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March 02, 2006

Carnival Puts Profits First In Katrina Response

News comes today that Jeb Bush helped Carnival Cruise Lines grab a lucrative contract to send three of its ships to New Orleans in the wake of Katrina. Carnival executive Ric Cooper has given tens of thousands of dollars to Jeb Bush's Florida Republicans and George W. Bush's GOP too. Jeb, of course, has high level access. He can, and did, email directly to Mike Brown of FEMA to seal the deal.

Corruption? Or, a corporation reaching out to help those in need in a crisis and a 'can do' Governor and FEMA director cutting through read tape?

Those are the red vs. blue political questions. Let's focus, though, on the first part of the second question: a corporation reaching out to help those in need.

Here's what a Carnival spokeswoman says about Carnival's civic spirit in a time of crisis: "The ships have played an effective and critical role in housing and feeding thousands of people who desparately needed help and we are extremely gratified to have been there for them."

My hunch is that this description is not far from accurate. People did need help. Those who work for Carnival must feel good about having provided it.

So, is this a case of a corporation putting the needs of the nation above profits -- of reaching out in a time of crisis to do the 'right thing'?

Well, the article goes on to mention "Carnival officials have defended the deal, saying the company will not make extra profit because the $236 million price covers the revenue it would normally receive for up to 120,000 passengers it could book."

Let's look at the fine print and the facts. A catastrophe of Category 5 proportions hits the Gulf Coast and cripples it. How many passengers who had already booked cruises canceled? How many of the 'up to 120,000' who would normally book postponed such plans? Put differently, what would Carnival's actual cruise revenues have been had they not sent the ships to New Orleans?

Next, note the phrase "will not make extra profit". As just suggested, actually Carnival probably did make extra profit when the comparison is between the actual revenues if they had kept the ships for cruise use versus the actual revenues gained by sending them to the Gulf.

Morever, there is a qualitative issue raised by 'will not make extra profit'. A devastating hurricane strikes and hundreds of thousands of people's lives are put at risk. Tens of thousands of other Americans reach into their pockets to provide money and other assistance. That is charity. Stories also circulated about businesses providing support without compensation. That is charity.

A business that provides support at it's normal profit margin is not charity. It's an exercise in putting profits first.

Let's replay the tape. Katrina hits. Jeb Bush contacts Carnival or the reverse. Carnival immediately volunteers three cruise ships -- at cost. Red tape is cut. The ships get there and people are helped.

Okay, let's replay it this way. Ditto on the contact. But this time Carnival says, "We'll send the ships and cut our normal profit margin by X%."

Either way, Carnival does 'the right thing'.

What Carnival did, though, was to extract maximum value from a revenue generating opportunity. Values in the sense of reaching out and doing the right thing were merely a by-product. They played no determinative role in this decision. Carnival probably reaped extra profit because they would not have had 120,000 normal passengers. They charged the Government full price. And, the bonus was, they were able to make 'we were there to help" claims for their brand.

Any way you look at it, Carnival did not do the fully right thing.

And, among other things, here's why it matters -- profoundly. An effective and efficient government should have competitive bidding. Indeed, effective and efficient private sector companies have competitive bidding. It just makes sense. However, in a time of crisis, bidding processes that make routine sense might impede responsiveness. Moving quick counts. Any effort consistent with speed that captures the spirit of competitive bidding is great. But, with Katrina-like disasters, all of us would hope that speed of response rises in importance -- and we would expect people who care enough to send help would move quickly and do the right thing in abiding by the spirit of effective and efficient decision making.

Put differently, we must rely on the good judgement and the values of those in a position to act.

When such players abuse that trust -- when they line their pockets and take full financial advantage -- the reaction will likely include this: further government restrictions on such decisions, even in a time of crisis.

And that means when the next crisis hits, our collective response will be worse, not better because players like Carnival and their executive Ric Cooper who undoubtedly have spent decades decrying government red tape and bureaucracy got a golden opportunity to demonstrate the power of the spirit of the rules instead of the letter of the rules and saw and seized the 'gold' by putting their self interest above interest in others.

Posted by Doug Smith on March 2, 2006 12:39 PM | Permalink