My Turn: Honesty is the only sound foundation for business and government

  • By Rich Moniak
  • Sunday, December 6, 2015 1:02am
  • Opinion

If government would just work like a business, it’s often said, then all its waste can be eliminated. But even the most profitable businesses in the world can sometimes be hamstrung by errors and inefficiencies. And both private and public institutions only make matters worse by refusing to take responsibility for their mistakes.

Look at the Alyeska Pipeline Service Company’s Strategic Reconfiguration project. They’re the consortium of BP, ConocoPhillips and ExxonMobil that operates and maintains the Trans-Alaskan Pipeline. In 2003, they began a two-year project to upgrade four pump stations and pipeline controls. Despite spending a half-billion dollars more than planned, the work still isn’t finished.

Last week the Federal Energy Regulatory Commission (FERC) affirmed an earlier ruling that the three giant oil companies can’t recover those cost overruns by charging higher rates for transporting the oil.

“What happened in this case borders on negligence,” wrote Carmen Ana Cintron, an administrative law judge with FERC whose initial decision was issued in February 2014.

Now, this story may not be the best example to make my point. It’s really a dispute between Alyeska and an agency created by the federal government to regulate their kind of business. And it’s not over yet. The decision will likely be appealed.

There are many other cases of private company problems that certainly aren’t models for how our government should operate. The Volkswagen emissions test scandal is one recent embarrassment to free enterprise purists. The decades-long tobacco industry deceptions about nicotine were even worse. And over the past 30 years the financial sector gave us the savings and loan crisis and the subprime mortgage debacle.

I can personally attest to mismanagement by one mortgage lender. In 2004, I bought my house through an East Coast mortgage broker who paid the majority of my closing costs. He immediately sold the loan to GMAC Mortgage LLC. Over the next nine months, the same broker helped me refinance my mortgage three times and sold each new loan back to GMAC.

In all three refinances, my broker made a profit even though he paid thousands of dollars in closing costs. They cost me a total of $120 and lowered my interest rate by 1.25 percentage points. As my debt got smaller, so didn’t the value of the loan that was GMAC’s asset. By purchasing four loans for the same property and borrower, GMAC was spending money to lose money.

While I benefited from GMAC’s inept loan managers, some everyday businesses seem incapable of fulfilling their responsibility. For instance, a close friend of mine bought a new door from Home Depot more than 18 months ago. The purchase included installation by a contractor they hired. After several mistakes and delays by their contractor, Home Depot continues to come up with new excuses for why, after two summers, the door hasn’t even left the store.

If a government agency had these kinds of problems, we’d be hearing about them on the news. But maybe it’s an easier target because the institutional name “government” is so big. Under its umbrella are more employees than any single business sector on the private side. More people means more mistakes. And that points to the real source of the problem: Human beings bring a wide array of imperfections into the workplace.

The fact is people of every profession and trade make on-the-job mistakes. They come at the taxpayer expense or whittle away at business profit. They’re not signs of failure, but treating them that way leads to a culture of denial that in extreme cases can grow into criminal cover-ups.

The better response is exemplified in this Coast Guard construction project from a decade ago. Damage to a structural steel crane rail was discovered several years after it had been installed by North Pacific Erectors. The project manager of the Juneau firm confirmed it had been done by one of their workers. They weren’t under contractual obligation to fix it. But the company paid for the repairs instead of passing the buck back to the government.

Jim Williams has been the owner of North Pacific for more than two decades. He told me his business gives a lifetime guarantee against such mistakes. There’s a simple lesson here for managers of both government agencies and private businesses. Real success requires a dedication to honesty that can’t be achieved by hiding mistakes to avoid public criticism or to protect the bottom line.

• Rich Moniak is a Juneau resident. He writes a weekly opinion column for the Juneau Empire.

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