With the forced exit from of United Airlines CEO and chairman Jeff Smisek, the blob that is Bridgegate consumed yet another career -- and pulled in one of the nation’s largest airlines. Also forced out from United were Nene Foxhaul, executive vice president of communications and government affairs, and Mark Anderson, senior vice president of communications and government affairs.
No one has been charged yet. But it has been widely reported that federal prosecutors are probing the possibility that in 2011 David Samson, former chair of the Port Authority of New York and New Jersey, and a Chris Christie confidant, pressured United’s leadership into providing him with a weekly flight from Newark to Samson’s second home in South Carolina in exchange for United getting Port Authority help on things like funding a new wide body maintenance hanger and improved rail service to Newark Liberty.
Buried in the small print of United ’s corporate filings, according to Bloomberg News, was Smisek’s platinum parachute: $28.6 million in severance, restricted stock shares, a pro-rated share of his annual performance bonus, the title to the company car, lifetime flying and parking privileges. This windfall is supposedly contingent on Smisek cooperating fully with federal prosecutors but a United Airlines press spokesperson preferred not to offer any additional details.
On the conference call with market analysts, just after the shake-up, United’s corporate clean-up squad, led by freshly hired CEO Oscar Munoz, did their best to put an upbeat spin on another example of how in 21st century America the fish rots from the head. “On behalf of the board I would like to thank Jeff (Smisek) for all his years of service and important contributions to both United and Continental,” said Henry Meyer III, new chairman of the board. “We wish him well in his future endeavors.”
So lets review, your CEO and chairman of the board allegedly engages in potentially corrupt behavior that puts at risk the integrity and reputation of an entity that is the livelihood for 84,000 employees, provides air transportation for 138 million customers a year on six continents, and is a publicly traded company millions have invested in. Do we really need the rhetorical flowers and candy? Could you spare us that dissociative head fake? Why not just a dignified moment of silence.
It is exactly this kind of fakery that has the masses so agitated and sends such a mixed message to their workforce. On one hand, to deflect questions, United says its internal investigation is ongoing but on the other they continue to offer Smisek this public praise. So, best case, we think that this alleged quid pro quo was at worst a one off? What if this is how this United leadership crew rolled all the time? The truth is the high powered United Airlines board of directors, which includes Walter Isaacson, who is also president and CEO of the Aspen Institute, wasn’t paying close enough attention to know one way or the other.
If the allegations are true, Smisek’s actions also helped to undermine the Port Authority by insuring that hundreds of million of dollars made up of tolls paid by motorists, many of them from the ranks of the working poor, went to subsidize United Airlines bottom line not to the region’s most pressing serious transit needs. Since Governor Christie blew up the plan to fund a third rail tunnel between New Jersey and New York the fares have continued to go up as the service continues to decline.
We are told that any day, one of the existing 105-year-old Amtrak’s tunnels, that were badly damaged by Hurricane Sandy, might have to be shut down which would induce a region wide transit mass coronary. Even now a “good day” means that your train pulls over in the Meadowlands, just before it heads under the Hudson, where you have the opportunity to meditate on the egrets and turtles who are all moving faster than your train. Such is the plight of the little people,the toll payers, the riding public.
George Arzt, a veteran crisis manager, says from the outside looking in it appears that United “was forced” to dump Smisek to make sure they did not loose control of the corporate narrative to prosecutors. “This certainly looks bad. This sort of deceitfulness hurts an airline brand because more than in any other industry you are so reliant on maintaining the trust and credibility with your passengers,” says Arzt.
“Whenever there are serious allegations of misconduct it calls into question the efficacy of their oversight and compliance program. Even if the programs were adequate, they could be bypassed,” says Doug Eakeley, professor of law at Rutgers University and co-director of the Rutgers Center for Corporate Law and Governance. “That leads to the next question: were there red flags that should have put the board on notice and required further inquiry?.”
United has both a civil and criminal liability here, depending on the outcome of the federal prosecution. “A corporation is a legal fiction. It has a separate identity but it can only act through its agents (directors, officers and employees). When those agents act within the scope of their employment, their actions are attributable to the corporation civilly and criminally,” says Eakeley.
Of course the trend these days has been to offer corporations a deferred prosecution agreement because there’s a collective concern in the legal community that anything too draconian might put them out of business.
Still up on the United Airlines website is the company’s code of conduct with a portrait of Jeff Smisek and a cover letter to the workforce. Reading the section on abiding by the Federal Foreign Corruption Practices Act there’s this subtext that once your in a foreign country the risks of falling prey to bribery and criminality are just so much greater than if your in a board room in New York City or sitting in your car at the Vince Lombardi rest stop on the N.J. Turnpike. “The fact that bribery maybe an acceptable local practice does not relieve United co-workers from complying with U.S. and other anti-bribery laws,” reads the United code of conduct.
The United code warns employees “must never directly, or indirectly offer, authorize, or promise to make a payment or give anything of value such as money, goods or services (which can include upgrades) to any foreign government or political party….” I guess creating a special regular flight for somebody like Samson would come under the ‘no upgrade’ prohibition but is the Port Authority a foreign government?
Well, it does have sovereign immunity and its sprawling holdings, which includes the region’s biggest airports, the World Trade Center, transit hubs, port facilities, bridges, tunnels and warehouses are a separate jurisdiction that comes under the bi-state authority’s own police force that was so heavily implicated in Bridgegate but left uncharged by Federal prosecutors pursing the case.
With an annual budget of $8.2 billion, and a 10-year capital spending plan approaching $30 billion, it has a budget bigger than eight states and the same size as Iowa. National news outlets don’t like writing about it because they consider its too provincial and arcane, so it has been permitted to grow like a mushroom with major scandals breaking every few years. After 30 years of reporting on the institution, it does feel like an ongoing criminal enterprise shielded by patronage.
At least United is vulnerable to the judgments of the markets. The Port Authority remains a law unto itself. “In the same way that United is accountable to its shareholders for the actions of its executives, the Port Authority should be responsible to the public for the actions of its executives,” says Michael Santoro, professor of management and global business at Rutgers Business School.
Now, several New Jersey Democrats want the Port Authority to look at the spending priorities set by the agency back when Samson ran the show and was taking his “chairman” flights courtesy of United for his get aways. Specifically, they want a reappraisal of a $1.5 billion dollar commitments to provide additional mass transit capacity to Newark Liberty International which would be of great benefit to United Airlines.
“Surely, the reconstruction and expansion of the Port Authority Bus Terminal to increase bus ridership capacity and the construction of the new Gateway rail tunnels, two more tracks between Newark and Secaucus, and a new Penn Station South to double rail commuter capacity are more important,” wrote Sen. Loretta Weinberg in a press release that came out after the United Airlines purge. “N.J. Transit already runs trains to Newark Airport. Making a PATH extension to the airport the top priority as a favor to United and Wall Street makes no sense.”
Back several years ago I reported a story for WNYC on how the Port Authority spent close to $200 million dollars to build a 2 miles rail spur to what was then a project called Xanadu, a 2 million square foot shopping mega-plex built in the Meadowlands on spec that cost $2 billion to build and used millions in state tax breaks yet never opened. It remains a crime scene visible from space that just never made it on to any prosecutor's radar. Four of the 10 Port Authority Commissioners had to recuse themselves when the vote came to fund the rail spur because they had links to the project, Such is the risk you run when historically so many of the Port Authority’s board members are large campaign donors and developers.
And yet that, in retrospect, looks like the great reform era because at least they recused themselves. Back in 2012 Samson’s law firm represented N.J. Transit and Samson lobbied the Port Authority, where he was chairman, to lower rent it was charging his client New Jersey Transit for a parking lot the Port Authority owned from $900,000 to just $1. At the time Samson voted for it but two years later the bi-state agency revised the record to reflect a recusal.