Wednesday 15 November 2017

Trust, Transparency and Teeth: Addressing Corruption in the Sales Ring. Part 2 of a Series.

In the last blog I raised a number of concerns about ethics, integrity and corruption in the equine supply chain, in the context of the launch by the BHA of their first annual Integrity Survey. The BHA quite rightly is determined to ensure that the public and participants in racing are confident that British Racing is run fairly and in accordance with the rules, that crime and corruption are deterred, prevented or penalised and that there is a level playing field for all competitors. The intention of the survey is to measure perceptions and the level of confidence around integrity in British Racing and to identify areas for improvement. The data for the survey will form a baseline against which the industry will be challenged to improve every year, and it will help racing identify where the greatest integrity risks to the sport are perceived to lie.

I completely agree with this emphasis because, without trust and confidence in the sport, it is impossible to grow it and increase the numbers of racegoers, punters and owners.

I also flagged up the review that has been launched by the BHA into the buying and selling of horses, and whether the current sales environment could be deterring existing and potential owners from pursing their involvement in racing. This struck home with a number of readers of the blog, and one comment encapsulated the reaction: “My experience of the sales ring is that it is an absolute snake-pit for the uninitiated. Good luck to the BHA trying to clean it up – the system is open to abuse where collusion between consignors and bloodstock agents is widespread, to the detriment of both the end client and the original seller.”

The reactions to this review have definitely been bipolar. On the one hand the auction houses, agents and a number of senior executives in the industry were complacent in the extreme, with the view being that “our auctions are the fairest and best in the world”, “integrity is our priority”, “we set the best possible standards” and “we’ve received no complaints”. All fine and dandy? At the other end of the scale, not a single owner in my network agrees with those comments and all believe that a tightening up of the sales process is long overdue. So with that in mind, this would be my checklist of areas for the review team to consider.

  1. Re-state and reset standards and expectations. Make it clear that illegal, fraudulent and corrupt practices will not be tolerated and will lead to exclusion of guilty parties from racing. To do that, a number of dubious practices need to be made explicit and illustrated with straightforward examples of what is acceptable and unacceptable.
  2. Independent scrutiny. The industry cannot be allowed to monitor and police its own practices. There needs to be a proper framework for assessment of bad / illegal practices, reinforced by a clear set of penalties.
  3. Require transparency on veterinary treatments and actual ownership. Would you buy a £100,000 car with no service record and no log book, and where your only real insight is a bit of tyre-kicking? From the date of a horse’s birth there should be an equine log book recording every single treatment. This log book should go online one month before the horse is sold so that it can be properly studied. All of the owners of the horse up to and including the date of the sale should be listed so that the prospective purchaser can assess who is actually selling the horse and whether (currently non-disclosed) interested parties are unduly influencing price.
  4. Introduce a Crimestoppers line. At the moment no-one is prepared to complain, particularly the consignors. Stallion masters and major agents are such dominant players that if they antagonise them they could be put out of business. To say that there are “no complaints” completely ignores the problem. Topically, that has certainly been the case with sexual harassment as well, in the media world and in politics.
  5. Ban luck money. No buyer, trainer or agent should be able to demand a financial reward from a vendor. It should neither be expected nor requested. Any money exchanged beyond the hammer price at an auction should be formally disclosed to the auction house, and recorded.
  6. Require immediate disclosure of reserve prices. Anyone who has been to a sale will have seen the bidding charade of “off the wall” bids, which is where the auctioneer reports non-existent bids to get the horse up to the reserve price. If a vendor puts a reserve on the horse, it should come up on the screen the second the horse walks into the ring.
  7. Ban the running up of prices by the vendor / connections. Bidding in the ring should only be done by genuine prospective purchasers. At the moment vendors are permitted to bid horses up. If the horse is bought back in, the connection between the person who does that and the vendor should be completely clear. There are dark rumours that a number of vendors are bidding up horses to huge levels and then splitting differences between themselves and agents when bought back in. Easy to do if you’re buying for overseas clients. As part of this, the under-bidder should be recorded to see whether they are connected or not.
That’ll do for the moment. I’m going to be extremely interested to see what the review identifies as unacceptable practices, but even more so, what anyone is prepared to do about them. Indeed it raises the critical question of whether the BHA itself has any regulatory power in this area. Who is going to regulate it, and how? More on that in the third part of this series.

I am always interested to hear your views so please do leave a comment. If you can't see the comment box at the bottom of this post then navigate to the post using the right hand navigation or click here > and scroll to the bottom of the page. Look forward to hearing your views. Thanks very much for sharing them.

Wednesday 1 November 2017

Where Does Racing Stand, on the Scale From Maximum Integrity Through to Frequent Corruption? Part 1 of a Series Examining This Issue

Back in my management consulting career I specialised in procurement and supply chains across major industries on a worldwide basis. In that capacity I advised companies with a total third party spend of well over £3 trillion. I once sat down and worked out how many suppliers in total our clients had, and it was many millions. Hardly surprising that by the end of my career any rose-tinted spectacles about commercial practices were well and truly shattered. I encountered corrupt supply chains every day of the week, usually as the result of cartels or quasi-cartels and overly dominant players, able to stitch up markets.

Indeed, in 1997 I actually co-authored a book entitled Transform Your Supply Chain: Releasing Value in Business. I’m sure you’ll be anxious to track down this “best-seller”. There are still copies sitting in a box in my spare bedroom and who knows you might even stumble upon one as a remainder item in a second-hand bookshop. However I still receive royalties so someone, somewhere out there is still interested in the subject. In 1998 my publisher, Thomson Business Press, told me that I was their “best seller in Belgium”. What an epitaph to put on my gravestone: “Big in Belgium”! I felt so proud until I asked them what that actually meant. Apparently the definition of a best-seller in the rather arcane world of business books is if it sells 1,000 copies in the first year. 90% of all books launched sell fewer than that. 90% of the remaining 10% never get beyond 2,000. That in itself just shows you how easy it is to misrepresent commercial practices in a supply chain – in this case, publishing.

Anyway I went to this “best-seller” ahead of writing the blog, and looked up Chapter 10 entitled Governance, ethics and supply sustainability. On the first page of each chapter I flagged up an overview and then a “bottom line”. There were seven points in the overview that I examined more closely in the chapter: (1) Corporate governance and ethical integrity, (2) Social commitment and ethical auditing, (3) Reducing environmental impact, (4) Responsible supply, (5) Dealing with manipulation in supply chains, (6) Countervailing measures for anti-competitive behaviour and (7) Remedies for supply collusion and monopolies. As you can see, it was hardly a light-hearted breeze through the subject. You only had to read the “bottom line” statement to see where I was coming from: “Everyone in an organisation needs to know the difference between acceptable and unacceptable commercial, social and environmental practice. Without such precision in ethical stance, the risk of a company severely damaging its reputation is unacceptably high. This can wreak havoc on brands, morale and shareholder value. Indeed, it can undermine the very sustainability of the business.”

It's hardly surprising that ever since I’ve been involved in buying and owning horses I’ve looked at the whole operation through the prism of ethical or unethical supply chain practices. Unfortunately I soon came to the conclusion that the racehorse supply chain is unacceptably prone to manipulation at best, and illegal corruption at worst.

Twelve years on from becoming an owner I was pleased to see that the BHA has launched a review into the buying and selling of horses. This is long overdue. There are all sorts of reasons why this is being done, not least the increasing concern that the processes adopted and the sales environment that owners encounter could be deterring existing and potential owners from pursuing or increasing their involvement in our sport. I suspect it isn’t a coincidence but the BHA has also recently done its first ever annual Integrity Survey (which I completed), aiming to measure perceptions and confidence around integrity in British racing and identify areas for improvement. The BHA emphasised that their integrity function is there “to ensure that the public and participants can be confident that British racing is run fairly and in accordance with the rules, that crime and corruption is deterred, prevented or penalised, and that there is a level playing field for competitors.”

Delighted to hear this, and an excellent sentiment. It is going to be extremely interesting to see whether the BHA and British racing has the necessary determination to map out exactly where distortion / corruption take place and then introduce the changes necessary to “deter, prevent or penalise”. Hopefully the review into the buying and selling process will be a good starting point.

Most interestingly though, when the review was launched, was the immediate reaction of agents and auction houses, both of whom collectively stated that they’d never encountered any malpractice at any stage in their lives. No-one had ever complained to them. Clearly everything in racing’s garden is just fine and dandy. Indeed, Goffs’ CEO, Henry Beeby, with mind-bending complacency, stated: “I am adamant British and Irish bloodstock auctions are as fair and transparent as they can possibly be.”

Well, well, well. The auction houses sit astride billion-pound supply chains with thousands of operators. Who would have thought that they’ve never, ever in their lives encountered any malpractice. The ethics and integrity hill, methinks, is going to be a hard one to climb. To be continued in the next blog.

I am always interested to hear your views so please do leave a comment. If you can't see the comment box at the bottom of this post then navigate to the post using the right hand navigation or click here > and scroll to the bottom of the page. Look forward to hearing your views. Thanks very much for sharing them.