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Suppose it was your life - not the company's money


Posted on May 09, 2006

By Mark Jordan, This Week's Expert

Imagine you had a heart problem, one serious enough to see a cardiologist.  You got an appointment, saw the physician, and he recommended a treatment course of medication, a type of drug called a calcium channel antagonist.  Then, you happen upon a study in the New England Journal of Medicine, an analysis of cardiologists who published in medical journals about effective treatments for heart disease, and read that 96% of the physicians who supported using calcium channel antagonists had financial relationships with pharmaceutical companies.  Of the groups that were neutral, or critical of that course of drug therapy, only 60% of the neutral group had a financial relationship with a pharmaceutical manufacturer, AND MOST TELLING, only 30% of the critical group had financial ties.

How confident would you be that the course of treatment recommended by your cardiologist was in fact the best treatment for you?

How does this relate to the meetings and events industry?  Hmmmm...let me count the ways..I'm going to stick to just a couple regarding some of the spend management technologies today that promote themselves as the solution to smart procurement of event space and services.  And then we'll talk about why looking at this is important.

For our purposes, let's consider the two largest providers of meetings technology tools who both profess to provide a "marketplace" for buyers and sellers, amongst the several tools they offer.  I want to be clear - these are decent tools that offer potential benefits for clients who adopt them, but there are also potential risks that you should be considering in light of the Sarbanes-Oxley (SOX) Act (for a summary, click here or here), which requires that all publicly-traded companies become financially transparent through audited reporting, etc.  Enterprise spend management tools can make an effective contribution to corporate financial transparency.  My concern is that at some point that data may be called into question because of the appearance of a conflict of interest in how the procurement was made, no matter how scrupulous the efforts of the buyer, if the method included the use of these spend management tools and marketplaces.  Here's why:

A buyer sources their event needs through the use of these tools, selecting potential vendors from these marketplaces.  These marketplaces are populated by a broad selection of vendors, which appears to be a good thing.  Putting aside for the moment any concerns you might have over how all of these vendors can possibly have up-to-date information, the fact is that these marketplaces are powered primarily by vendors who are willing to pay fees for enhanced listing and/or preferred placement.  If you look at the "Supplier Side" pages of these companies, they are very clear about it.  Pay money, and you can move from being lost eight pages back to leading the pack on Page One.  In fact, one site claims that a hotel is 22 times more likely to be selected with a marketing package than those hotels without a package.  From the SOX perspective of fiduciary responsibility, would buying a marketing package and making it a more selectable property be a justifiable reason for selecting it?  Probably not.  Within your own company, it's possible that inexperienced planners could be influenced unduly by these advertisements or program perk inducements.

More importantly, how can you be certain that you are receiving the best tools and information when you know that the marketplace underpinning them provides a significant channel of supplier-based revenue to the technology provider?  Can you really trust that everything is being done on your behalf when there are advertising, marketing package, consulting, technology sales and commissions at stake for the technology company from the suppliers who represent the spend you are trying to manage?  Maybe you are - maybe you're not.  Can you be certain there are no untoward influences at play because of company investors - more than one of these technology companies have, or have had, a major hotel chain as an investor.  That's the fundamental problem of an apparent conflict of interest - even the appearance of one is enough to begin to erode trust in a provider.

The immediate solution, of course, is to ask for versions of the marketplaces devoid of advertising, that no commissions, or fees, be taken from your bookings, and that placements in the database are made purely upon some objective criteria.  Or, better yet, broaden your product search to include products not potentially hindered in these ways.  For the technology companies and participating suppliers, full  disclosure is the best recipe for success.  Full disclosure is an interesting thing, by the way.

In another study published in the Journal of the American Medical Association (JAMA), a broad array of articles on the environmental health impact of cigarette smoke were analyzed to see what factors influenced their ultimate conclusions.  Statistically, the only variable that appeared to have a significant impact of whether an article was strongly anti-passive smoke or more neutral about its potential effects, was whether or not the author had a relationship with the tobacco industry.  And that required some digging, because only 23% of the articles written in a more favorable light disclosed a relationship with the tobacco industry, though virtually all the writers were found, upon investigation, to have those types of relationships.  The authors of the study concluded that there was meaningful evidence for the tobacco industry trying to influence the medical community through the opinions of supposedly neutral opinion-makers.   And actually, this is the encouraging study.  In the first study I highlighted, only 2, out of more than 70 articles in the study ultimately found to be written by someone with a relationship with the pharmaceutical industry, actually disclosed the relationship.  Not all were deliberate concealment, many felt that they didn't have a conflict, that accepting honorariums, perks, etc. did not unduly influence their opinions.

Full disclosure has a way of making the person think that their opinion won't be seriously considered if they're open about the relationship.  But honesty wins out in my book.  That's why I'm closing this post by disclosing that I was laid off by one of these technology providers four years ago.  Today, I have a very successful business that has made me happier than i ever could have imagined.  I will also disclose that I use a technology in parts of my business that is an enterprise technology that provides spend management tools without having to struggle with any stigma of potential bias from a supplier revenue dependency.  However, because of the nature of my business, I do not use, and never have used, any of the modules in that technology that comprise the spend management suite.

So, if you're still with me after this lengthy post today, I'd love to hear what you think about the potential risks and rewards of these technology tools that walk both sides of the fence.  Healthy, intelligent discussion is the best antidote for propaganda and lack of understanding.

"All over the place, from the popular culture to the propaganda system, there is constant pressure to make people feel that they are helpless, that the only role they can have is to ratify decisions and to consume."

-- Noam Chomsky

But the more knowledge and perspective you gain, the more power you have.

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Comments

Joan Eisenstodt

SMOOCH & BRAVO! Mark! Transparency in what we all do is what has been missing from this industry for some time. Technology, as you've written about it - or perhaps exposed is a better term than written - has a way of highlighting things. It is the occasional planner who might believe that a highlighted property or service is highlighted bec. it is better/best v. having paid for placement or having a relationship to, in this case, the site. It happens off line too of course - there was even a story years ago in Meeting News in which a "3rd party" said they wouldn't use a particular hotel co. that was not going to pay commission. The underlying comment had to be "even if the company's property were best for our clients." You've shown how in research and in our industry one can dig deeply enough to find the relationship. Does it then come down to a matter of ethics - on the part of the, in your case, co. running the site to disclose the relationship with the highlighted vendors? Is it also the planner's responsibility to investigate or at the least to be savvy enough to look to "product placement" with an eye to understanding how bribes - er, ah, busn. relationships work? Is it business or is it ethics and where DOES SOX come in?

markjordan

I wouldn't go so far as to call them bribes, Joan, although bribes might almost be better. That would be easier to eliminate. Unfortunately (in my humble opinion), commissions form the very fabric of compensation within our industry, and they constitute a parasitical relationship by feeding off existing revenue streams. Ultimately, that makes it much more likely to distort and inflate pricing for goods and services, and leaves itself wide open for the effects of "influence."

As to where SOX comes in, I only speculate. But I think the same principle is at play as it impacts financial compliance issues in the financial services industry or pharmaceutical marketing guidelines. Each action is coming under closer and closer scrutiny by enforcement arms of the government and/or by shareholders, and the expectation is for every financial transaction to be above reproach. A shareholder has the right to know why his or her company spent what they did on marketing and events. It may become tougher to answer when hotel costs, for example, are inflated because a success fee is paid by the hotel to receive a lead that becomes a booking. At one point, that was happening on non-commissionable rates driven through these technologies, and could very well still be happening. Hotels can always be trotted out to affirm that they charge the same rate whether a piece of business is booked through an e-rfp or by phone directly with the customer. But the fact of the matter is that it cannot be true across the board and one can only conclude that it either is poor business management, an untrue statement, or that the commissions are built into the rates already - which again means you are paying more than you have to.

So again, where does SOX come in, or any other watchdog type entity? The jury is still out, but I'd ask this question. Have you ever been blamed for something simply because of your association with someone or something that was questionable? If you have, you know it's a very unpleasant and frustrating feeling. We exist in a very insular world within travel and meetings where commissions, perks, paid placements, etc. seem normal and fine to us. But somewhere on the other side of the organization, there are legal departments and compliance groups who don't see that as business as usual at all. Someday, they may come asking some difficult questions. Why be in a position to have to answer them with anything but clear confidence and comfort?

Joan Eisenstodt

Mark - you wrote as part of your response to what I wrote: "...I'd ask this question. Have you ever been blamed for something simply because of your association with someone or something that was questionable? If you have, you know it's a very unpleasant and frustrating feeling. We exist in a very insular world within travel and meetings where commissions, perks, paid placements, etc. seem normal and fine to us. But somewhere on the other side of the organization, there are legal departments and compliance groups who don't see that as business as usual at all. Someday, they may come asking some difficult questions. Why be in a position to have to answer them with anything but clear confidence and comfort?"

Here's the rub: our industry has, other than in some organizations, no mechanisms in place to do anything after someone questions. We allow it to happen - "it" being commissions or bribes/incentives to book, other practices that the world of Pharma has questioned for docs but not for us. When will someone take a stronger stand and do something?
---------------

Julia Rutherford Silvers, CSEP

This issue, as with the data privacy issue, seems to me to be a call for enforceable industry standards, which, in the best case scenario, come as consensus-based from our industry associations and, in the worst case scenario, will be developed by the courts and then imposed by the government. Like Joan, I ask "When will our industry become proactive?"


As someone who admits freely that I have numerous personal pockets of stupid, particularly in the area of the rapid development of technology, I wonder also if we can actually keep up with all the technological tools now at our disposal. Heck, I just figured out how to put telephone numbers into my cell phone last month (I'm so last millennium).

However, I feel that no matter what tools are at our disposal, underlying standards can provide the functional and ethical basis for our actions and activities.

Bob Cherny

Mark Et Al,

Do we remember SAABRE? It was an early computerized airline reservation system with ties to American Airlines. There was a tremendous outcry when that relationship came to light. We now have many competing services and the airlines all have their own captive systems. I suspect that once these pioneers pave the way for the late adopters to follow, we will see a leveling of the playing field just like we have with the airlines.

As to the issue of special placement, this has become such a widespread phenomenon that I wonder as to its continued effectiveness. You can buy placement on the search engines, but does that really motivate a sales decision any more than seeing a cell phone company's name roll behind the basketball player will induce you to run out and change your cell phone service.

I was about to comment that this was old news, but then I thought about a planner I recently worked with and decided that it does bear repeating. We do need to keep in mind that this is not a situation unique to this technology or our industry.

Bob Cherny
Paradise Show and Design
Orlando

markjordan

Hi Bob...thanks for your comment, and a nod of my rapidly receding hairline to Julia as well...great to have your thoughts.

As my grandfather used to say, "Old news isn't necessarily good news."

I think the issue here is more about truth, functionality delivery and being what you say you are. For example, if you sell yourself as a strategic procurement tool, there are implied promises in that. It implies that your technology will help the customer to reduce the cost of its purchasing, over time, by as much as the skill levels and commitment of the purchasing organization allows. Also implied is that the tools will always assist in lowering cost, and thus, never be directly responsible for increasing costs.

However, if you collect commissions on each transaction made, or a fixed fee per room night, then your tool is putting cost into the system, and ethically, I believe that is wrong.

Why is it done that way? Putting aside the notion of an industry mentality toward commisssions, it's done that way to artificially deflate the cost of these tools for the corporate and association customers.

It is also done as a springboard into selling services - first provide the procurement tools and then provide the outsourcing services behind that, which generate much higher revenue. It's much harder to have that conversation if the price of the entry ticket is too high.

The problem with this approach is that it shifts cost back into the system. The hotels have to raise prices to pay for the marketing fees and the transaction fees, and what they're doing is paying for what should have been the responsibility of the buyer. If you bring it all back to this new era of financial transparency, we as an industry begin to look a little bit gray and wispy around the edges.

You're right in that this is nothing that hasn't already been done in other times or industries. But we should look at what the fallout from that history has been. Continued dependency on commissions eventually put tens of thousands of travel agencies out of business when the airlines abruptly removed that cost from the system.

Biased reservation displays played a part in the economic failures of some carriers. Code sharing caused alot of public dissatisfaction because it obscured the actual carrier they'd be flying. The value of history is in the learning, and in the commitment to avoid repeating the same mistakes. There's no value in using history to validate our present errors in judgement.

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