New State Ethics Law Tougher, but Doubts on Enforcement Persist

lkomisar
-
1

Under New York State’s new ethics law, state legislators will have to disclose their clients in outside businesses, or those whose interests they represent on legislation. The law also demands they name clients that receive grants or contracts from the state, or which are parties in proceedings before state agencies. Legislators who are attorneys have to disclose more about the clients their firms represent.

“[M]uch of their business in these law firms,” said Barbara Bartoletti, legislative director of the New York State League of Women Voters, “is driven by people who want to get influence in Albany.”

The statements of legislators and other elected officials will be presented online. The financial figures will no longer be redacted.

The new Joint Commission on Public Ethics, whose members will be appointed by both the governor and lawmakers, will randomly audit the 30,000 financial disclosure documents to be filed by all candidates and elected officials, policy-makers and state employees who earn more than $88,000. Audits that result in findings of potential ethics violations be made public. Citizens Union Executive Director Dick Dadey predicted that “the joint oversight and the requirement that random audits be conducted will change the dynamic.”

There remain some problems:  Earmarks still exist, though they haven’t been funded for several years due to budget constraints. There are no legal restrictions on legislators setting up non-profit organizations that can be used to reward political supporters and/or evade campaign finance rules.

Finally, JCOPE must refer its findings to the Legislative Ethics Commission–a body that has proven reluctant to censure errant lawmakers in the past–to decide on penalties. Dadey called that “an area that needs improvement.”

In any event, the Ethics Commission has 90 days to determine a sanction for those civil violations. The JCOPE findings and the Ethics Commission determinations will be made public. And JCOPE will refer breaches of criminal law to law enforcement agencies.

David Grandeau, the former State Lobbying Commission executive director, is concerned that “the 14 members on the board are political appointees who know which way the wind is blowing.” Grandeau knows the dangers of political control of ethics agencies. In order to remove him, Bruno and former Governor Eliot Spitzer abolished his effective commission and folded it into the toothless ethics agency they controlled. Grandeau said, “I thought legislative leaders and the governor should have made an effort to appoint more common citizens.”

That leaves it up to citizen groups viewing the online disclosure reports to provide oversight.

 

This story is part of a joint project on state integrity with the Center for Public Integrity, Global Integrity and Public Radio International. For more stories in the series, visit www.stateintegrity.org. 

Romney on Board

lkomisar
-
7
Romney on Board
Supporters at a rally for Mitt Romney in South Carolina. / REUTERS

Mitt Romney, who makes his hands-on business experience a talking point in his campaign for the Republican presidential nomination, was a member of the board of directors and audit committee of a global company when it paid millions of dollars to settle charges of extracting kickbacks that cheated clients.

The company is Marriott International and the accusers were hotel owners who had hired Marriott to manage their properties under the Marriott name.

In recent weeks, Romney has come under fire for his role at Bain Capital, with critics faulting Bain for putting employees out of work when it bought up ailing companies and loading them with unsustainable debt–charges that Romney rejects.

But his actions as an independent director at Marriott in the late 1990s and again just two years ago open another window on the candidate’s record in business and leadership qualities.

Continue

Avendra: Kicking Back on Kickbacks

lkomisar
-
1

Property owners began taking a closer look at the purchasing practices of hotel chains following a landmark 1997 ruling against the Sheraton Washington Hotel over secret vendor rebates. Sheraton faced a $52 million judgment, most of it in punitive damages. Though an appeals court reduced the judgment to about $3.5 million, the case heightened the scrutiny of hotel chains.

The verdict also prompted measures by Marriott and other hotel chains to protect the flow of vendor rebates. Marriott joined forces with Hyatt to form a new firm, Avendra, that would act as a buying agent for the chains. The hotel chains insisted that Avendra was an independent entity, and thus had no obligations to property owners.

But here, too, behind-the-scenes ties raised questions about Avendra’s claims of independence from Marriott. Avendra opened in a Marriott building in 2001, and was staffed by employees from Marriott’s purchasing group; it eventually relocated off the Marriott campus. Dennis M. Baker, Avendra’s President and CEO, had worked for Marriott for thirteen years, and Joseph Ryan, Chairman of Avendra’s board, was Marriott’s Executive Vice President and General Counsel. Avendra acquired a large share of the business of the Marriott Distribution Services operation and began with Marriott holding a majority share of the ownership.

The hotel management companies set up Avendra as a buying club. They shared overhead costs, while Avendra funneled rebates to each member based on its purchases.

John C. Coffee Jr., a Columbia Law School professor and Director of the Columbia Center on Corporate Governance, said Marriott’s board would have been involved in approving the establishment of Avendra. He said, “I would have thought use of Avendra had to go to the board, because it is self-dealing. You’ve got your general counsel sitting there, with ownership interest. The board had to be advised of that. You were setting up an intermediary to give an appearance of greater legitimacy to these transactions.”

Avendra declined to comment for this article, but CEO Baker acknowledged to the Wall Street Journal in 2002 that rebates in excess of fees were returned to the founders. He said, “How the managers then deal with the owners depends on their individual contracts.” He told the Journal, “There are cases where some get [the rebates] back and some don’t.”

Rebate Culture Extended to Other Marriott Holdings

lkomisar
-
5
Rebate Culture Extended to Other Marriott Holdings

The rebate culture ran deep in Marriott and continued in Sodexho Marriott, formed in 1998 by the merger of Marriott’s food service and facilities management business (Marriott Management Services) with the U.S. subsidiary of Sodexho (So-DEX-oh) Alliance, a worldwide food and management services company headquartered in France. Marriott shareholders owned 51% of Sodexho Marriott Services, Sodexho owned 49%.

The shared client base included U.S. schools and colleges, health care facilities, businesses, government agencies, the military and prisons. Marriott International distributed food and supplies to Sodexho Marriott and provided administrative and data processing services. Sodexho Marriott, listed on the New York Stock Exchange, claimed to be the largest provider of outsourced food and facilities management in North America.

Sodexho Marriott built its business model on confidential rebates, and guarded its price list with care. In a previously unreleased July 21, 2000 memo, Anthony Alibrio, president of the Healthcare Service Division, warned employees not to divulge prices to hospitals and other facilities seeking to do price comparisons, and underscored the company’s reliance on rebates.

“SODEXHO MARRIOTT PRICING IS CONFIDENTIAL” (emphasis in original), Alibrio wrote. “The manufacturer rebates and distributor rebates fund and support our entire Purchasing & Procurement Department and network.”

The document was provided to 100Reporters by two Boston-area whistleblowers who worked for Sodexho and objected to the secret rebate policy.

Romney summer home in Wolfeboro, New Hampshire. / REUTERS
Alibrio was talking about rebates from sales to hospitals and nursing homes. Unreported rebates from purchases for facilities whose patients get federal assistance violate U.S. Medicare/Medicaid rules. Jim Sheehan, until recently New York State Medicaid Inspector General, said in an interview that that the Medicare-Medicaid Anti-Kickback Act of 1987 mandates that no vendor can give “anything of value in whole or part in cash or kind in return for referral of service paid for by government.” A company providing services “can get a discount,” said Sheehan, “so long as it’s accurately reported on the cost report.” But “a secret rebate would not meet that standard.”

Romney was not on the board of this new company, which was separate and independent from Marriott International. However, since Marriott obtained food and supplies for Sodexho, it would inevitably have dealt with the rebate issue.

There were, in addition, close social and personal ties between senior executives at the two companies. Before going to Sodexho, Alibrio had worked for Marriott International for 28 years. Romney, Marriott and Alibrio all had vacation homes at Lake Winnipesaukee, NH. Alibrio is in Center Harbor, Romney in Wolfeboro and the Marriotts have a compound of homes on Tuftonboro Neck. Steve Bush, a local real estate agent who lives “around the corner” from the Marriotts, said in an email that Romney would travel by motorboat the three or four miles from his place in Wolfeboro to visit the Marriotts in Tuftonboro.

In addition to Alibrio, at least eight top Marriott executives had moved to the new company, including Charles D. O’Dell, president of Marriott Management Services who became president and chief executive officer of Sodexho Marriott Services and chairman of the board. Philippe Taillet, a consultant for Bain & Company 1986 to 1991 (when Romney ran Bain Capital, Bain’s private equity spin-off), became the new company’s senior vice president for strategic planning. And J.W. Marriott was a member of the Sodexho Marriott board.

Alibrio, who has retired, did not respond to requests for comment. Marriott also declined to comment.

In June 2001, Sodexho Alliance bought out its partner’s controlling share, and the U.S. company became known again as Sodexho, a subsidiary of Sodexho Alliance.

Marriott thus escaped unscathed when the New York Attorney General’s office later investigated the documented claims of the Boston-area whistleblowers, Jay and John Carciero. Former Sodexho employees, they were fired after they objected to the company policy of taking supplier kickbacks while billing clients full price. Jay worked for Sodexho/Sodexho Marriott from 1994 to 2006 and John for Sodexho from 2001 to 2007. In 2010, the New York Attorney General obtained a $20-million settlement from Sodexo (which had dropped the “h” from its name) for “illegal overcharges,” or rebates the company pocketed that legally should have been passed on to New York State school districts.

Its investigation into illegal rebates that may have been diverted from other state-supported institutions, including hospitals, is continuing.

12Page 2 of 2