Week of 19 Jan 2009

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One might perceive me to be slightly obsessed with graft and under-the-table payments at the moment. One would be correct. For if one read the latest issue of "Capital Arguments" which coincidentally was issued last night (15 Jan 09), one would see the same topic in an article titled "Ethics."

What is the motive behind this sudden focus? Our industry is in terrible shape at the moment; this is no secret to anyone. Yet, I continue to remember stories of old and often hear contemporary ones about graft, usually in the form of payments or major gifts from suppliers to decision makers. It is obvious, of course, that these are ethically and often legally wrong, but they go on anyway. Many say, what do they hurt? Well, let's talk about this for a minute.

If put on a witness stand and pressured to back up what I am about to say, I think I would fail, for concrete evidence is certainly elusive. Nevertheless, here is my perception supported by some known cases: I hereby state in some mills the graft has often been as much as the operating margin for sustained periods of time. In fact, I am convinced that in more than a few cases, mills have gone out of business because of the leakage through graft. I know, by strong rumor, for instance, of one case where supplying prostitutes (neatly, in Nevada where this is legal) was part of doing business with a company, a company which has long since died. I suspect the CEO did not know this was going on, even though it was happening right under his nose among his executive officers.

For you see, graft isn't free. If a supplier buys a decision maker a shotgun, the cost of this shotgun comes back in the form of costs to the mill. This is the minimum cost possible from such a transaction. If the shotgun influenced the decision maker to procure from a non-competitive or shoddy supplier, the costs are nearly incalculable. Further, when this cancer becomes the norm in the mill and everyone is doing it, the mill is doomed.

I am thoroughly convinced mills have gone out of business where conventional wisdom believed certain market conditions caused their demise, when in reality their lifeblood was leaked out through graft of an inestimable proportion, never caught by corporate management. The mill dies, the town dies, and the suppliers, if local, which supplied the graft essentially committed long term suicide.

In the "Ethics" article mentioned earlier, I lament certain situations where corporate auditing sniffs a problem, comes in and cleans house, only to find in a few years the same conditions re-establish themselves. This is understandable. It takes strong fortitude to have $100 bills waved in front of one's face all day long without eventually succumbing to the temptation and compromising the strongest moral character learned at the sternest mother's knee. The problem is the supplier community has not been cleaned up, too.

So, what to do? I have come up with a couple of ideas I think can help, and not only help our industry, but make our industry a leadership example to all others around the world. For, think about it, if we could light a tiny fire which exposes and owns up to our own graft problem, a fire which grows into a conflagration of cauterization for others, we can have a huge impact.

Here is my plan.

1. Acknowledge we have a problem. Become as vocal about it as we are about safety, discrimination, sexual harassment, unfair labor practices, and price fixing. Make it a mission to eliminate graft.

2. Hold our employees responsible and train them in specifics.

3. Hold our suppliers responsible. I think if I were a mill manager today, I would post the following sign prominently at every mill gate. I would also have it at the top of every visitor sign-in sheet, on every purchase order form and on every check issued by my facility. It would say something like this:

"THIS IS A ZERO GRAFT TOLERANCE FACILITY. If you are asked to provide any off-the-record payments or gifts, please contact our legal department, 1-800-xxx-xxxx immediately. Rewards are given for legitimate tips. Any supplier caught providing graft payments or gifts will be permanently banned from this facility--no exceptions."

4. Then, we have to take this a step further. Warning--this suggestion will step on the toes of some people I consider good friends, but I strongly believe it must be said. We must stop charging suppliers a higher fee to attend industry events; we must stop looking to suppliers to furnish all the goodies for such events. I am not talking about legitimate advertising and promotion--I am talking about an attitude of always having a hand out to the supplier community to carry the load. In this case, it is not the costs I am worried about, it is the cultural norm such conditions engender. For if it is OK to wholesale shake down the suppliers in public, the weak-willed will follow the example and shake them down in private, to the serious detriment of our mills. I am particularly worried about young professionals, attending meetings early in their career and adopting these attitudes through the examples of their elders.

I haven't used the words "theft" or "steal" but that is what we are talking about here. An employee that will accept graft is stealing from their employer, it just happens to be in a round about way. When Teddy Roosevelt was ranching in South Dakota, he happened to employ a cowboy who stole calves from a neighbor and branded them with Mr. Roosevelt's brand. When he found out about it, he fired him on the spot, for he said, "An employee who will steal on your behalf today will steal from you tomorrow." Doesn't quite fit, so I'll modify: "An employee who will covertly steal small things from you through graft today will steal big things from you tomorrow."

There have been a number of high-profile people running around with all sorts of outlandish schemes to save dying mills. I say let us look inwardly and clean up our house first, and then we can see what mills can legitimately succeed on their own. Operating margins are too thin to let this culture of graft to continue.

I hope you are not procuring your safety gear from a supplier making graft payments. This equipment needs to be of impeccable and highest quality. Start here if you have any doubts about your mill's graft culture.

Be safe and we will talk next week.