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Maurissa Ashby

Makena Bauss

Bronte’ Bringhurst

Comms 336

Dr. Kenneth Plowman

Feb. 15, 2016

City Utility or Cash Cow?:

Top Agency Accused of Overbilling City

INTRODUCTION

According to Merriam-Webster, ethics is defined as “the principles of conduct governing an

individual or a group”.

Success in public relations is entirely dependent on the ethical behavior of its practitioners. One

wrong decision on their part (whether it is illegal or simply immoral) can determine the amount

of success they experience for the rest of their career. The public relations sector seeks to create

and maintain mutually beneficial relationships between organizations and their key publics. This

process should always be conducted using proper moral principles. However, several factors

such as time constraints, greed, or desperation can create ‘gray areas’ and bring a shift to one’s

moral compass.

The Los Angeles Department of Water and Power (LADWP) was established in 1902 and

provided service for 3.9 million residents in 2011 with an annual budget of $4 billion. The
monopoly supplied approximately 22 million megawatt hours of electricity a year for the city of

Los Angeles. About 9,200 employees were employed in 2011.

Laura Chick, LA City Comptroller announced an audit of the city’s multimillion dollar contract

with the FleishmanHillard public relations agency regarding suspicious financial reporting. It

was noted that FleishmanHillard employees were being paid excessively for client work that had

not been performed, but only planned.

DISCUSSION QUESTIONS

1) Why does a public utility and monopoly need private public relations services— or even

internal public relations staff?

Despite being a public utility—and a monopoly—it is important for services like the Los

Angeles Department of Water and Power to have not only internal public relations staff, but

especially private public relations services. As a public utility tasked with managing crucial

public resources, it is critical that LADWP understands its users needs and in turn communicates

with them about any possible threats to these services. Particularly in California, where droughts

are common, public relations staff at water management departments ought to play a key role in

communicating with the public regarding water usage regulation and helping bring the

community together on these initiatives. Additionally, as a large city with a significant carbon

footprint, the public relations staff at LADWP is in a prime position to educate the public

regarding sustainable energy consumption.

But simply having in-house public relations staff isn’t enough for services like LADWP. As a

monopoly, LADWP is in a precarious position of ethics. It is much too easy for a monopoly to
begin acting against its consumers’ best interest. Without direct competition, little monetary

incentive exists to promote ethical practice. By having an outside public relations firm manage

communications with the public for the department, LADWP is able to avoid bias in motive that

may cloud judgement or allow unethical business practices to go unnoticed. Outside public

relations firms—like FleishmanHillard—have the incentive, motive, and ability to keep

monopolies in check.

2) What could LADWP have done to prevent this overbilling situation? What policies or

procedures would you recommend for the utility’s public affairs office?

If the Los Angeles Department of Water and Power (LADWP) had taken action at the first sign

of a discrepancy between the times logged by FleishmanHillard employees and the work

performed for LADWP, the overbilling situation may have been brought to their attention

sooner, allowing them to prevent further unnecessary expenditure. Eventually, LADWP began

requiring billing statements to have detailed explanations of what specific charges were for,

instead of allowing vague descriptors such as “strategic planning.” Had LADWP required these

types of specific descriptors from the start, it would have been much more difficult for unethical

individuals to take advantage of the system.

Additionally, a recommended procedure to curb such unethical practices would be regular

correspondence between the utility’s public affairs office and FleishmanHillard regarding the

work being provided for the public utility and all related billing. Inconsistencies may have

manifested themselves sooner if LADWP had been periodically paying closer attention to

individual bills rather than trying to find inconsistencies in their reports after much damage had

been done.
3) Do you think that FleishmanHillard responded appropriately to this crisis? What were its

response options?

It is admirable that the authorities such as the chairman and chief executive officer John Graham

in the FleishmanHillard agency were willing to fully cooperate with any and all public

investigations without any knowledge of the individuals involved in the scandal. This reflected

their dedication to the company’s long-standing principles that have allowed them to continue

the mutually-beneficial relationships between the agency and its clients.

Although the amount of work done by FleishmanHillard to fix its reputation was enough to put it

back on its feet, a company that finds itself embroiled in such a crisis can never do too much to

restore what was lost or broken. Instead of making efforts to return the company’s image to

where it was before the crisis, the majority of its efforts should have been put into improving its

image so much so that the company would hold even more respect from the public than it did

prior to the crisis.

4) Examine the ethical guidelines implemented by FleishmanHillard during the crisis. Do you

think the response was adequate, or would other actions or guidelines have been helpful?

In response to this legal and ethical crisis, FleishmanHillard took steps to review, reform, and re-

emphasize ethical standards and guidelines implemented by the firm on both the local and

corporate levels. Locally in LA, FleishmanHillard took steps to ensure that during the

investigation period no further unethical behavior would take place by putting Doug Dowie, the

then Los Angeles general manager for FleishmanHillard, on administrative leave. The firm

openly communicated with the public through Richard Klein, an executive from its LA office

(and eventual replacement for Dowie), updating local news sources on its efforts and progress
towards resolving the billing issue. Admittedly, however, communication was slow to start. But

increasing transparency throughout the process, nonetheless, did help to re-establish

FleishmanHillard’s image as an ethical company. Settling out of court, FleishmanHillard not

only paid back $5.7 million to the City of Los Angeles, but also chose to forgive $1.2 million in

as-of-yet uncollected fees, demonstrating an ethical commitment to not profit off money that

may be tainted by fraud. As the investigation proceeded—conducted by outside lawyers so as to

yet again ensure ethical procedures—FleishmanHillard made the decision to terminate or not

renew other outstanding contracts with other LA public services, showing an ethical respect and

distance within the affected community.

In the larger, global community, FleishmanHillard took additional steps to place ethical

safeguards up to prevent similar situations from happening again and to protect other clients.

John Graham, FleishmanHillard CEO, sent out a number of company wide emails reiterating the

importance of ethical conduct to all employees. A 24-hour, anonymous ethics hotline was

created, giving all employees—especially lower-level employees—the ability to act as

watchdogs for unethical behavior without fear of retaliation. Seeing as how many employees

later reported having been aware of the unethical practices, even going so far as to state that they

had been specifically encouraged to inflate charges, the decision to add this hotline was a great

way of encouraging ethical accountability. Corporate management also brought in a top ethicist

to help re-design employee ethics training that would then be carried out in offices across the

globe. By making a significant point on a global corporate scale of what the firm expects in

terms of ethics in the wake of this crisis, FleishmanHillard did a good job of emphasizing just

how seriously it takes ethics within the company. Additionally, within the United States,
FleishmanHillard expanded specific training previously limited to public relations professionals

working with the firm’s federal public service accounts to staff working with both state and local

public service accounts.

5) What are the implications of this case for the public relations field?

As a result of this scandal, LA banned government agencies from hiring outside PR firms to

represent them. FleishmanHillard’s actions essentially shut down an entire market—not just for

themselves—but for other PR firms as well. It created a deep sense of distrust within the

community. Internationally, the image of large firms was damaged. Account managers were

given permission to go to considerable lengths to reassure clients across the globe that

FleishmanHillard was an ethical firm and would not take advantage of its clients.

However, some good may have come out of this crisis. It served as a stark reminder to public

relations firms that even they are not immune to public relations crisis. As FleishmanHillard

suffered the effects of using unethical practices to get ahead in the short term, other firms had the

reminder that it is always better to act ethically now for long-term gains, hopefully improving the

field as a whole.

MATRIX

For this section of our paper on “City Utility or Cash Cow? Top Agency Accused of Overbilling

City”, we chose to go with a SWOT analysis of choices that the FleishmanHillard public

relations firm in contact with LADWP made.


Strengths

Past successful campaigns

Management change

Committed employees to change

Focus on client satisfaction

Building on company goals

Opportunity to eliminate of wrongdoers

Opportunity to restructure auditing procedures

FleishmanHillard has the advantage of having much success in its past campaigns. There are

employees committed to responsible actions and behavior and focused on client satisfaction to

further the company’s goals. It is in a position where it would be beneficial to eliminate the

wrongdoers in its management department and completely restructure the auditing procedures of

the company.

Weaknesses

Lack of policy regarding political connections

Necessity of emergency audit for questionable behavior

Lack of external transparency

Lack of internal transparency

The agency’s lack of internal and external transparency posed as weaknesses. There is a distinct

lack of understanding between it, its clients, and the public. This secretive nature causes the
public to lose trust in and respect for a company spouting moral values and dealing with crisis

situations. Because they did not fix issues in a timely manner, there has been a necessity for

quick action, putting all of their dirty laundry out to dry. FleishmanHillard also did not have any

regulations regarding how the firm interacted with political candidates, which put them in a bad

position as the relationships between them appeared to be based on bribery and persuasion.

Opportunities

Ethical company background

Past successful campaigns

Large company infrastructure

Some opportunities for growth lie in the past successes of the company. In dealing with other

clients who have had positive experiences and have not been overbilled, hopes arise for

FleishmanHillard being able to salvage its reputation. With their past successes in winning

agency of the year, diversity, ethics and named 2013, PR weekly “Agency of the Year”, they

may be able to work through this crisis with their many resources. Additionally, the large

infrastructure of the company allows for its proper operation.

Threats

Status as public relations firm

Lack of quick reply to accusation

Loss of public trust


Some threats and concerns have been brought up in this case regarding why the LADWP with a

public affairs group had to even have a 3 million dollar contract with an outside public relations

firm. For FleishmanHillard, having a responsibility to act ethically and deal quickly with trial

and conflict issues has posed as a threat as the crisis is in complete opposition to the company

culture.

CONCLUSION

Ultimately in its practice of not “practicing what they preach”, FleishmanHillard has given solid

lessons to public relations professionals of what not to do. In their lack of recognizing threats

towards their company goals and policies in their work with the Los Angeles Department of

Water and Power they show that without proper strategic planning, public relations train wrecks

can happen to anyone. This case provides accurate lessons promoting ethics in the workplace.

Some of the biggest lessons that this case teaches are of proper transparency between clients and

work officials, and ethical behavior in regards to business strategies and payment. In focusing on

openness between all members of a team much of this situation could possibly have been

avoided. However especially in regards to the nature of the company- being a public relations

firm with a purpose to ethically facilitate mutually beneficial relationships between an

organization and their public, they needed to do everything they could to continue that image and

purpose. The necessity of pre-crisis planning is essential in public relations companies, because

as this illustrates, accidents happen. So before you make the mistake as was made here, plan

ahead, and don’t “become the story”, as LA times writer, David Stratified said.
REFERENCES

"ethic." Merriam-Webster.com. Merriam-Webster, 2015.

Web. 15 February 2016.

City of Los Angeles Department of Water and Power. Director of Public Affairs.

http://www.allianceresourceconsulting.com/profiles/246.pdf

Karlamangla, Soumya, and Reyes, Emily Alpert. (2015, August 17). Overcharged DWP

Customers Would Get Tens of Millions Back Under Settlement. The LA Times. Retrieved from

http://www.latimes.com/local/lanow/la-me-ln-dwp-billing-settlement-20150817-story.html.