Even Universities Take Kickbacks!

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As a result of working in the defense industry, I’m very cognizant (as is anyone who works in this industry) of the impropriety of any sort of kickback, whether it’s something minor like lunch or something huge like … a job. However, kickbacks are a way of life in the private sector and so it’s always surprising when you see a story about something semi-private get busted for accepting kickbacks. In the last year, you’ve seen lots of 401k plan administrators come under the microscope for accepting kickbacks for offering certain funds… but most recently, it look like eight universities have been settled allegations for accepting “payments, travel and other perks” from lenders.

My fiancee used to work at L’Oreal in their purchasing department (she was a trained biomedical and chemical engineer, but go figure how big companies do business) and would get free lunches all the time from vendors selling things like labels and plastic bottle caps (she worked in hair coloring). I spent a few months working as a materials manager (rotational program and that rotation, not doing software development, was probably the best rotation I ever had…) and had to be very cautious in accepting anything from anyone because kickbacks are a huge no-no and being caught accepting one had serious repercussions.

I only had government backed loans (Stafford, Perkins) in college but this probe investigates the “private” loans, those that aren’t backed by the government, and so it’s appropriate that universities don’t receive kickbacks for offering a particular bank’s loan – especially if that loan isn’t in the best interests of the students. I didn’t even know that universities accepted kickbacks but I think that was naive of me. If there is every a gray area and an opportunity to exploit it, someone will until an attorney general shuts it down (way to go New York! Eliot Spitzer really set the tone… and now Andrew Cuomo is continuing the tradition).

I’m glad someone with visibility into these types of issues is able to watch the consumer’s back.

The writer of Blueprint for Financial Prosperity will accept kickbacks in the form of “payments, travel and other perks” and it is not illegal for me to do so. So please, someone send me two tickets to somewhere warm and sunny.

{ 4 comments, please add your thoughts now! }

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4 Responses to “Even Universities Take Kickbacks!”

  1. dong says:

    The problem isn’t gift in themselves, it’s a question of are you making decision on behalf of another party. I work in a industry (energy trading) where there is plently sales schmoozing. Tickets to games, dinner out, etc. However on the most part it’s a non issue, because there isn’t the same agent problem. While I do make the decisions on behalf of the company like your fiancee, the company is ultimately representing itself rather than another party. That’s the problem with the Govt, Mutual Funds, etc. The decision makers are directly representing someone else.

  2. Shadox says:

    I disagree that there is no agency problem. The company is not representing itself, it is representing its shareholders, and as such there is an inherent conflict of interest / agency problem between employees & management who often have interests that diverge from those of the true owners of the company.

    I will concede that small business gifts, such as business lunches, pens etc. are a very common practice. I have no problem excepting these from vendors and regularly offer these to customers and prospects. When I offer these, I don’t really do this in the hope of influencing decision making I do so because this is considered polite and appropriate business behavior.

    Just as you are expected to shake your host’s hand when you walk into a meeting, you are expected to pay for dinner if you go out with a customer. Expecting that customer to then award you a multi-million dollar deal based on that? I know very few people that think that this is likely.

    More importantly, those dinners, golf games and joint outings are a way to bond and build a personal relationship with customers. The danger is not so much that a customer will award a contract based on a day of golf, but rather that he will award a contract based on the fact that he got to know and like the person who he spent a full day of golfing with. Does that make sense?

  3. Ben says:

    It seems any type of financial transaction that doesn’t have appropriate transparency inevitably corrupts someone who thinks they can get away with making money at the expense of others.

  4. dong says:

    It’s impossible to avoid all principal/agent problems unless everyone involved is the primary stakeholder, but there is a differenence shareholder/employee/management conflict and the conflict that sometimes exists between a company and it’s client. I may represent my company and it’s shareholder, but unlike a mutual fund I’m not investing a 3rd party person’s fund. My interests are in general much more aligned with the shareholder than would be if I was working for company investing someone else’s money. I don’t want to imply that there isn’t any conflict of interst, there always will be some, but there are degrees.

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