Ethics Problems in our Industry? I’m Shocked

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Ethics Problems in our Industry? I’m Shocked

I don’t know why I am surprised. Ethics and our industry became a hot topic at the Temecula Group and I was shocked SHOCKED that these shenanigans were going on industry wide.

We are an industry that was originally built on not reporting income. It was a cash industry and money disappeared, sometimes at alarming rates, at all levels. Cashiers were driving fancy cars, garage managers owned islands, garage owners were receiving paper bags of cash left on their doorstep, bagmen were causing traffic jams as they delivered ill gotten gains to government and union officials. Once in a while, money actually got into the appropriate bank accounts.

As time went on, the graft got more complex. Credit cards took a lot of the cash out of the system and made it more difficult to adjust income levels.  But there were still ways — Monthly cards could be sold at a discount for cash. Owners could be billed for expenses that were also billed at a different location. Parking operations with a 17% lost ticket ratio were considered “under good control.”

With this type of activity pervasive, one can expect that the slippery slope was working overtime. The losses were considered a ‘cost of doing business.’ Does this still go on?  You tell me. But with this attitude, something must be happening.

Two instances where insiders took money to ensure a certain vendor got a lucrative contract made headlines. But is there more to this iceberg?

One seems to be “pay to play.” If a vendor wants access to decision makers, they need to first pay a price of admission. In other cases, the customer demands double billing, kickbacks, or even an annual fee to get into the game.

There are stories of ‘minority’ and ‘women owned’ companies selling their services to vendors so they can meet some government requirements and get a few extra points in the bidding process. Or “Hire our consulting firm so we get the right spec written.”

One of the Temecula Group pointed out that if a company engaged in any of the above practices and was dealing with a foreign entity, the Foreign Corrupt Practices Act kicks in and if a company is found bribing foreign officials, or even a subsidiary of such company, the fines are heavy and the senior officers can go to jail.  Why shouldn’t such rules apply to business done within the borders of the US? Why not indeed.

Discussions about these practices are held much like the Watergate Scandal, in hushed tones, with people sworn to secrecy, often in dark places like the third floor of a parking garage.

“What’s the big deal?  Some might say. Who is hurt by such practices, I mean really. It seems to me we all are:

  • The owner ends up paying more for a product or service than he needs to, and perhaps not getting the quality or features needed for the project, because the sale is guided to a different supplier.
  • The Vendor is caught in a trap. They lose all control over the project and their product. They are told what to do, when to do it, and can be forced to supply substandard products because their profit is taken in the nefarious process.
  • The Operator can end up with substandard products or services, and even thought at a corporate level they considered themselves ethical, find their employees tempted to adjust bidding processes for private gain.
  • The public suffers because the operator and through him the owner, must charge more for what they are supplying because they have to cover the cost of the unethical activities.

Remember, the money for these transactions comes only from one place, from the buyer. A vendor isn’t going to take money out of its pocket for a payoff, they are going to build that price into the cost of the product or service. And in the end, such activity forces prices up, and the owner and through them the consumers pay more and delivery and service suffers.  Once vendors understand that good products and service makes no difference in who gets the deal, why would they be motivated to do a better job.

Members of the Temecula Group add to my comments first this:

 The foundation of consistently practiced ethical behavior relies upon a strong culture and the (right) daily decisions of the people involved – however it will come as no surprise to learn it isn’t just in parking. I received the Weekly Briefing for the Chronicle today, and the top headline caught my eye. “Missed Classes, Changed Grades, One Disillusioned Adviser.” (The article covers how athletes at UCLA were gives passing grades while never attending classes.) The specifics of the alleged infraction are different than those we discussed – the symptoms are similar in that once upon a time a (no doubt innocent) intention has grown into a subtle (or perhaps not so subtle) practice of modifying rules or best practices for gain. The solution regarding how to stop it is what is so elusive.

And this:

I would wager that every one of the companies that we do business with, whether an operator, real estate owner, vendor or municipality, has a ‘corporate’ ethics statement as part of the HR paperwork you have to review and sign when you join. Larger companies, e.g. Boeing, will include a section in the contract/subcontract that points to either a copy or a link of their ethics statement. It forces everyone to acknowledge it every time a contract is signed, thereby keep it fresh in everyone’s mind. Nevertheless there are corporate principles, Internal HR compliance, inclusion in contracts. However in the end, Boeing executives went to jail.

So, I’ve just argued for inclusion of a Code of Ethics/Conduct for companies and suppliers and then just negated it by showing that, at the end, regardless of what a company does, it still comes down to individuals.

And this:

Issues like minority interests, where individuals or small “shopfronts” are established to qualify for a particular status in a tender that is problematic. If its genuinely established to develop opportunities for minorities and structures than maybe, but how could it be that the shopfronts aren’t audited? Buying groups “constructing” tender responses so they can skim the cream off the top are a surprise to me. I understand buying groups and I understand rebates but I don’t understand the back rooms deals and the complete absence of transparency. I was very surprised to learn that these two structures in particular are widespread and largely accepted. It would seem to me that the fault (and blame) rests with ultimate purchaser of the good s and services. If a Government purchases anything it is using taxpayers funds. The onus is on them to ensure transparency and fairness and to have the appropriate checks and balances in place so they can prove that reasonable measure are undertaken at all times to ensure the systems are working.

The next point I would like to make is that is that I believe the greatest threat to potential thieves is the fear of being caught. In recent months we have had two very public incidents of thieves being caught out. Karen Finley has pleaded guilty and faces five years jail for her role in the Reflex bribery in Chicago. The party who took the bribe also pleaded guilty.

With both cases the authorities have the opportunity to realign their values and state their values to all the stakeholders. Chicago should place a 15 year ban on Redflex. The State of Illinois should also have an agreement between all Municipalities in the State so that when a ban is placed on a vendor by one municipality for proven corruption, it is upheld by all. Keep in mind the theft was undertaken by the CEO for God’s sake. In the Chicago Parking situation, the companies involved should reinforce their position with their staff and community of suppliers and they should ban the suppliers for considerable duration. If they don’t take action, what signal are they sending?

I think we should not rely on the judicial system to process the individuals that are caught, municipalities should also impose penalties ( bans) on these corporations, so boards and executives know that being slack on check and balances and paying lip services to values and ethics is no longer acceptable.

The Temecula Group had many more examples, but some hit very close to home. Don’t panic. I’m not dropping dimes on anyone. I know of a number of situations where in each case, one or more of the above happened. I have documented it all and its sealed with my attorney,to be released upon my disappearance.

JVH

John Van Horn

John Van Horn

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