Unexpected Consequences Ride Again

I found the story about decreasing gun sales this week on the CNN Money page to be somewhat ironic and more than a little amusing. If you don’t follow such things, you may not have been aware that the last eight years have been a bull market for all things gun-related in the United States. Gun sales have been so strong that several manufacturers have expanded production and even some foreign firms have begun setting up U.S. divisions. Meanwhile, ammunition sales have been even more explosive, prompting some manufacturers to move into ammo production for the first time. Several explanations have been given for the increased sales, but the most common cause cited has been the persistent rumor that the Obama Administration was secretly planning to introduce legislation to confiscate all privately owned guns in the United States…

Why, exactly, such a rumor would have proven so difficult to dispense with has never been conclusively proven, and I think we can safely assume that if anyone could produce evidence of a deliberate smear campaign we would have heard about it by now. What we can establish is that these rumors let to panicked buying trends after the 2008 and 20012 elections, and rash of similar rumors about Secretary Clinton (and a widely-held belief that she would be elected last year) resulted in an even more intense buying frenzy last fall. But when a Democratic victory failed to appear, sales of guns and ammunition began drying up, and apparently several of the major weapons manufacturers are having to deal with significant surplus inventory which is showing no sign of ever being sold…

The irony, of course, is that many of the same people and organizations who are most opposed to gun control legislation were significant contributors to the Republican candidates in the last election – and in every previous election over the past fifty years. But while hunters, NRA members and people who participate in target shooting may make up the rank and file of the “gun lobby”, a significant amount of the money that supports the cause – and that goes into getting Republican candidates elected – comes from those same arms companies. And while they have undoubtedly succeeded in getting a candidate more sympathetic to their cause elected, they have also helped to undermine their own sales tactic: scaring people with the specter of gun confiscation…

Now, one could reasonably argue that a better-educated electorate would have known that the outgoing Administration had never made gun control (let alone gun confiscation) a priority issue. There was an attempt to renew the Assault Weapons ban passed twenty years earlier, but this was defeated by the Republican-controlled Congress and never had much of a chance. And while gun control is traditionally seen as a Democratic issue, any attempt to undercut, much less repeal, the Second Amendment would be political suicide for almost any politician seeking national office – and our last Administration certainly knew that. That the gun lobby was able to perpetuate this myth is a strong indication of just how ignorant large numbers of our citizens really are, but it also demonstrates that the companies in question did not follow up their strategy to its logical conclusion…

If the various companies that manufacture and sell firearms had really wanted to maximize their profits, they should have thrown all of their support behind a Democratic candidate that many of their customers (rightly or wrongly) believed was going to take all of their guns away. They could have counted on support from the people who make those air-tight containers that some folks have been using to bury cashes of weapons (you can’t confiscate what you can’t find, right?), and any number of publishers, filmmakers and lawyers who make money feeding the same scare stories to people too gullible to know better. But with a politician in office who will cheerfully sign off on new laws allowing personal ownership of whatever guns people want to buy, the demand for all of these products is already starting to dry up, and the entire industry may be in for a crisis in the new year…

Whether this means the companies and their allies are simply getting their comeuppance for foisting their politics off on the rest of the country depends on your point of view, but it does appear to have had consequences they did not anticipate…

Some Call It Justice

You may have heard the term “schadenfreude” before – it comes up in popular culture every so often, as in the case of the Avenue Q song by that title – but if you’re not familiar with it, the definition is “pleasure at the misfortune of others.” In this increasingly cynical world we’re seeing more and more cases of it, probably best demonstrated by things like the homeowners who had been wrongfully foreclosed on by Bank of America (they didn’t have a mortgage with B of A or anyone else) getting a court order to seize all of the company property from their local branch. Call it karma, cosmic retribution, or evildoers finally getting their comeuppance, these reports have become seen as feel-good happy-ending stories to lighten up our news. And in the case of the debt collection agency that just got nailed for $83 million in punitive damages it’s hard not to agree…

You can find the original story on the New York Daily News site if you want to, but what it comes down to is an outfit called Portfolio Recovery went after a woman in Kansas City for a debt that they knew was not her own – it was owed by somebody with a similar name. The jury in the case ruled that the company knew perfectly well what it was doing, but figured to make an easy buck off the victim, and decided to slap the firm with these amazing damages for violating the Fair Debt and Collection Practices Act. Apparently, the fact that the company knew it was in the wrong and continued to pursue the fraudulent claim for over a year annoyed members of the jury…

Interestingly, the company’s statement about the case (also available on the Daily News site if you want it) calls the amount outrageous and says that Portfolio Recovery is going to appeal the award based on its size – but does not protest that the company did nothing wrong, as you would probably expect. Apparently, the court case established not only that they actually did the things of which they were accused, but also that they knew the collection attempts were fraudulent and continued with them anyway – which would seem to be an even more spectacular failure than the original ill-advised collections effort…

Now, no one is really saying that a year of the plaintiff’s time was actually worth $83 million, or even that the emotional distress caused by the proceedings is worth whatever portion of the award she gets to keep after paying her legal fees. The jury’s point is clearly that unless the company is slapped down good and hard, with an award of damages that is just too massive to ignore, they will probably do the same things again next time. And I’m sure that everyone involved expects the company to appeal the award and try to spend years or decades tying the whole thing up in court, until the plaintiff either gives up or dies. In this case, however, that’s probably a really bad idea…

From a strategic standpoint, what the company needs to do is settle the case as quickly as possible, and with as little fanfare as possible. It’s not unheard of to have settlement agreements that include all parties involved not speaking about the case ever again, and Portfolio Recovery can probably get such an agreement into the deal if they make a large enough offer. Once they settle the case the whole story will drop out of the news cycle, and the company can quickly audit its books to eliminate any similar cases (ones it knows are bogus) and make good-faith efforts to resolve any similar cases before the next lawsuit comes up…

Because every day this story stays in the headlines it will come to the attention of more people, and eventually one of them is going to decide that he or she can win an identical lawsuit, even if they were not wronged by the company. And if that happens, schadenfreude is going to be the least of their problems…

The Other Shoe

In yesterday’s post, I was talking about the fallout from this week’s Hobby Lobby decision, and why the whole policy that resulted in the lawsuit was a bad idea from a Management standpoint. For many years now I have maintained that any decision or policy that is ultimately against the best interests of the employees is not in the best interests of the company, at least in the long term. In a larger sense, I’m generally against policy decisions that negatively impact any of the corporation’s stakeholders unless there is some overwhelmingly important reason for doing so. Actions which are bad for the community, state or country in which the company operates in general are rarely good for the firm itself in the long run, if only in the sense of having customers who can buy your products and of not being constantly besieged by regulatory bodies, law enforcement agencies, consumer advocates, environmental groups, community leaders, civil rights lawyers, or angry mobs with torches and pitchforks. But as bad as all of that it, the Hobby Lobby decision may actually have created something even worse…

Traditionally, one of the reasons people form corporations is to protect themselves from certain types of legal liability. Incorporating the company creates the legal fiction that the company is an entity separate from the people who own it or manage it. The corporation can own property, conduct business transactions, borrow money and pay taxes; it can also be fined or sued – but the people who own it can’t be. As one of the stockholders, you can’t be personally held responsible for the actions of the corporation – which seems only reasonable, since you are only one of the hundreds or thousands of people who own it, and you didn’t personally make any of its questionable decisions. If a company in which you own shares declares bankruptcy and is sued by its creditors, the court may be able to seize the company’s assets, but they can’t take your personal funds. You can see how important this could be in the case of major product liability suits or matters of criminal malfeasance, to take only the two most obvious examples…

This legal fiction is generally called the Corporate Veil, and it is often considered one of the most important kinds of protection offered by incorporation. The problem is that the Veil is only a legal fiction; if the owners of the company do anything that even implies that the corporation is not a completely independent entity it is possible for the courts to ignore that fiction, or “pierce the Corporate Veil,” and hold the owners directly responsible for anything the company does. Common violations would include not keeping accurate records, not paying dividends to the shareholders, or intermingling the company’s assets – using corporate funds to pay for personal expenses, for example. It isn’t usually possible to pierce the Veil because the owners are clearly just using the company to further their own interests or agenda, because it is usually very difficult for hundreds or thousands of owners to agree on a personal agenda in the first place but it can happen – when a single individual or family owns the entire company, for example…

In the case of Hobby Lobby, it’s much too easy to argue that the owners of the company – who happen to be members of a single family – are using the company and its compensation packages to further their own political and/or religious agenda (to the extent that there is any difference, these days). As noted in yesterday’s post, their anti-birth control policy is not in the long-term best interests of the employees, the company or the owners themselves, but the opportunity to challenge the Affordable Care Act under a religious exemption does further both the political and religious agenda of the owners. If the court – any particular court hearing a case against the company – decides that they have broken the rules and may therefore not have the protection of the Veil, damages assessed by that court may be directed against the owners of the company. That would include any of the gender-discrimination or religious-discrimination cases starting up over this situation, by the way…

Now, I’m not going to pretend that this was the first thing that came to my mind when I heard about the Supreme Court decision last week. It wasn’t until I read the news story here and the “Friend of the Court” brief it references here that I realized that just how badly this could end for the company’s owners – and that nearly four dozen law professors from top universities thought so, too. So however much we may want to mock the owners of Hobby Lobby for the financial and public relations consequences of their actions, it would appear that the legal aspects of the situation are even worse – and that any first-year Law student could have told them how utterly stupid and ultimately self-destructive their policies were…

From the Top

I’ve been watching the fallout from the recent Hobby Lobby decision along with the rest of the country, and I have truly been amazed at the amount of scorn and derision being heaped upon the company, its ownership, its management team, and anyone who supports it by essentially everyone on the left side of the political landscape – and a fair amount of the center, as well. So far we’ve heard about how this is indicative of a war against half of our population, how it’s the emergence of a plutocracy that will destroy the very fabric of our country; how it’s the start of a theocratic state in North America, how it is discriminatory, racist, sexist, classist, and generally horrible for anybody who isn’t an ultra-right-wing white male religious fanatic. And I have no difficulty accepting any of these claims; but what strikes me about the situation is that the management policy that started the whole this sorry mess was a bad idea in the first place…

Consider, for a moment, the purpose of offering benefits to your employees. All pious mouthing aside, benefits are part of the compensation package which the company uses to attract the best available workers – or, at least, employees of sufficient quality to suit its requirements. If a given company offers better compensation than others in the same industry, whether that means higher pay, better health insurance, dental and vision insurance, retirement plans or other benefits, then jobs offered by that company will be more desirable, creating greater competition for those positions and giving the company access to a greater selection of possible employees. It is important to note that while access to adequate health care may be considered a basic civil right, having somebody else pay for it generally isn’t, which is why there are so many jobs that do not offer acceptable medical insurance – and why the Affordable Care Act was required in the first place…

Given that this is the primary function of all compensation elements from the company’s standpoint, intentionally degrading any part of the compensation package is counterproductive to the point of idiocy. Any measure which makes the package less attractive – which eliminating coverage for desired services most assuredly does – lowers the company’s ability to attract or retain the best personnel. This lowers productivity, lowers profitability, and generally decreases the overall value of the firm. In this specific case, negative feelings generated by the policy (and the lawsuit to protect it) also represent an excellent chance of angering or alienating employees who already work for the company and do not have the option of quitting – including member of the workforce connected to the issue by politics or ideology as well as by biology. This will lower productivity still further, and that doesn’t even consider the impact the company’s position is having on public relations and customer retention…

Now, as already noted, there are companies that do not offer health benefits of any kind, and from a purely strategic standpoint we can understand why. If employee relations are not a priority – if the labor situation in their industry is effectively a buyer’s market – then a company may not need any advantage to obtain the best employees, and if workers in that industry are considered easily interchangeable there may not be any great pressure to retain them, either. Alternately, a given company or industry may have an operating margin so thin that offering any additional compensation would make their business model untenable; the choice might be between higher wages and other benefits, for example. This is the first case of which I’m aware in which a company has decided to intentionally hamstring itself because of the religious convictions of the ownership, though – even assuming that’s actually what is happening…

Personally, I find the religious argument difficult to accept – especially since nothing the company does can prevent its employees from using the disputed birth control methods if they can find another way to pay the resulting medical bills. If the owners of a business actually support any religious belief, it seems obvious that it would be preferable to run the business effectively and use the resulting higher profits to support whatever ministry or other activities those beliefs require, rather than destroy the business and galvanize the opposition into the kind of action that could actually set back the owners’ religious goals. Or, to put it another way, in addition to the various legal, ethical, political, civil, social, customer relations, community relations, public image, employee relations and financial arguments against this policy, the whole concept is also stupid to the point where I can’t even think of a bad metaphor for how stupid it is. And the worst of the legal implications may be yet to come…

Digital Coffee

Unless you have been extremely fortunate over the past decade or so you have probably already encountered Digital Rights Management (sometimes parodied as Digital Restrictions Management) or DRM technologies. These come in a variety of flavors, depending on the media and the platform they intend to restrict, but all of them serve the purpose of controlling (or attempting to control, anyway) the use and distribution of digital content after it has been purchased. This is usually defended by the people who make money on digital content – who should not be confused with the people who actually make digital content – as being the only way to combat the specter of copyright piracy; it is usually decried by people who believe in freedom of speech, or just in being able to use content you have purchased when, where and on whatever platform you like as invasive, manipulative and generally evil. But whichever side of the debate you happen to be on, I’d be willing to bet that you never imagined anyone applying the idea to coffee…

An article on the Tech Dirt website from earlier this month describes how the Keurig company – which makes a line of coffee makers that use single-serving cartridges, or “K-cups” – is planning to release a new line of machines that will not accept product from any other company. In effect, if you have one of these machines, your choices will be to use genuine Keurig reloads or throw it out and get something else with which to make coffee. The same report also claims that Keurig has been signing exclusive deals with various coffee suppliers so that they will be the only ones who carry those brands of coffee – meaning that in addition to preventing customers from using cheaper cartridges from third parties, the company will also become a monopoly source for some popular types of coffee. This has given rise to protests, outraged news stories both online and also in the real world, and at least one actual lawsuit (see the linked story). Federal sanctions may or may not be in the works as well…

Now, there is no mystery as to why the company would want to restrict customers to purchasing coffee from them in addition to the coffee machines: the reload cartridges or “pods” are the most lucrative part of the entire system. Much like printer link, or software applications for computers and smart phones, the coffee machines themselves are mainly a platform from which Keurig can sell products at much higher margin to what will now effectively be a captive market. Nor is there much question as to why the company would want to bring out new machines and attempt to take control of their corner of the market. With competing single-cup brewing systems and third-party companies offering “pods” now flooding the market (to cash in on the single-cup fad) Keurig’s original competitive advantages are being eroded. One has to wonder how well their efforts to make up those losses will work if the company ends up being sued, sanctioned by the government, and mocked by millions of scruffy bloggers…

At the same time, it’s hard to see how else Keurig is going to dig itself out of the hole in which it has landed. Using the brewing machines as a loss-leader and making money on the cartridges won’t work if there are cheap third-party cartridges on the market; raising the cost of the brewing machines won’t work if there are similar machines or knock-off units on the market, and it was clearly naïve of the company to assume that monopolistic business practices like cornering the market on coffee brands wouldn’t be challenged in court and disallowed by the government. I don’t believe there is any way to prevent them from releasing machines that will only work with supplies that they also sell, but this won’t keep them from losing market share to similar systems or to more traditional forms of coffee maker…

Of course, there is also no way of knowing how long the single-cup fad will last, or if it will become a dominant segment of the coffee market going forward. It is possible that once it becomes too expensive and inconvenient to use the K-Cup system and its imitators the entire segment will simply die off – which will solve Keurig’s problems. Just not in a good way…

Stop Making My Case For Me

One of the problems that come up from time to time in a business context is that the standard of what a “reasonably prudent person” would believe is not a universal constant. In civil litigation, the standard used to judge someone’s actions is what a reasonable person would expect in those circumstances, which leaves room for things that you wouldn’t expect, could not be expected to anticipate, couldn’t imagine actually happening, and so on. What makes this a problem is that even if all but one of the 310 million people in the U.S. think something is unreasonable, the one person remaining may not; and if that person is the owner of the company you work for, he or she may do something so completely outrageous (and outstandingly stupid) that even sarcastic bloggers like me can only read the story about it in open-mouthed amazement…

Take, for example, the case of a woman from Salt Lake City who has filed suit against her former employer citing sexual harassment. According to the complaint, her former employer gave her a schedule that included "Mini-skirt Monday," "Tube-top Tuesday," "Wet T-shirt Wednesday," "No bra Thursday" and "Bikini top Friday," along with a wide variety of verbal, physical and occasionally graphic vulgarities far too disgusting to enumerate here. These culminated in a document “authorizing” her boss to sexually harass her, which the plaintiff was given the choice of signing or being terminated. As truly staggering as these behaviors are, I can’t help thinking that the most mind-blowing aspect of the story is that the employer actually put all of these demands in writing – and that the plaintiff has been able to produce them as part of the court documents…

My point in calling this to your attention isn’t that I’m worried about any of my readers (assuming I have readers) doing anything this mindlessly idiotic; the details in this story would have been exceptional even fifty years ago, and are national-news headlines today. My point is that somebody out there – someone who was able to launch and operate his own business, in fact – thought that these behaviors were completely reasonable. He may be the only person in North America who would think so (although I would hesitate to bet money on that), but for the purposes of this one business relationship, that does not matter; his treatment of this employee is so outrageously bad that even a prime-time sitcom would hesitate to portray any character that delusional. Assuming the facts of the case are as stated, this individual is truly doing things that would make you doubt his sanity in a business context. The problem is, he’s not the only one…

The fact is that most people have some irrational belief, bias or blind spot which can affect their behavior. For most of us it’s something harmless, like the belief that the Los Angeles Dodgers are the greatest baseball team ever (they are), that cats are better than dogs as family pets (they absolutely are), or that broccoli is evil (just take my word for it, all right?), but you can never assume that any given person is going to behave in a fashion that you would consider reasonable, just because state and federal law require them to do so. And if you do make that assumption, it is entirely possible that strange, unpredictable and outrageous things will happen to your business, as well – and that you won’t be ready for them…

Not So Funny Now, Is It?

You may have heard a story that’s been going around the Internet for a few weeks about a restaurant in Montana that was listed under the “Animal Carcass Removal” heading in the local telephone directory. It has been the occasion for a lot of local humor, and eventually made it onto the Leno show as part of the “Headlines” segment. Of course, the owner of the restaurant didn’t find it all that funny, since it was interfering with his business – and totally destroying the brand imagine he had spent the last few years building up. In retrospect it seems likely that the company that published the offending phone book wasn’t taking the case all that seriously, in that they made no effort to remove the listing or compensate the owner; they even repeated the listing in the next year’s book. But I would imagine that the whole thing suddenly became a lot less amusing when the restaurant owner decided to sue…

You can pick up one version of the original story on MSNBC if you want to, but the facts of the case appear to be that the owner of the Bar-3 Barbeque restaurant declined to purchase yellow pages advertising from a company called Dex Media, and may have been forceful (if not actually abusive) to the Dex salesperson. In retaliation, the Dex employee changed the restaurant’s business category from “Restaurant” to “Animal Carcass Removal” in the next edition. The publishing company is not disputing that this happened, but they contend that the listing is not their fault because the restaurant owner was mean to their salesperson and should have known that there might be retaliation for this behavior. They’re also claiming that their employee was acting outside of his or her job responsibilities when he or she changed the listing, and should therefore be the one held responsible for the prank, not the company itself. And in any case, the publisher claims, the restaurant assumed responsibility for any errors or problems when it allowed its information to be published in the first place…

I don’t know how Montana law works in these cases (and I don’t have a law degree anyway), but the business law class we had in MBA school suggests that all of these defense arguments are nonsense. The incorrect listing isn’t an error; it’s a deliberate act, and is actionable as such. There is no legal right to retaliate against anyone for being mean to you outside of the playground, and any adult who claims that in any court is likely to be laughed right out of the building. And in any state with a strict liability provision in its tort law, the argument that a company is not responsible for the actions of its employees is simply wrong. In California, for example, this case wouldn’t even get to court; the plaintiff’s attorney would ask for summary judgment, and immediately get it…

I call this case to your attention because it’s easy to see what probably happened here: a salesperson at Dex was abused over the telephone when his or her sales pitch went sour – or believed that he or she had been ill-treated by the restaurant owner. The salesperson retaliated, and the manager of the publishing company either wasn’t paying attention or let the matter slide, possibly in support of the “abused” employee, and possibly because the manager thought it was funny, too. But, unfortunately, the point of running a business isn’t to have fun or create humor, and the court is unlikely to see it in that light either. The publisher’s actions in this case are completely understandable and totally human; unfortunately, they’re also a very bad business decision…

Can You Cook?

I was wandering around the Internet news sites today, when I came across an Associated Press article about a group of culinary school graduate who were suing the company that owned their school, claiming that they had been ripped off by recruiters promising readily available work and high wages after completing various (very expensive) training and certificate programs. The plaintiffs were being mocked in a variety of places on line for being gullible enough to spend $30,000 or more for a certificate qualifying them to work in an industry where the entry-level job is generally an $8/hour line cook’s position – and if that’s what actually happened, the people in question might actually deserve it. However, I believe the question here isn’t so much whether these former students made a bad choice (they did) as it is whether they were actually defrauded by the school’s recruiters…

As noted previously, if it ever becomes illegal to make money off the credulous, the greedy or the stupid, our economy will probably collapse – and anyone who could honestly believe that a seven-month training program could replace a dozen or more years of education and apprenticeships probably falls into one or more of those categories. But people who were promised those results – or, at least, more than an $8 per hour job after graduation – by an apparently legitimate company aren’t exhibiting that behavior, any more than anyone else who is promised a specific outcome from an investment. Which is kind of the point here: telling someone that their investment WILL be worth 300% of its current value in three years is a crime; telling someone that their investment COULD be worth that much isn’t. This is why those commercials you see for investment companies always have disclaimers at the end about how they aren’t guaranteeing you anything. The company says they gave their prospective students such a disclaimer; the students say they didn’t. The court case will try to determine who’s right…

Part of the problem in these cases is that most people aren’t used to thinking of educational institutions the way they do about regular for-profit companies. There is a persistent belief in America (and much of the Western world, for that matter) that education is a noble pursuit, and the people who go into it are by definition driven by higher motivations than simply making money. Unfortunately, for-profit education companies (in this case, it’s Career Education out of Schaumberg, Il.) are only in it for the money, and make a lot of it off of students who don’t understand the difference. The worst of these scandals have been the Federal Financial Aid fraud cases that have popped up in recent years, where for-profit schools have advised students on how to get Federal aid packages and student loans, taken the money, and then flunked the students out of their programs three months later. No one is saying that the culinary schools in our story are doing the same thing – at least, not yet. The implication, however, is that this is just the same scam with a different sauce over the top…

The other problem in this case is that the company appears to have made good on its agreements to educate the students. It’s possible that they misrepresented the value of those degree and certificate programs, but there doesn’t seem to be any question that they actually provided the training they were contracted to provide. It also seems reasonable that the plaintiffs could have made use of any of a dozen different online tools to check both the availability of entry-level cooking jobs, and the salary levels associated with those positions. Unless the plaintiffs can prove that they were actually given incorrect information with fraudulent intent, it will be very difficult for them to make their case…

Of course, it’s also possible that they’ve received incorrect information from their attorneys regarding how easy such a case is to win, or how much they will receive in compensation if they do prevail. But that’s a discussion for another day…

Bad for Whose Business?

There’s a case that has come up recently in Las Vegas where two large companies have come to an impasse, with each claiming that the other is doing it wrong and that their business will be harmed if they accept anything the other company is suggesting. Such things are hardly unusual, especially in a bad economy, but what makes this case so interesting is that the companies are arguing about whether a building should be imploded and then bulldozed because it’s not safe. Such cases are common enough between landlords and tenants, cities and residents, or even contractors and their clients; over time, even very well-constructed buildings with gradually become weak and unsafe. What makes this case unusual is that the building is brand new, and has never been occupied by anyone – and the company that owns it has already spent more than $279 million on the project…

According to the story on the Time Magazine online news feed, the MGM Resorts company had contracted with Perini Building Company to make them a new hotel and condo complex as part of the CityCenter property in Las Vegas. The resulting product was a very nice looking steel-and-glass tower – which MGM is claiming is completely unsafe because of improperly installed steel links on 15 of the 28 floors. As a result, MGM want to implode the tower and bulldoze the property so they can work on a different project for that location; they would probably also demand their money back. Perini says the building is perfectly safe, and the few actual problems it has are all easily solvable. They further claim that MGM is just unhappy that they spent nearly $280 million during a real estate bust, and is therefore trying to get out of having to pay for the work. I can’t help thinking that both companies are missing the point, at least to some degree…

First off, MGM can’t really avoid looking foolish under these circumstances. Even if they are eventually vindicated in the legal action – if it turns out that Perini really did defraud them – there’s still the matter of having invested $280 million in a large real estate project during a completely dismal time in that industry, and that they borrowed money during a time when real estate loans are not particularly favorable. If they lose the case – even on a technicality – they come off as buffoons who tried to get out of a debt they legitimately owe by attempting to defraud another company and failed. And win or lose, MGM is going to pick up a reputation for being willing to screw over a business partner if it is in their best interest to do so – which won’t keep other companies from doing business with MGM, but will make it harder for them to get what they want in their next contract…

Perini isn’t risking as much – if they are justified by the court decision, they were just the innocent builders who got taken advantage of by MGM. On the other hand, if they lose the case – even on a technicality – they’re going to have real trouble finding work in Las Vegas ever again, and it will not help them to get the kind of contract they would want in any case. It’s possible that they could have avoided the current unpleasantness by wording their contract with MGM to make such a lawsuit impossible, or that they could have worked harder on their public relations efforts to make it clear to the public that their work on the MGM project was solid, or perhaps that they could have brought in allies (government agencies, academic institutions, industry experts) to help make their case (in the media, if not actually in the courts). All I know is that win or lose, some people are going to assume that they were up to something shady, if not actually trying to pass off unsafe buildings as state of the art – and that’s going to be bad for business…

I’m not saying that I have some easy answer for this situation. It’s entirely possible that one of these parties is completely in the right, and the other is trying to scam them. But from where I’m sitting, it looks like this whole court action is bad for business: in this case, everyone’s business. I have to wonder if there wasn’t a better way to have handled the matter…

You Can’t Say That in Public!

This week another story popped up in our ongoing collection of examples that prove life in the Internet age really is different – and that anyone who believes that it isn’t is living in a fool’s paradise. Apparently, according to the story in the Minneapolis – St. Paul Star Tribune , a local contractor was having a dispute with a customer over the quality of some concrete work, and the whole thing had degenerated into a series of court cases, when the customer’s daughter decided to post a bunch of nasty comments about the contractor and his company on Craig’s List. This might have stayed in the grey area, except for the fact that the daughter used actual legal terms (such as “fraud”) in her Craig’s List post, and the terms were not supported by the company’s history or the court records. As a result, the contractor counter-sued for defamation and won…

If you’re a consumer advocate, you probably see this as a case of the company doing crappy work (the original customer won the original customer complaint) and then profiting when they counter-sued. If you’re a small-business advocate (the firm in question has only a few employees) you probably see this as a case of someone attempting to screw money out of the company by threatening to write nasty Craig’s List posts unless they get what they want – and then doing so. If the cases are being reported correctly in the linked article, it would appear that the company did offer to fix the problems, but the customer demanded that they refund their entire fee AND pay the “customer” an additional $800 into the bargain (for a total of $6,200), and the court would only allow the customer $440 for the repairs – which is when the customer’s daughter decided on a smear campaign online…

Now, you and I weren’t there when any of this happened, and we don’t have access to either the original contract or the court documents – but none of these points are being disputed by either party. If this is how it went down, then it does appear to be a customer making unreasonable demands on a company that is just trying to complete their obligations and make a living, and that both the customer and her daughter eventually got their just desserts. A much more interesting point, at least from where I’m sitting, is the complaint about the Craig’s List posting – and the subsequent judgment supporting that complaint…

In the days before there was an Internet, the client’s angry offspring would most likely have told friends, acquaintances, and anyone else in the community who would listen about how badly her mother was treated by this paving contractor, and how no one should ever do business with this company. This would be annoying and unfortunate for the company, and if enough people did it they’d probably have trouble getting new customers, but there wouldn’t have been anything actionable involved, and there would probably have been no occasion to counter-sue. Publicly accusing someone of a crime is another matter, however; even in the old days, you’d probably have been a bit more careful about calling someone a fraud in public, and you’d certainly hesitate before doing so in front of tens of millions of people…

Unfortunately, that’s exactly what you’re doing when you post such accusations on Craig’s List – or anywhere else online. As I’ve noted in some of our previous musings on the information age, in cyberspace everyone can hear your stupid, unfair and ultimately incorrect accusations of wrong-doing – which means that so can the person you’re maligning. And not only is that not likely to change any time soon, as more and more of the world becomes interconnected through the Web, the number of people listening to you rant is only going to get larger. So be careful about what you say in public, because I can almost guarantee you that if the people you’re excoriating aren’t watching you yet, they will be…

Beyond Belief

In fiction there is a concept called “suspension of disbelief” which is what enables us to read about (or watch) stories that we know are not and could never be true and still enjoy them, such as stories about magic, alien cultures in far-away galaxies, politicians who aren’t greedy and self-serving, and so on. Just how far one can push this concept depends on the nature of the audience, the nature of the story, and how well it is told; beyond certain limits anyone hearing it will be unable to suspend their disbelief and start objecting to aspects of the tale – at which point the storyteller has lost, and should probably start over (or try something else). This failure has traditionally be called “failure of suspension of disbelief,” although in more contemporary jargon it is sometimes called “rupture” or “jumping the shark.” As a storyteller, I’m always reluctant to do this, since I rely on people’s ability to suspend disbelief for a whole range of things that I do – but I still had to call shenanigans on the story of a woman who claims to have been sent into a diabetic crisis when a Dunkin Doughnuts put sugar in her coffee instead of sugar-free sweetener…

First off, there’s the issue that most Dunkin locations (certainly all of the ones I’ve ever visited) don’t put sweetener in coffee – they hand you the coffee and the sweetener and let you do it yourself. I suspect this is precisely to avoid the kind of problem I wrote about Tim Horton’s having last year, where they had to permanently ban a “customer” from all of their store locations after he repeatedly complained about their coffee and demanded multiple free cups. If they hand you the condiments and you put too much of something in your cup, the company can quite reasonably say that it was your mistake and the resulting product is not their problem. But even if there is a Dunkin location somewhere that does put the sweetener in for your, we have the additional questions of why the customer couldn’t tell that there was real sugar and not artificial sweetener in the cup by taste, why she didn’t watch to see what was put in, and (most important of all) why she would trust her life to a minimum-wage counterperson if her sensitivity to glucose was so severe that she could theoretically die from a misunderstood drink order…

For the record, there are people in the world who have a severe enough case of diabetes that a few extra spoonfuls of sugar would kill them – but that level of sensitivity is rare, and it takes years (and sometimes decades) to reach that point. If your condition is such that a casual mistake could be fatal you would already know that, and would already have taken a variety of measures to make sure that you don’t accidentally ingest something and expire during a routine business transaction. An individual with such a condition would never take anyone’s word for what was in their cup; those people order their coffee black and carry their own packets of sugar-free sweetener precisely because an otherwise trivial mistake could kill them. By the same token, people whose sensitivity to sugars is severe enough to cause an instant reaction would also be aware of their condition, and would not gulp down anything that might (or might not) contain real sugar in the first place…

You can pick up the original story from the Philly.com site if you want to. If the case actually goes to trial it will be interesting to see what evidence the plaintiff has – if any. If the Dunkin location actually added the sugar for her she will have to prove that she asked for a sugar substitute and didn’t get it (which could be difficult without video or audio recordings); if it didn’t she will have to prove that there was some action taken by the company that kept her from noticing that she was adding real sugar to her own cup. She will also have to explain why anyone who could be killed by a spoonful of sugar would do something as suicidally stupid as letting someone pour sweetener into her cup in the first place. Either way, unless the judge who hears this case is a major shareholder in Tim Horton’s or Krispy Kreme, I’d have to say that the smart money is on the company in this one. I’ll keep you posted…

That’s Just Silly

A few posts back I mentioned that sometimes I’ll read a news story and wonder if someone is getting an early start on April Fool’s Day – and if it’s the author of the piece or the person they interviewed for the story. Unfortunately, all too often there are multiple witnesses to the facts of the story, plus documentary evidence, Internet sites, and court transcripts that all indicate the story is real and not a hoax; just absurd by its very nature. Such was the case with the most recent story about the recording industry trying to recover funds from a file-sharing site, in this case LimeWire. Even granted that the court action was brought by thirteen record companies acting in concert under their industry advocates – and even granted that LimeWire was responsible for thousands of users making millions of downloads, $75 trillion US seems a bit excessive…

You can read the Law.com coverage about the case if you want to, but the background of the story is that the recording industry was demanding the highest possible damages for every possible download of every possible file on the site – which works out to $75 trillion according to their math, or more than five times the US national debt. Or, if you like, it’s somewhere between $240,000 and $250,000 for every man, woman and child in the United States (depending on just how many undocumented residents we’ve actually got). It’s clearly a ridiculous amount of money to demand from a legal standpoint, not just because there is no reason to believe that everyone who ever went to LimeWire downloaded every file that was ever available at LimeWire, or even because that much money may not even exist, but because that’s not the way lawsuits actually work outside of the funny pages…

Keeping in mind that you should not get your legal advice from bloggers without law degrees, anyone who has spent even one class period in a civil law class knows that you can’t just make up some amount of money that may not really exist and demand that anyone who you don’t like pay it. Damages in a civil case come in two types: compensatory and punitive; compensatory are supposed to make good whatever damage the other party has done to you, and punitive are supposed to punish the other party so they don’t do it again. This is why you will often hear the plaintiff (the party that brings the suit) going on and on about how horrible the action was, how much they have suffered as a result, and how important it is to be sure that the defendant (the party they are accusing of wrongdoing) never does this again. However, in this case, the damages requested are completely absurd for both purposes…

There is simply no way that a bunch of file-sharing music fans on the Internet would ever have purchased $75 trillion through regular channels if LimeWire wasn’t available. In fact, if you know the kind of people who share files online, you already know that most of them wouldn’t have spent ANY money to purchase the majority of those files. The linked article mentions that the judge is going to limit the damages to one fine per file, which seems a bit more realistic (you figure that at least one user downloaded every file in the LimeWire catalog at least once), but I’d have to say that even that is probably more than the recording industry would have made on those properties if they were trying to sell the same downloads. As to the punitive use of damages, it’s highly doubtful that LimeWire has $75 trillion; since file-sharing sites BY DEFINITION don’t charge anything, the site probably only makes whatever they can get from banner advertising – which isn’t much. In fact, it’s unlikely that LimeWire’s total assets are even $75 thousand, let alone adding nine more zeroes onto the end…

What this action has done is make the recording industry look bad – yet again. The damages they are demanding are clearly enough to destroy LimeWire millions of times over, which should be enough even to prevent the company from declaring bankruptcy and then re-forming as a conventional firm the way Napster did – even assuming that they have the corporate protections in place to do that in the first place. Now, no one is saying that you shouldn’t sue to recover money people have taken from you by using your copyrighted material without permission, but attempting to take everything they will ever have and then destroying their company into the bargain just looks mean. It would be an ill-considered action even for an industry that doesn’t already have massive public relations issues; for the recording industry, it’s only a matter of time before they eradicate whatever fragment of relevance they have left and are pitched out onto the ash-heap of history…

All of which makes me say that this case was kind of a silly idea…

Our National Disgrace

From time to time you will find some grumpy old blogger going on about some lapse that he or she feels is the latest embarrassment to these United States – almost always something of which the writer disapproves, and which most of the rest of the country either does not care about or (in extreme cases) has never even thought about. Probably the most tragic of these are the ones that involve religion or politics, since the chance of getting even the majority of our population to agree with you are almost zero. I try to avoid this sort of post, partly because there is no way I’m going to convince anybody of anything, and partly because this is a business blog, which means that most of us here don’t really care if something is a national disgrace or not, as long as the company responsible for it is providing a good return on investment for its stockholders. But in a case that popped up this week where someone is suing Nutella for calling itself a “healthy” and “nutritious” food is enough to make anyone slightly embarrassed on behalf of his or her countrymen (and –women)…

The story as recounted for us by Canada’s Globe and Mail online site tells the story of a woman who has filed a claim against the makers of the chocolaty spread, claiming that the advertising that claims that this product is part of a nutritious breakfast when combined with other healthy foods is somehow fraudulent. It’s important to note that under US law, the Nutella packages have to include the amount of sugar, fat, sodium, and so on that the product contains, and the plaintiff in this case is not claiming any violations of that law. It’s also important to note that many other products (including some breakfast cereals and breakfast pastries) also contain large amounts of sugar and fat and also claim to be part of “this nutritious breakfast” in a picture that generally contains toast, orange juice, milk, and occasionally eggs, bacon and fruit as well…

I can’t decide what would be worse: whether the person in our story is sufficiently ignorant to have never even considered the fat or sugar content of literally hundreds of other products marketed as breakfast foods, or if the entire case is simply an attempt to screw money out of a firm with supposedly deep pockets for her own enrichment. On the one hand, it would be depressing to think that we live in a nation full of people who would consider extorting money from an otherwise harmless company simply because they can. On the other hand, it would be sad to think that we live among people who can’t grasp basic ideas like sweet breakfast foods being commonly popular, chocolate spread having sugar in it, or the use of something sweet to make dry toast (or anything else without an inherently interesting flavor) more appealing being common practice. Certainly jams and jellies (which also have large amounts of sugar in them) have been marketed as breakfast foods for centuries, without any noticeable ill effects…

Now, I don’t want to suggest that people shouldn’t have the right to sue for correction of wrongs they feel are being done, or to recover damages that someone has inflicted upon them; such actions fulfill a necessary role in our society and help keep some people honest who otherwise might not be. But in this case it’s hard to see what damage the Nutella people are doing to anybody who is sufficiently literate to read a product label, or what harm using the product could possible have done to the plaintiff or her family. I don’t know if this action began with ignorance or greed, but either way, they’re not making the rest of us look very good right now…

Where’s The Beef?

Earlier this year a class-action lawsuit was filed in California which claimed that independent lab tests had concluded that Taco Bell’s various beef-filled products were not actually filled with beef – which is to say, that the beef mixture did not conform to USDA requirements for calling something “beef,” which requires that the product in question be at least 70% meat from an actual cow. Anyone who has ever made a taco – or, for that matter, any other form of seasoned-meat entre – already knows that there is no such thing as a 100% beef product; at the very least, the taco meat would have to contain salt, pepper extract, and a number of other ingredients that make it taste better. For that matter, most people who are familiar with the American fast-food industry would be able to guess that such products would probably include a certain amount of fillers, binders, and other substances that make the little individual crumbles of taco meat look and behave as expected – this is the reason the USDA has a minimum standard for “beef” in the first place. But in this case, the suit alleges that the Taco Bell product is less than 35% beef…

Now, there are a lot of ways that a company can react to this kind of legal action. First, they could throw money at it; offer the plaintiffs a much smaller amount of money (but enough to make it worth their while) to just drop the suit and go away. Second, they could counter-sue, claim that the whole thing is merely an attempt to screw money out of the corporation, and refuse to discuss matters any further until the case comes to trial. If neither of those options seemed appealing, they could hire public relations firms, hold focus groups or “taste test” events, or even offer special promotions or low-price deals to reward their loyal customers. According to the story that appeared on CNN Money a few days after the suit was filed, Taco Bell has decided on the most direct possibility: meeting their accusers head-on, both in court (where they are contesting the lawsuit) and in the mind of the public, by running full-page ads calling the allegations ridiculous and disclosing the contents of their products in detail…

It seems likely that the people behind the original lawsuit were not expecting this kind of counter-measure. They might still be able to get some traction with the general public, since most consumers already regard Taco Bell meat products as being relatively low in quality, but public opinion will not matter in a court of law, and if the company can produce evidence to support its claims their arguement will be difficult to dispute. If the plaintiffs have any hard evidence they may be able to at least to make their case, but this seems unlikely; unless they can establish than some neutral third-party took samples of Taco Bell products obtained directly in the field and found less than 35% (or less than 70%, anyway) of the “beef” filling was actually made up of beef, they have no case. And it’s hard to imagine how you would establish the neutrality of a testing company or facility that you have paid to run such a test…

To complicate things ever further, many of the Taco Bell restaurants are franchised, which means that even if the plaintiffs can prove that a specific outlet sold them food products that do not meet USDA standards for meat, the company itself may be able to disavow responsibility or knowledge, revoke the franchise, and leave the people actually responsible swinging in the wind – which will lead to arguments about how much responsibility a parent company has for the franchisee under these circumstances. I don’t know how all of this will shake out – and it’s important to remember not to take legal opinions from bloggers with legal training – but strategically, at least, the company appears to be making the right moves. At the end of the day, this case should come down to who has the evidence on their side. And on where the beef actually is, of course…

Truth in Advertising

I don’t do a lot of follow-up posts in this space, mostly because this isn’t really a newspaper column, and even if it was, I’d be making quick notes about the developments of the day and moving on, not tracking developing stories as they evolve. But a few weeks ago on this site I was speculating about the use of false online reviews by business concerns in order to increase sales of their product (or of their clients’ products, in the case of advertising or public relations firms), and whether this would be legal. I don’t believe it’s an ethical business practice in any event; unless you disclosed to people upfront that you are being employed to make a positive review (which would rather defeat the point of “user” reviews) you are deliberately misrepresenting yourself and misleading the customer. But the question remained of whether this would actually be considered fraudulent business practice. Today I found a notice that should settle that part of the question one and for all…

A press release from the Federal Trade Commission office site details a settlement between the Commission and Reverb Communications – a public relations firm employed to promote the Guitar Hero line of video games (among other things). According to the release, the FTC has ruled that this use of paid professional “reviews” is a deceptive business practice under the Truth in Advertising statutes. In exchange for avoiding further criminal prosecution, Reverb is agreeing to take down all of the fake reviews they put up on iTunes (and similar locations) promoting their clients’ games, and discontinue the practice in the future. The agency hasn’t issued any statements about going after other firms engaging in this practice that I’ve found so far, but it’s a big Federal Internet nexus and my time is limited at the moment. If they’ve done this once they almost certainly will do it again; whether or not local law enforcement will get in on the act remains to be seen…

What is not clear – yet – is how this will affect non-profit and political organizations, such as the far-right groups referenced in my earlier post. You can’t really have a deceptive business practice if you aren’t, in fact, a business, and it’s hard to imagine what criminal charges you could possibly advance against people who are opposed to your product on philosophical or religious grounds. If there is an organized group involved you could probably sue them under civil statute for restraint of trade, but I’ve no idea if you could win such a case, or what damages you might recover if you did. The fact is, this is a relatively new area of case law, and it may be a while before it catches up with conditions in the business world – although I will caution you all once again not to take legal advice from bloggers without a license to practice law…

The thing is, no matter what laws you pass, it still won’t be possible to be certain of which reviews are legitimate, and which ones were left for some ulterior reason. So until such time as it becomes possible to identify people on the Internet, it will probably remain in everyone’s best interests to take anything you read in the comments and review sections with a grain of salt, and only accept the opinions of people you already know and trust…

Whether or not THAT will happen remains to be seen, of course…

When to Donate

Since my last post about non-profit activity there have been a number of other rumblings from the industry turning up in the news online. A brief firestorm broke out last week because the American Cancer Society’s listing on Charity Navigator is only 3 stars and not 4; several people were also raising cane about their overhead levels and the amount of money they devote to awareness, counseling, support groups, education and even political efforts instead of spending every dime on research. Here again, it sounds very upsetting, but the fact is that the Navigator doesn’t award all that many 4-star ratings (and has a surprising number of 1-star and no-star charities listed), and without the Society’s support (especially in education and awareness) many of the pure-research anti-cancer groups would be far less successful. This doesn’t even consider the number of outright trolls who were posting that the ACS had two stars and not three…

The point here is that non-profits and charity donations are a good deal more complicated that most people would like. Even if you can find a charity whose mission and methods you completely agree with, they still may not act in ways you find acceptable, and your recourse to demand that they do may be limited. Consider the case of a man in Texas who donated $40,000 to the Jesuit prep school he had attended 37 years earlier on the understanding that the school would find a place for his own son when the boy was of age to attend. You can find the account from his local ABC station here if you want to, but the upshot is that the school took his money and then refused to admit the kid. This sort of quid pro quo arrangement is considered ethically dubious, but is not generally illegal as such (and apparently there’s no law against such things in Texas). Refusing to honor a contract is another matter, however…

In this particular case, the school hasn’t denied that there was such an arrangement, or that a written document confirming it exists. If this is the case, then taking their graduate’s money and rejecting his son because the boy “wouldn’t be happy here” is completely asinine, and if the school’s defense is the usual “Oh, we’re a nonprofit! Nobody would sue US!” then they’re about to be in serious trouble. Statements like the one they’ve issued about keeping fund-raising and admissions activities separate won’t help either; their only options may be returning the money (which they say they’ve already spent) or declaring bankruptcy – which will be tricky, since technically they’re owned by an arm of the Catholic Church…

All of this raises a number of ethical questions which I will probably address in a later post. For today, I just want to consider if it makes sense to donate money to a non-profit organization with the intent to get them to do something in particular in the business sense. On the one hand, as with any other corporation, the specific goals and activities of a non-profit agency are probably beyond the ability or resources of any single “investor,” which is why we band together to concentrate our capital into a larger company in the first place. So if there is specific social change you want to accomplish, and you can’t just write a check to do it, a donation makes sense. At the same time, if you invest money in Apple, Inc. that will not allow you, personally, to determine what new projects they fund; you need to be clear that the same situation will occur with a non-profit. You can exert some influence on them, particularly by offering or withholding future donations, but just as the stockholders can’t directly control a company, so you will not be able to direct the non-profit unless you become its director…

So when should you give money to a specific charity? As with any other investment decision, I’d have to say that would depend on what goal you are trying to accomplish – and how much risk you are willing to accept…

Of Trademarks and Charities

I’ve spent a fair amount of time in the non-profit sector (including some time as the in-house grant writer for a non-profit and a lot of consulting work in the early 2000s), and I’ve also got what you might consider a personal stake in the search for a cure for cancer – I’m the son of a three-time cancer survivor (it got her on the fourth try) and I carry the genes that will give any female offspring I ever have a dramatically increased risk for the disease. So I was a bit taken aback this week when I saw an article on Huffington Post ranting and raving about The Susan G. Komen Foundation entering into legal action over the use of the word “cure” by other non-profit organizations. Certainly, the idea of one of the nation’s leading fundraisers squandering funds on legal actions is not a pleasant one. But, as usual, when you actually read the article, the scenario is a bit murkier than you might expect from the headline…

To begin with, the language in the article is intentionally inflammatory, stating that the Foundation “patrols the waters” looking for agencies using the word “cure” so that it can sue them; it then goes on to indicate that the Komen Foundation has already filed more than a hundred of these allegedly cruel and heartless legal actions, presumably just to eliminate the competition and retain its position of importance, or some such thing. Certainly, the people who are commenting on the original story seem to think so, carrying on at great length about how this allegedly wealthy and powerful organization is more concerned with crushing the competition than it is with doing its job. All of which sounds very nefarious indeed, until you consider what is actually at stake in these proceedings…

First, consider that the Komen Foundation has, in fact, spent a great deal of money and effort establishing its “brand” – which, in the case of a non-profit, means establishing that it is an efficient and effective way for you to contribute towards a cause you believe in. Like all non-profit corporations, you can read the Komen Foundation’s Annual Report and decide for yourself if they are spending money in ways and proportions of which you approve, and if you don’t approve of them, you can always give money to the American Cancer Society , or the Concern Foundation , or any number of other groups that raise money for cancer research. Now consider that not all of the agencies out there using the phrase “for the cure” are actually raising money for cancer research, or indeed actually raising money for any charitable cause. If people start getting the idea that anyone who says they are doing something “for the cure” is a scam artist, this will cut into the Komen Foundation’s support, lower their effectiveness, and work against their actual cause (which as noted above, I’m actually in favor of). But that isn’t even the worst of it…

The other fact that is being overlooked here is that the Komen Foundation isn’t suing any of these “mom and pop” charities for money; they’re simply telling them to stop using the phrase “for the cure” in their fundraising. The author (and many of the people interviewed for the article) makes a big deal about these small agencies being “forced” to spend money on lawyers to defend themselves, but the truth is they don’t have to spend anything; they just need to call their fundraising programs something else. And the argument that the Komen Foundation could just ignore these little charity groups is even more ridiculous; as noted in other posts, if you don’t defend a trademark even one time you probably can’t ever defend it again, and as noted above here, if the Foundation loses this trademark there will be genuine consequences, not only for them but for anyone who currently has or ever will have cancer…

I haven’t audited the Komen Foundation’s spending profile, so I can’t actually tell you if the amount they are spending on legal fees is appropriate in percentage terms. But if the amount offends you in absolute terms, you have the same recourse you have with any other non-profit: write to them and ask them to return your donation, and they will. Just as the American Red Cross did after 9/11, and just as any other non-profit group is obliged to do if you ask…

They Don’t Get It

I suppose a blog post that is due to hit on Christmas Day should have some kind of uplifting message about peace, love and universal brotherhood, and this story might have a bit of that in it somewhere, but I’d forgive you if you don’t see it at first. Because today’s story comes to us from the AP by way of NJ.com, and it’s about how the town of Bridgewater, New Jersey spent $17,000 defending a legal case over a $4.04 refund to one of its citizens – and ultimately lost…

The whole thing began simply enough, as these stories always seem to; a resident of Bridgewater objected to the town charging him $5 for a CD copy of the recording of a town council meeting. Since these meetings are a matter of public record – and since a recording had already been made and was available to anyone who wanted it – the resident thought the service charge was unreasonable. Given the amount of effort it takes to burn a CD copy of a sound file, it’s hard not to agree with him, especially since there is a city agency in Bridgewater that already employs someone to make those copies for anyone who asks. When the town blew off his request, the resident filed a complaint with the New Jersey Government Record Council, and two years later the state council agreed with him and ordered to town to refund the $4.04 for the CD and the $3,500 in legal fees the resident had incurred while pursuing this action…

Now, one could reasonably ask why this guy was being such a tool about this issue in the first place. After all, it’s just a $5 service charge; hardly something worth taking two years and spending $3,500 over, let alone forcing your community to spend another $14,000 of their own legal fees to defend. But when you consider the facts of the case, it rapidly becomes clear that this was exactly the point in the first place – the town had no legal, fiscal or statutory right to just randomly slap service fees on things whenever they wanted to, and when called on it they should just have given the resident his CD and lived with the consequences until they could pass a municipal code mandating the fee. To my mind, however, the most stunning part of this dubious piece of public administration comes at the end of the story, when the Town Attorney claims that the legal fees would have been much lower if the resident had just settled his case…

If that wasn’t snarky enough for you the first time, I’ll do it again: the relevant public official denied responsibility for the outcome of his municipality being called on a blatantly illegal attempt to grab money from its citizens by blaming the resident in our story for not settling on a case which HE WON. It’s a bit like a coach saying “We could have won the game if the other team hadn’t insisted on scoring so many points.” It indicates that the public officials involved had somehow become so certain of their own righteousness that even after losing the case, they STILL don’t realize that the problem is entirely of their own making. Not unlike people who make judgments about people they’ve never met, books they have never read, or religious beliefs they’ve never actually studied…

I don’t know if we can be better than that; I don’t know if humanity can rise above its baser instincts and become all of the things we aspire to be. I just know that if we’re actually going to get there, we’re going to need less of this kind of knee-jerk reaction and more actual thought, self-awareness and reason. This seems like a good day to start working on all of that…

Merry Christmas, everyone!

Why Management is Important

There's a common belief in popular culture these days that management in general - and managers in particular - are obsolete, or even redundant. There's actually a theory of "non-management" that suggests that if you hire, train and empower the right people, you don't even need anyone to supervise them; just tell them what you want done, and get out of their way. It's a comforting idea, really; it suggests that all of us who have spent years learning about management science and practicing the profession of management don't actually know more than random armchair pundits can just make up on the fly. You don't even need to hang onto people who have managed not to get fired for two years and call them supervisors, just drop all of those high management salaries down to the bottom line and declare a higher dividend. And there's even some evidence to suggest that it might really work that way. But on the other hand, stories keep popping up that suggest that having someone who knows what he or she is doing running things might just be worth the money...

Consider the case of Capital One and a former customer named Perry. When Capital One sent the customer to their collections department she had the temerity to hire a lawyer and direct all future communications from the company to her attorney. Capital One took offense at this, and refused to go through the customer's legal counsel, persisting in calling the customer and members of her family at home, at work, and at all hours of the night.They also began ratcheting up the amount the customer supposedly owed them, ultimately demanding payment in excess of $286 million. Now, a competent manager, or at least one who had a passing understanding of strategy, public relations, or law, could probably have figured out why escalating from a $4,000 debt to something over $286 million was a bad idea. Somebody who had actually spent a few minutes in a business law class might have been able to explain why failing to appear in court is a bad idea, too. But apparently, nobody at Capital One had figured out why doing both of these things in the same case is a bad idea...

In the case linked above, the former customer is counter-suing for the same amount Capital One sued her for, claiming that the $286 million can't simply be a computer error, but must in fact be the product of a deliberate attempt to harass and intimidate her. The company could probably have raised some other argument, except they failed to show up for the court hearing and are now in very real danger of being found liable for the full amount. It doesn't help their case any that under the laws of the state where this action is happening, the company was legally required to communicate through the attorney, not start arbitrarily raising the amount of the case, and other minor civilities that were completely ignored in this case. In fact, even if they can get off the hook for the $286 million, Capitol One may still be hit with civil sanctions and even criminal charges because of their misconduct in this case...

Now, I'm not saying that there isn't a management team currently running Capital One, or that the management personnel running the collections department at Capital One are incompetents who have gotten so arrogant at being about to flout Federal law and sneer in the faces of consumers that they've made a mistake that could end up costing the company nine figures worth of money; I'm not even saying that if the case ultimately goes south on them that they won't just scam up money from a Federal bail-out program to make good their loss. I'm just saying that a real management professional would have understood the potential for ridicule, legal exposure, and (worst of all) lost profits that could result from allowing this sort of fiasco to continue, and thought of a better way to recover debts and intimidate uppity customers...

But if you still think there's no purpose in having somebody running the company who actually knows what he or she is doing, please feel free to eliminate the management positions in your company. I'm going to see if I've got any money invested in Capital One - and if I do, I'm going to transfer it into some company that still has managers working for them...

The Trouble with Land Grabs

One of the most worrisome legal proceedings of local years came in 2005, when the Supreme Court ruled that the City of New London, Connecticut could use eminent domain to seize a large number of private homes and give the land to developers. The rationale for the original land-grab was that the developers would construct new high-end housing, shopping facilities and office space, which would bring a huge influx of business into New London. The city had to pay the homeowners for their property, of course, but the people who were evicted claimed that they were paid pennies on the dollar (as such people always do), and just about everyone who isn’t either ultraconservative or a real estate developer who stood to make money on such dealings condemned the entire action as being nothing more than “corporate welfare”. None of which would really have mattered, in the long run, if the project had lived up to its hype, or at least succeeded. Or, for that matter, gotten off the ground in the first place – which does not seem likely, now…

At the time, the seizure (and subsequent bulldozing) of an entire neighborhood did appear to make sense, at least if you held stock in Pfizer. The original real estate development project would have constructed facilities that would have been perfect for the use of personnel from the nearby Pfizer corporate facility, which was already one of the area’s largest employers. In fairness, we should note that Pfizer itself was not given any of the land or any other goodies by the city, and had no stake in the project other than being located nearby (and therefore being one of the potential key customers for all of the business units involved), but the concept of Pfizer employees buying the new condos, shopping in the new stores, staying in the new hotel when working at the facility temporarily, and so on figured heavily in the developers’ plans. Which just makes it that much more unfortunate that the company has decided to close its New London facility…

The announcement came a few days ago, and was recorded on the Wall Street Journal opinion page, among other places. But while the Journal ends the piece on an up note, crediting the New London debacle with inspiring the creation of laws limiting eminent domain and preventing this type of blatant corporate handout in 43 of the states, I have to admit that I’m not reassured by these events. We’re living in a country where the same people who will oppose any form of public subsidy for food, housing or healthcare (because that’s “Socialism!”) apparently see nothing wrong with a financially weak city (and State) spending $78 million to benefit a wealthy real estate developer or the country spending $700 billion to allow financial service companies to maintain their million-dollar annual bonus program. As incredible as it sounds, people on the Far Right are still arguing in favor of the New London land grab – and that means that it’s only a matter of time before somebody, somewhere tries this again…

Now, I’m not going to argue against government-backed development projects. I’m not even going to try to tell you that there is no place for eminent domain proceedings. I’m just pointing out that any government-sponsored program that takes money or property away from average citizens and gives it to well-heeled companies so that they can make even more money at taxpayer expense is not merely bad government; it is also, of necessity, bad business practice. And there’s definitely a limit to how much more of that the country can afford before something REALLY bad happens…