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You may think I am exaggerating this whole billable hour topic, but let me bring up situations that occurred with one of the largest and respected ad agencies and with an international PR agency, both in 2004. The first had to do, heaven forbid, with the U.S. Government's War on Drugs. In this case, a couple of folks at Ogilvy & Mather should have "just said no."
The Office of National Drug Control Policy, part of the Executive Office of the President, hired O&M in 1998 to oversee a print and broadcast campaign on the danger of drugs. It was designed to discourage drug use among young people, and the campaign ended in late December 2003.
Thomas Early, 48, director of finance at Ogilvy's New York office, and Shona Seifert, who once directed Ogilvy's $684 million contract with the government, were accused in a federal indictment with directing employees to exaggerate their work on the drug prevention product when they filled out time sheets.
Let's stop here one moment for a reality check.
Finance directors are consumed with clients paying their bills; and not, in my experience, with putting the pedal to the metal when it comes to exaggerating the timesheets. Finance guys simply don't think that way. Juiced up billing, if it occurs at all, is generally related to an Enron-like company culture, the need to meet someone else's revenue goals, and pressure to turn in better quarterly earnings than the previous quarter.
The other person involved, Seifert, had left the agency for TBWAChiatDay. She said, "Neither with respect to the indictment announced by the U.S. attorney's office nor at any other time in my life have I ever committed any criminal misdeed of any nature." Early resigned from Ogilvy to "devote his full energies to obtaining a full vindication in this matter."
In the summer of 2005, both were found guilty as charged.
The agency, Ogilvy, which was not charged, said it was unprepared for complex and unique federal record-keeping rules, but changed its procedures when it realized it was not meeting federal requirements. Now that, my friends, is a strange explanation. In every government pitch, there are generally more pages detailing record keeping than managing the program itself. According to news stories, the government was compensated following a civil suit for the mistakes Ogilvy made. The agency now says it has a new system.
All this is good news, in a way. For every Enron or WorldCom that goes down, there is a greater assumption that corporate greed is built into the system. Plug the term "billing irregularities" into the Google search engine, and it will spit out 24,000 references. I can write with certainty that when Burson-Marsteller won the multi-million dollar contract to unveil the Next Generation of new U.S. currency in 2002, it was even more careful to dot the "i's" and cross the "t's". The shame, however, is that these contracts continue to be based on hourly billing, a wasteful measure.
The other billing scandal of 2004 concerned the St. Louis-based public relations firm Fleishman-Hillard. F-H was accused in an article in the Los Angeles Times, which cited seven sources, of over-billing the Los Angeles Department of Water and Power (DWP) as much as $30,000 per month. Obviously, we're not talking pocket change here. The company immediately said it did not condone improper billing, but the evidence to the contrary was rather compelling.
Fleishman-Hillard had a $3-million-a-year contract to improve the image of the DWP. Former employees told The Times they were encouraged - sometimes told - to submit falsified time sheets to the DWP to make as much as possible from the utility.
For example, former employee Diana Greenwood was quoted as having said, "It was wrong, unethical and done on a regular basis. The attitude that was handed down to us was that you get as much as you can because these accounts may dry up tomorrow. There was a monthly billing figure that we needed to hit, so if it meant making up stuff, we made up stuff."
Other former employees, who collectively worked for Fleishman during most of the previous nine years, confirmed the practice. "There was no ambiguity; people were expected to make up hours if we fell short at the end of the month," said a former executive. "There wasn't a person there who did not hear it that way. It wasn't subtle."
Richard Kline, a senior partner who took over the Los Angeles office in April 2004, was quoted in the newspaper as saying Fleishman did not condone unethical or improper billing practices. He said Fleishman launched an internal investigation after City Controller Laura Chick and other city officials criticized its contract as costly and unnecessary. Kline said employees who have worked on the DWP account had said the allegations are "unfounded and untrue." Records were still being examined, he said, as the review proceeded. He added that Fleishman's St. Louis "leadership had no knowledge of any such activity."
Greenwood, who left Fleishman in 1999, estimated that about 20 percent of the hours she reported for the utility were false. Two of the former employees, who worked more recently at Fleishman, said bogus billings sometimes amounted to $30,000 a month. One of them said that was the monthly average of the super-charged billing.
"The need to increase the hours was communicated pretty bluntly," one former employee said. "Different people were approached and told how many hours they needed to add. It would be [put] in those words.
"It was an open secret, and that kind of shocked me," the former executive said. "I mean, if you're stealing $30,000 … you'd think you'd keep it quiet. I know I would."
The Los Angeles Times went on to report: "The moment of truth, former employees said, came at the end of each month, when the Los Angeles office would receive a compilation of everyone's hours from St. Louis headquarters. If the office was below its monthly goal, a call went out to 'write up' hours to make up the difference, they said. Another of the former employees, who worked at Fleishman, said steps were taken to disguise the practice. Billings would be inflated only on legitimate projects, meetings or functions already large or too amorphous to 'tip off DWP auditors,' this former employee said."
The billing codes used for the phony hours included those for public affairs counsel and communication strategy; water issues; and media relations. "We could say we made all these media outreach calls and nobody would know," this former employee said. The employee added that the order to inflate the bills would "trickle down," triggering a monthly ritual in which the number of hours worked were falsely increased to support a higher billing total.
Eventually, the hammer came down on Douglas R. Dowie, the general manager of F-H's Los Angeles office, and John Stodder, head of the firm's LA pubic affairs practice. Both were sentenced to jail terms by a federal judge. They were charged with submitting over $500,000 in fraudulent bills to the DWD over a four-year period. Both were convicted of conspiracy and wire fraud. F-H reached agreement in a civil suit with the water department and paid in excess of $5 million.
I would like to think the report in the Los Angeles Times is an aberration. However, I would also like to believe the Porsche Fairy would deliver a red 911 Targa to my garage just because I wish it so. Dowie claimed he was a scapegoat. To some extent, he was both a thief and a scapegoat. Billing by the hour opens the door to fraud unless there is a company culture against aggressive billing and for strict accountability.
I do believe that outright fraudulent billing is not endemic to professional services, whether it is a lawyer, marketing consultant or accountant. However, there can be a thin line between aggressive billing and fraudulent charges, with the interpretations depending on whether you are the professional services provider or the professional service purchaser. Having worked in an international agency, and having owned agencies, I have not been aware of fraudulent billing, but fuel-injected billing has been fairly commonplace when hours were involved.
One professional agency acquaintance was quite open in telling me how his firm billed lunch hour time. His words: "We invite the client to lunch for say two hours. We then bill the hours we spent over lunch discussing many things, including the client's issues. Then we bill the client for the lunch - and we mark up the cost of the meal 20 per cent."
Have you ever been on a conference call and wondered why 20 people were sitting around speakerphones in five different cities, almost as if it were a rugby scrum? It's an hour's billing, and it's stealth billing at that.
Have you ever been called into a meeting, and heard the team leader say from the outset that each of you only has an hour to devote to this client's problem? What if the silver bullet idea presents itself in the first five minutes? What if it runs over into three hours? Does the guy in the corner dreaming about blue-eyed Cameron Diaz in a bikini and who doesn't have a glimmer of an idea to contribute to the conversation also collect on his hour?
Have you ever been given a writing assignment that could take either one-hour or eight hours, depending on motivation, and whether you had reached your billing targets that week? In the professional world, quickness is a solid attribute, but rarely do you see it rewarded. In the hour-driven billing system, slow motion is what counts. In a time billable world, the fact that I can write a press release faster than Superman's speeding bullet is a detriment. Please, bring on some enlightenment.
A common occurrence is when a professional service provider attends a meeting or an event for several clients, and bills each one of them an hour's time. Thus, a two-hour meeting could result in eight hours of billing time for this Houdini. Wouldn't you feel less like a back street hooker if you tied that time to the value each of those clients received?
Over the years, I have seen fairly competent people given the ax because their billability fell below 70 per cent for a certain number of weeks. Shouldn't these people be judged on the ideas they put forth, rather then their ability to shop around like scavengers for billable hours within the service company?
Billable hours in the 21st Century are like huge vacuum tubes compared to the silicon chip, or Wright Brothers first flight compared to investigating the far-reaches of space. For Heaven's sakes, it is the intellectual equivalent of factory piecework. Let us park that jalopy in a museum.
Reality Bite 1: The client of a professional service company shouldn't be insulted by the mathematical weirdness of the billable hour. The worth of an idea simply can't be lassoed and kept in that corral. You wouldn't keep Secretariat in the paddock on Derby Day.
Reality Bite 3: There is one immutable fact in the professional services business. Clients do not buy such services on price, or at least the smart ones don't. Would you go to a neurosurgeon because he advertised bargain basement prices? Would you trust the financial aspects of your business to an accounting firm that had a sign in the door that said, "Cheap, Cheap, and Cheap"? This analogy extends to all the professions; that is why they are called professions.
Reality Bite 4: The Silverback recommends the Value Contract, an agreement that says we are going to do great work, that we will reach certain established goals, and that we are going to consult often and measure progress in intervals. Of course, the agreement also says that at specified times you will pay us an agreed amount for these services. In addition, if you want to pay us a lot extra, we will walk your dog and take out your garbage.
Reality Bite 5: Speaking of garbage, the Silverback also recommends you go into the office tomorrow with the enlightened, evangelical look of Paul struck down on the road to Damascus. Following which, you will take all those 19th century ideas on billing and toss them in the wastebasket. Your professional employees will all bow down and think you are the Dalai Lama; and, who knows, you might be.
Reality Bite 6: And finally (this should be obvious), give a rip-roaring speech about how your business is about ideas, about intellectual curiosity, about ingenuity and about enthusiasm, none of which can be measured in hourly increments. Forget the Dalai Lama; they will think you're Elvis.
Reality Bite 7: Oh, I forgot. You will have some resistance from the guy with curly hair and glasses in the accounting department. He has been working with the same system a long time, and has finally figured out how to enter all the data. Fire him. You will also have some objections from a few -very few--of your clients who just don't understand. Pray that God will eventually make them smarter than your average tree bark.