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Sunday, August 24, 2014

Brown’s $270K income from Mass. company exporting jobs overseas belies campaign promises

A cornerstone of Republican Scott Brown’s campaign to return to the U.S. Senate has been a desire to create more high-paying jobs for workers in New Hampshire and America.

“Washington needs to work together to create a strong business environment that gives all Americans the opportunity to work in good-paying jobs,” Brown says about job creation on his campaign’s website. ...

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A cornerstone of Republican Scott Brown’s campaign to return to the U.S. Senate has been a desire to create more high-paying jobs for workers in New Hampshire and America.

“Washington needs to work together to create a strong business environment that gives all Americans the opportunity to work in good-paying jobs,” Brown says about job creation on his campaign’s website.

But since February 2013, he has earned $270,000 sitting on the board of directors of a Massachusetts company with a penchant for exporting jobs to cheap foreign labor alternatives such as China while shielding millions of dollars in profits from U.S. taxes.

The company is Kadant, of Westford, a global supplier of fiber processing equipment with a major focus on the pulp and paper industry. It had 2013 revenues of $344 million and employees in 17 countries.

Of its 14 manufacturing facilities, four are in the United States. The rest are scattered around the world in countries such as China, Mexico, Brazil, Sweden, Netherlands and France.

“I am honored to have the opportunity to contribute to Kadant and learn more about the challenges of an international business,” Brown said when appointed to the board of the company, which has a history of growing profits by moving operations overseas.

In 2005, Kadant closed a manufacturing facility in Louisiana, combining it with a facility in Alabama “for outsourcing,” company officials said at that time on a conference call with investors.

“A reduction in manufacturing in North America is necessary as we shift toward lower-cost regions such as China,” said Bill Rainville, Kadant’s CEO at the time.

Kadant also expanded its manufacturing in Mexico in 2006 at the expense of jobs in Massachusetts.

U.S. Department of Labor records confirm that over the last decade, Kadant made three applications for laid-off workers to receive federal trade assistance because their jobs went overseas.

One of those was for seven “web” workers at the Westford company for what Kadant officials called a “shift in production.”

Kadant’s chief financial officer, Thomas M. O’Brien, said that since 2001, the firm expanded aggressively to markets in Europe, Central America and Asia because that was where business growth was possible.

“Ten years ago, we had a hard time winning capital orders for our doctoring systems, which were manufactured in Massachusetts,” O’Brien said via email.

O’Brien said moving the jobs away actually helped boost domestic jobs.

“By moving some of the manufacturing to Mexico, we became more competitive, won more orders, and increased our spare parts and consumables products (which) are also made in Massachusetts,” he said. “Partly as a result of this, our Massachusetts employment is the highest it’s been in 10 years.”

The most recent employment figures for Kadant show that it has 1,800 employees, about 500 of them in the U.S.

In 2013, the firm reported 63 percent of its sales were overseas.

Last year, Kadant purchased a Vancouver, British Columbia, company that was already outsourcing 70 percent of its manufacturing.

Chief Executive Officer Jonathan W. Painter told investors then it would look to locate some of that manufacturing to its plants in China.

“Seventy percent of the work that they do is outsourced primarily in the Vancouver area,” Painter said during an earnings conference call in November. “So I think we are going to take a hard look at whether we can increase their margins by manufacturing something for them in China.”

In the company’s 2014 annual report, Kadant said it legally avoided paying $146 million in U.S. income taxes by “indefinitely” reinvesting profits made in overseas operations.

As for the legal avoidance of U.S. taxes, O’Brien said America is unique with a high corporate tax rate and aggressive pursuit of profits earned by the international operations of domestic companies.

“It’s not surprising that Kadant, like other global companies, does not bring cash back to the U.S. unless we really need it,” O’Brien said. “Kadant does pay U.S. taxes, and has a 32 percent global tax rate.”

The 2014 annual report states, “We reinvest certain earnings of our international subsidiaries indefinitely, and accordingly, we do not provide for U.S. income taxes that could result from the remittance of such foreign earnings. Through year-end 2013, we have not provided for U.S. income taxes on approximately $145.9 million of un-remitted foreign earnings.”

Brown’s personal financial disclosure statements and company records confirm the amount he has earned since joining the board of directors. He also acquired 5,000 shares of stock in the company worth $201,400 as of the stock’s trading price recently.

Were he to remain on Kadant’s board through his current term next spring, Brown would receive another 10,000 shares worth an additional $397,000 based on current market prices.

Despite repeated requests, Brown declined comment through a campaign spokeswoman.

Campaign officials also declined to answer questions about Brown’s role at Kadant and views about its offshore operations. Instead, officials pointed to the record of incumbent U.S. Sen. Jeanne Shaheen. Brown hopes to unseat Shaheen during the election in November.

If he is successful in beating Shaheen, Brown would resign his seat on Kadant’s board, his staff said.

“Once elected, Brown has always intended to resign from any prior commitments to focus solely on the people of New Hampshire,” Brown campaign communications director Elizabeth Guyton said in a statement.

Brown had a personal connection to Kadant, having been a classmate of Painter’s at Boston College Law School.

Painter gave Brown $2,500 for his Massachusetts Senate campaigns in 2010 and 2012, while the firm’s executive vice president, Jeffrey Powell, gave Brown’s campaign $500 in 2012.

Company officials said placing Brown on the board wasn’t a parochial choice simply because he had represented Massachusetts in the Senate for three years.

“During his time in public office, Senator Brown has gained a wealth of experience on local, state, national and international issues, and I am pleased that he has agreed to join our board of directors,” Painter said in a statement announcing Brown’s appointment to the board.

“His good judgment and pragmatic approach to solving problems will be a strong asset to Kadant as we continue to grow our business throughout the world.”

While in the Senate, Brown’s record on legislation to crack down on outsourcing by U.S. companies was mixed.

He opposed amendments on the topic pursued by Senate Democrats in 2010 and 2011. But during his re-election campaign in 2012, Brown joined only three other Republicans to permit debate on an anti-outsourcing measure to give companies a 20 percent tax break for bringing foreign jobs back home.

“With the struggling economy and continuing jobs crisis, this is the conversation we need to have,” Brown said, adding he wasn’t committed to supporting the bill.

Ultimately, a GOP filibuster blocked the measure from coming to the Senate for a final vote.

Shaheen had her own experience with outsourcing while serving as governor of New Hampshire in 2001. In the late 1990s, then-Gov. Shaheen and the Executive Council approved a contract for New Hampshire and six other Northeastern states to hire Citibank to administer their food stamp programs.

Two years after she left office in 2004, The Associated Press confirmed that Citibank had subcontracted telephone work with a Wisconsin company that then hired a company in India to do some of that work. Scott Kosowicz, who had overseen the debit card program for New Hampshire, told The AP in 2004 that New Hampshire had known Citibank was outsourcing the jobs since December 2001, the last month Shaheen served in office as governor.

Shaheen’s re-election campaign declined comment. A New Hampshire Democratic Party spokeswoman said the two experiences are not analogous.

“Obviously, Jeanne Shaheen didn’t make any money out of the outsourcing, while Scott Brown made hundreds of thousands of dollars from a company that has engaged in serial outsourcing,” said Julie McClain, the Democratic spokeswoman. “To compare the two is apples and oranges and more than a little far-fetched.”

Republican State Chairwoman Jennifer Horn, of Nashua, said Shaheen’s actions were hypocritical.

“In the Senate, Jeanne Shaheen has sanctimoniously railed against outsourcing,” Horn said in a statement. “However, Shaheen has gladly accepted huge donations from companies that outsource American jobs, and during her time as governor, the Shaheen administration outsourced part of its food stamp program to India.

“Jeanne Shaheen’s double-talk on outsourcing serves as another reminder that she is a dishonest Washington politician who will do and say anything to get elected.”