control in choosing their advisers as most of us do when picking a cable-television provider.)

In Janus’s case, the fund and the adviser shared the same business address and the funds’ officers were also officers of the adviser. “The funds are inert, on life support, dominated by Janus Capital Group,” says William A. Birdthistle, an associate professor of law at Chicago-Kent College of Law and the co-author of a Supreme Court brief supporting the investors who sued Janus.

Clintonesque Opinion

The Supreme Court, though, said that both Janus, the publicly held company, and Janus, the investment adviser, were off the hook because neither was the entity that stated in a prospectus that market timing was discouraged. In a Clintonesque “it depends on what the meaning of the word ‘is’ is” opinion, Justice Clarence Thomas wrote that the defendants didn’t “make” the misstatements in the prospectuses — the mutual fund did.

Rule 10(b) 5 of the Securities Exchange Act of 1934 says it’s unlawful for a public company “to make any untrue statement of material fact,” and if you’re going to win a lawsuit based on that rule, you need to show that someone lied. The court says only the mutual fund could have “made” any untrue statements in this case.

Big Win

So Janus is acquitted with the aid of a dictionary, and public companies have a lot less to worry about when they shade the truth to shareholders. The decision is such a big win, in fact, that Birdthistle expects corporations outside of the investment-management business to alter their legal structures to gain the same protection that funds now enjoy. “In Delaware, with 30 minutes and $50, you can create a legal entity,” he says.

In its Corporate Code of Business Conduct, Janus Capital Group counsels employees that the letter of the law isn’t always enough. “While we monitor laws and regulations that apply to our business worldwide, we trust you to do the right, ethical thing even when the law is unclear,” it says.

When it comes to shareholders, though, the letter of the law, not to mention the general vocabulary, seems not to include the word “accountability.”