We all know that the LA Times has great reporters and does Pulitzer Prize winning stories around the world.
Too bad it doesn’t devote more of its energy covering stories in its own backyard.
For more than two years a scandal has been brewing about the Better Business Bureau, the not-for-profit firm that for 99 years has claimed to be here to protect consumers against shoddy business practices.
And the scandal’s epicenter is in Los Angeles where the Southland Better Business Bureau dreamed up a replacement for the 97-year-old satisfactory/unsatisfactory BBB rating system.
The southern California BBB chapter convinced the national BBB council to use its A+ to F ratings in all 122 chapters in the U.S. and in Canada – despite fierce opposition by some chapters.
As soon as the BBB unveiled its new system, many consumer reporters including from the LA Times and myself, questioned the fairness, their ability to give accurate grades, and the motive behind the move.
The LA Times then forgot about the story despite serious questions being continually raised about what was once the most important consumer protection firm outside of government.
Infact, much of the questioning came from a former television journalist, turned businessman, who became so frustrated with the lack of coverage from the media in California, that he launched the website BBBroundup.com to publish his findings and that of others. He was so afraid of retribution that he had his website hosted in another country and still to this day uses the pen name of Jimmie Rivers. Rivers will be my guest Sunday from 6 to 7 p.m. EST on the Connecticut Watchdog News Hour.
"Jimmie Rivers" shows ABC the Hamas listing on BBB
Rivers’ business friends last winter decided to prove how rotten the grading system was and how it was designed as a marketing tool to pressure businesses to becomes
accredited businesses – paying dues of several hundred to tens of thousands of dollars a year.
They set up three fake organizations, with fake addresses, to test the BBB’s promise that all businesses were graded only after a thorough examination was conducted and that a special algorithm was used to evaluate all businesses in a fair fashion.
“We’ve never hidden the fact that one of the factors that goes into your rating is whether or not you’re accredited,” Alison Southwick, BBB council spokesman repeatedly has said. “The reason we gave points for accreditation is that accredited businesses are vetted and they agree to uphold our standards.”
However, the businessmen were able to show that the three businesses were immediately posted on the BBB website with ratings from A- to A+. One business, called “Hamas” listed its owner as Bill Mitchell, president of the LA BBB chapter – showing just how much checking went into BBB’s letter grades.
Stories about that sting operation did not result in any increased interest in the BBB at the LA Times. But it did at ABC TV which assigned a producer from 20/20 to launch an investigation. The producer worked with other ABC stations, Rivers, myself and other critics of the BBB rating system and produced a powerful segment earlier this month.
The highlight of the segment was a video of two small business owners in the Los Angeles area who, while being filmed, called the BBB to find out what they could do to improve their C ratings. They were told to become accredited members. Within 24 hours after giving their credit card information the two businesses had A+ ratings and the one complaint that one business had on the BBB website disappeared. At the same time Connecticut Attorney General Richard Blumenthal wrote a letter to the BBB demanding changes to its grading system.
It was only after the BBB Council President Steve Cox announced to end its practice of giving four extra points to accredited members on their 100 point rating that the LA Times wrote an article.
However, it missed the much bigger story that Cox amended his on-line press release with a statement saying the BBB would launch an immediate investigation into the LA BBB.
As of Thursday night the LA Times has yet to report that the president of the LA chapter’s $400,000 annual salary – highest in the U.S. and Canada for BBB officials – is funded by a marking campaign where 45 percent of the proceeds are paid to solicit the funds.
“BBB standards are we don’t like to see more than 35 percent going to fundraising costs,” said Bob Manista with the Better Business Bureau of Central Oklahoma told an Oklahoma TV station.
Nor has the LA Times done a story about how the same kinds of favoritism is shown by the Canadian BBB chapters for dues paying members.
I am a paying BBB member, I’m on a local board, I’m a consumer advocate and author of Negotiate Anything! Secrets to Make Businesses Treat You Fairly. I am also Founder of The CareGiver Partnership, a national direct to consumer retailer of home medical supplies.
The core problem with the BBB is how its organized. The rating system is only a symptom of a much larger problem and opportunity.
The BBB does not have a functional command and control structure. You can’t operate a business with 160+ offices. Also, they do not even know what business they are really in. They are in the “trust” business – much like Comodo, McAfee and VeriSign. The organization does not recognize that the world has changed and current leadership, Steve Cox himself can’t effectively lead an organization made up of many fiefdoms. I have written four times over he past two weeks to Steve, his deputy as well as the President of the BBB in Wisconsin. I have requested contact information for the Board of Directors. Each time they have elected to completely ignore my request.
This week, I have watched closely, the response of Steve Cox and the BBB. As I expected, the press release did not address the fundamental issues regarding the BBB which at its core is the organization.
This week, we learned that the manager of the L.A. BBB is paid $409,000 a year, much more than the already over compensated BBB national President. What organization would pay its local manager more than the national leader? Moreover, this is not corporate compensation – the BBB is a non-profit.
We also learned that the the compensation component of the overhead alone is as much as 71%. Nationally, it is 63%. As I am sure you can agree, that is outrageous.
Those $400 annual “fees” are collected from small businesses, many who are just barely able to hold on it today’s economy. Now they find out that vast majority of these funds are used to fund overly compensated non-profit mangers. Small business owners have long complained how the BBB uses high-pressure tactics to get them to pay up. And those that do sign up, get better ratings it has been reported.
Steve Cox response to all of this is that “they” would no longer enhance ratings for small businesses who “paid up”. That is like rearranging the chairs on the deck of the Titanic after hitting the ice berg. It simply does not address the fundamental issues facing the BBB and that is why I have asked you to provide us with contact information for the board members.
As a local BBB board member, small business owner, consumer advocate and author of books and articles on customer service excellence, I will continue to aggressively drive for change. I will continue to post blogs and articles about what the BBB must do to become relevant in todays world.
Action Steps That The BBB Needs to Implement Now
Following is what the BBB board needs to do to remain relevant long term.
Reorganize as a for profit business.
With this in place, significantly reduce headcount and overhead by closing most “chapter” offices.
Align compensation to normative levels using a nationally recognized organization such as Hay Associates.
The above steps will help rebuild trust of the BBB organization among business leaders and consumers.
After reorganization as a for profit business, consider divesting the BBB to a strategic buyer such as VeriSign, Comodo, or McAfee or license the name. There are significant synergies that would accrue. Any of these organizations would be better suited to properly market the BBB as a trust brand – they have the knowhow, resources and organization that the BBB lacks. My observation from being a local BBB board member, is that the BBB views themselves as being in the BBB business, not the trust business. As a result, they have significantly limited the value of the BBB mark.
As President of The CareGiver Partnership, a national direct to consumer retailer of medical supplies, we have conducted three years of quantitative research on the BBB with consumers. Our findings show that the BBB brand has little to no effect in purchase motivation. As a result of these findings (which have been shared with the BBB) and the current publicity, we cannot justify spending $390. Especially when it has been revealed that up to $278 of it is going into someone’s pocket.
In summary, in my opinion the issue is a need to change the organization, not the rating system.
Tom Wilson
President, The CareGiver Partnership
A BBB Accredited Member and local board member
Consumer Advocate and Author of
Negotiate Anything! Secrets to Make Businesses Treat You Fairly
P.S. After nearly two weeks of disastrous media coverage, there is still no mention of the BBB’s action steps on the home page of the website. They are so out of touch.
The BBB are a bunch of shakedown artists. The Feds should use the RICO Act to bring them down. They are an organized crime enterprise.