this blog has moved to a new address: daveberta.ca

Please update your RSS, bookmarks, and links to http://daveberta.ca.

Friday, October 03, 2008

guest post: taking a closer look at highwood communications, the pab, and the alberta pc's.

Highwood Communications’ recent bankruptcy has raised some important questions about its relationship to the government of Alberta, the news media and the provincial Progressive Conservative party. There are some real problems here, but it is important to get the facts straight.

If you haven’t been following the story, the brief outline is this. In 1996, the Klein government, in the full swing of privatizing as much of government as it could, decided to change the way that advertising agencies were paid for work for the provincial government. Previously, an advertising agency would win a contract and do all the work: they would meet with the client, map out a plan, design the creative artwork and then purchase the advertising space with the relevant news media. The agency was paid a commission of the overall cost of purchasing the space in the media. The problem, in the government’s eyes, was that this created a conflict of interest. The advertising agency had a strong interest in designing campaigns that were as expensive as possible: the larger the media buy, the larger the commission. So, to remove the conflict of interest, the Klein government proposed separating the media buying function from the other advertising functions (strategic planning and creative artwork). Ultimately, they tendered three media buying contracts: one for the recruitment advertising (civil service positions), one for legal / tender advertising (regulatory announcements) and one for everything else. The last contract was the largest of the three.

Enter Highwood Communications, the Calgary advertising firm led by Barry Styles won the largest of the three media buying functions. This firm was one of the leading Calgary advertising agencies through the 1980s, while Klein was mayor. It repeatedly was awarded the account for the Calgary Stampede. At that time, there was no real evidence (as far as I can find) that Highwood was either closely linked to the Progressive Conservatives or to government business. Of course, neither was Klein during his time as mayor. Nevertheless, when Klein ran for the leadership, one of Highwood’s executives joined the leadership team. Later, in preparation for the 1993 general election, a number of Alberta advertising executives formed the “Buffalo Group” to plan the advertising and publicity for the party’s election campaign. Barry Styles was a charter member of the group and remained with it through to Klein’s last election campaign in 2004. He was also involved in some of Stockwell Day’s campaigns when he was leader of the Canadian Alliance party. In short, Barry Styles was very closely linked to Ralph Klein, his government and his leadership of the Progressive Conservatives.

At the same time that Styles joined the party’s communications committee, Gerry Bourdeau, one of the government’s top civil service public relations officials was sitting on the same committee. Bourdeau remained on the party’s communications committee at least for the 1997 election and possibly later. In 1994, he became the Managing Director of the Public Affairs Bureau. So, when the government decided in 1996 to award the contract to Highwood, Bourdeau and Styles were sitting on the same committee of the Progressive Conservative party. Highwood maintained that contract until July 2008 when it suddenly – mysteriously – dropped. Weeks later, the company declared bankruptcy.

On the surface of it, this appears to be the crudest form of patronage and abuse of the public purse. However charges of patronage and abuse are serious and have to be grounded with evidence. In this case, the picture is a little bit clouded. First, the contract is actually not all that lucrative. Highwood charged a commission of 4% of all the media buying that it performed for the government. As far as I can tell, over the life of its contract this commission would net the firm anywhere from $50,000 to $200,000 in annual commissions. Second, there actually is a compelling case to be made for hiving off the media buying function from the rest of the advertising work to remove the conflict of interest noted above. This is a widespread trend within the advertising industry. Third, to hear the government tell it, the contract was always tendered, open and adjudicated by lower-level officials in the Public Affairs Bureau. Perhaps more importantly, it was a renewable contract. All this is entirely possible. The rules, properly applied do not preclude an advertising firm with close political links to the governing party from gaining government business.

However, while each of these three reasons are valid and should temper our accusations, there are problems with each and given that, there is a very good justification for some sort of inquiry into the affair. Let me address each one in turn.

First, although the commissions were small, there were not insignificant, either. I wouldn’t turn down a $100,000-$200,000 a year government contract. That is guaranteed income for an advertising firm, which is an unstable industry that fluctuates along with the wider economy. In Styles’ own words in his bankruptcy application, losing the government contract was the last straw that drove the company under.

Second, although there is a compelling case to hive off the media buying function from the rest of the advertising work, there is absolutely no reason why this function must be outsourced to the private sector. The work is exactly the kind of work that civil servants can be very good at. The entire rationale behind setting up the Public Affairs Bureau in the first place was to improve the professionalism of public relations professionals in the government of Alberta. In one important way, the most important lesson from the Highwood bankruptcy may not be one of corruption and patronage but yet another mark against the deregulation and privatizing fetishes that have swept the western world.

Third, and finally, the only evidence that we have that the rules were properly applied comes from government officials, and people who are involved in the transaction. This is hardly reliable. Moreover, even if the rules were properly applied, maybe there is something wrong with the rules. For example, in the government of Canada, deputy ministers are forbidden by law from participating in partisan politics except for voting. In Alberta, no such restriction applies and this allowed Mr. Bourdeau (who at the time was the equivalent of a deputy minister) to play politics for the Progressive Conservatives while serving the government of Alberta at the same time. Furthermore, even if there was nothing wrong with the way the contract was tendered in the first place, how do we know that the contract was sufficiently monitored and executed. One red flag within Highwood’s bankruptcy documents is that Highwood transferred $1.5 million in assets to Styles’ personal holding company. The bankruptcy advisor wrote to creditors saying that, in his opinion, it would be nearly impossible to claim these funds to repay creditors. Is such a transaction legitimate? I don’t know, I’m not a bankruptcy expert. But surely it is grounds for closer examination. The only way to determine whether these concerns are grounded is some sort of inquiry.

But at the end of the day, there is a broader lesson here. While the concerns about patronage and abuse of the system are real and valid, the chances that any inquiry will find a smoking gun are small. It is entirely possible that all the rules were properly applied. Instead, this incident is yet another example of how business elites move in and out of the government of Alberta, the Progressive Conservative party and the private sector, helping each other along the way. At the end of the day, the problem is not necessarily ethical, or even legal, but political. And for some reason, Alberta’s voters ignore this situation, let it continue and Alberta’s opposition parties are totally incapable of doing anything about it. But that’s a whole other story. Or PhD thesis.

-----


Simon Kiss is a PhD student in the department of Political Studies at Queen’s University. Prior to beginning a PhD he worked for the Alberta NDP caucus from 1999 to 2002. His dissertation will be defended in November 2008 and examines the evolution of government communications in Alberta from 1971 – 2006. He knows more about the history of marketing, media relations and public relations in the government of Alberta than any sane person should.

9 comments:

Jeff S. said...

Great post. Go Simon!

Gauntlet said...

Wow. Awesome.

Signe said...

Nice to read you Simon. Good guest column.

Anonymous said...

Excellent post. Good work, Simon. There are a lot of details to look at when critiquing Highwood and the PAB-PC connections and you hit on some very good points here.

I'm especially distressing that public servants like Gerry Boudreau was allowed to sit on the same partisan PC committees without any red flag being raised. At least the philosophy of a non-partisan civil service is something that is taken seriously in Ottawa.

Anand said...

Good to see some of your material Simon. Very well laid out and articulate.

Anand

Ken Chapman said...

Hi Simon - I will read this with interest after the Federal election. Good to hear from you again. Trust you are doing well.

Anonymous said...

Simon - excellent post and some incredible back-story details. However, my problem with this whole mess is that unlike other agency/client financial relationships, in this case the money had been handed to Highwood "in trust" and it was their role to disperse it to the various media. In my mind there is no reason for them to not be able to accomplish this task, whether they lost the Alberta Media account or not.

They might have been playing a bit of a shell game and counting on future funds from the Gov't to underwrite past/previous bad decisions, but that isn't really likely given Highwood's status as a long-term Calgary agency.

It's also interesting that Highwood's media department was paying on time for their other non-governmental accounts.

Simon said...

anonymous @ 1:02 pm. Could you contact me via e-mail?
SK.

David S said...

Actually, Highwood was notorious for paying very slow to just about all of their suppliers. That's why their statement of disclosure was over $5 million. They hadn't paid anybody in months.