Phil Murphy’s rival just accused him of profiting from slave labor at Goldman Sachs

Claude Brodesser-Akner
NJ.com/Star-Ledger

For more than a year, Phil Murphy has campaigned to become New Jersey’s next governor, spending more than $19 million of a vast personal fortune made from over 21 years at Wall Street juggernaut Goldman Sachs.

Along the way, he carefully has maneuvered around two potential Goldman thorns: Comparisons to former Gov. Jon Corzine, the firm’s ousted CEO, and its role in the Great Recession of 2008.

Now there may a third issue that Murphy has to address.

On Friday, rival Democratic candidate Jim Johnson publicly assailed Murphy for his oversight of Goldman Sachs Asia and an investment the company made in a Taiwanese-based company known for exploiting workers throughout Asia.

Johnson claimed the report from human rights watchdogs “undercuts what he says on the campaign trail to working families.”
NJ Advance Media had been researching those reports for several weeks.

An examination of Murphy’s time as president of Goldman Sachs Asia from 1997 to 2000 — drawn from labor activists, media accounts and interviews with Wall Street bankers over the last few weeks — shows his division profited from an investment into a shoe manufacturer notorious for its horrific work conditions and treatment of employees.

What remains less clear is how much influence Murphy had over Goldman’s investment or the company’s behavior.

Yue Yuen Industrial Holdings, now the world’s largest shoe company, had a well-documented history of employee abuses that included: paying slave wages to a workforce of mostly teen girls; forcing unpaid overtime; maintaining unsafe work conditions and warehousing workers in filthy dormitories.

Those problems were well known before Goldman Sachs made its $55 million investment in September 1996 and Murphy took over the firm’s Asian operations in 1997.

Murphy’s campaign stresses the deal was struck before he assumed his post in Hong Kong and that the decision to invest was made by the firm’s top executives in New York, points that are confirmed by Corzine.

But one human rights activist who visited the Yue Yuen factories maintains Murphy had to have eventually found out about Goldman’s investment and should have known about the factory conditions.

According to Don Katz, the author of the 1994 book “Just Do It: The Nike Spirit in the Corporate World,” Yue Yuen’s Indonesian operations were “management by terror and browbeating.”

Part of the appeal to Goldman was Yue Yuen’s incredibly cheap labor, which allowed profits to rise even when U.S. demand for sneakers fell. By 1995 — before Goldman’s infusion of cash — the company and its 54,000 employees were making a staggering 45 million pairs of shoes a year for companies like Nike, Adidas and Reebok, according to the Far Eastern Economic Review.

But it didn’t come without controversy and media scrutiny that eventually forced the manufacturer to change its ways.

A joint investigative report released in 1997 by the workers rights non-profits Asia Monitor Resource Center and the Hong Kong Christian Industrial Committee found that Yue Yuen employees in Dongguan, China, were paid between 13 and 20 cents an hour, earning wages between $48.19 and $72.29 for an entire month.

However, if workers made mistakes, they could lose between $3 and $10 a month in fines.

That same report also found widespread violations of Chinese labor law, with some 75 percent of workers interviewed saying if they failed to work overtime on top of 10-12 hour work days, they would receive a fine or a warning. Half said they never got paid for their overtime.

Most chillingly, the report also noted that “many workers recalled accidents which had occurred in the factory, particularly workers’ hands or fingers being cut off by the machines.”

Murphy declined to comment directly on Goldman Sachs’ Yue Yuen investment and interviews with other Wall Street bankers left his role in the sneaker maker cloudy at best.

Julie Roginsky, a spokeswoman for Murphy’s campaign, offered this emailed statement.

“These investments were made by a committee at Goldman Sachs’ main office in New York with which Phil had no involvement, well before Phil relocated from Germany to Hong Kong to run Goldman Sach’s office in Asia,” Roginsky wrote. “Suggesting that Phil is accountable for the decisions of others is irresponsibly deceitful and holds him to an unreasonable standard.

“There is a reason every major labor and environmental group has endorsed Phil Murphy: because they know that Phil Murphy will be the most pro-labor and pro-environment governor New Jersey elects in a generation.”

In an interview with NJ Advance Media, Corzine, a former Goldman Sachs co-CEO who was New Jersey’s governor from 2006-10, confirmed that the firm’s banker with a seat on Yue Yuen’s board, Henry Cornell, “reported to Phil administratively”  but that “his prime report was back into the private equity group lead by Hank Paulson at the time.”

Neither Cornell, who retired from Goldman Sachs in 2013, nor Paulson, who was Goldman’s co-CEO at the time of the Yue Yuen investment, returned calls and emails from NJ Advance Media seeking comment.

A spokesman for Yue Yuen, Henry Chow, did not return emails seeking comment.

Similarly, Andrew Williams, a spokesman for Goldman Sachs in New York, did not respond to several emails and telephone inquiries about Murphy’s time at Goldman Sachs Asia.

But Corzine said he believed “the direct decision (to invest in Yue Yuen) was very far away from Phil. … It was his job to protect the reputation of Goldman Sachs in the region and enhance it, and on that score, he gets very high marks.”

Madea Benjamin, the co-founder of the human rights and labor watchdog Global Exchange, disagrees.

Benjamin has direct knowledge of the abuses at the Yue Yuen factories from her creating a common set of work rules for Yue Yuen’s client, Reebok.
Having twice visited Yue Yuen’s Reebok factories in Dongguan, China, once in 1997 and again in 1999, she said the “conditions were horrendous,” and “there were 12 women stacked in a room, with not even clean drinking water for them to drink.”

Benjamin said that even though Murphy didn’t order Goldman’s initial investment, she has a hard time believing he lacked knowledge of a $55 million bet on the world’s largest footwear company for the duration of his Goldman Sachs Asia presidency.

“How could you not know of such a large investment?” Benjamin said. “Either he’s a miserable representative of Goldman Sachs, or he’s lying.”

She said the Yue Yuen’s practices were well publicized at the time, including a 1997 Associated Press report followed by other reports in newspapers and newsmagazines.

“This was so known and so easily known,” Benjamin said. “This was widely known by people who were in the industry. The buck has gotta stop with the people who were profiting.”

NJ Advance Media asked Murphy’s campaign spokeswoman if he knew about Goldman’s investment in Yue Yuen, but Roginsky declined comment.

For his part, Corzine said whomever chose to invest Goldman’s money into Yue Yuen, “may have fallen down in their assessment” of the firm’s reputation for fostering slave labor.

But Corzine then cautioned that with Goldman’s investment, Yue Yuen was “also taking people out of poverty.”

“They certainly don’t meet Western standards,” said Corzine. “And I’m not endorsing it. But the good side is: people are eating. I am not trying to be a moral relativist, but people are better off because those jobs are there.”

One China expert agrees that Goldman Sachs’ investment into Yue Yuen needs to be viewed in the larger context of what was going on at other Chinese companies at the time.

Leslie T. Chang, the author of the 2008 book “Factory Girls,” which examined the lives of migrant workers who arrived to labor in Dongguan’s factories, said Goldman was “reasonable” to invest in Yue Yuen.

“Yue Yuen was a more above-board company than a lot of companies in China at that time,” said Chang, who repeatedly visited Yue Yuen’s plants between 2004 and 2006. “It was a pretty reputable company that was trying to get better and do things properly, within the realm of being financially competitive.”

And as the years ticked by on Goldman Sachs’ investment, media scrutiny on brands like Reebok and Nike forced the company to make improvements.  By mid-2000, things had improved considerably at Yue Yuen.

While still repressive towards labor, Chan Kawai, executive director of Hong Kong Christian Industrial Committee, described the Yue Yuen of May 2000 as a “paradise” when compared to other small companies operating in the region, according to a report in the San Francisco Chronicle at the time.