Gallup Chief Executive Officer Jim Clifton has ceded his authority over his company's government division, and Gallup must train all employees in ethical business practices, as part of a deal Gallup made to continue doing business with the government following conflict-of-interest accusations.
Gallup tried to hire a Federal Emergency Management Agency official who was directly involved in awarding the company contracts, and company officials gave conflicting accounts about why the FEMA official ultimately wasn't hired, according to Department of Homeland Security documents obtained by The World-Herald.
Under a three-year agreement Gallup reached in April with the government, Clifton must recuse himself from any board vote related to the company's government division. Clifton is chairman of Gallup's board of directors.
The quality of the company's work has not been at issue, and while Clifton is now listed in a government database as “ineligible” to qualify for government contracts over $30,000, Gallup can continue to compete for contracts.
“Jim Clifton voluntarily proposed to transition leadership responsibility for Gallup's public procurement activities in an effort to assuage any concerns that the government may have had,” Gallup's chief financial officer, Jim Krieger, said in a statement. “He retains his executive leadership position with the company and the Board of Directors, having delegated the management of the government division and decisions involving that division of the company.”
Under the agreement Gallup reached with FEMA and its parent agency, the Department of Homeland Security, the company's top government division official is no longer under Clifton's direct authority.
FEMA temporarily suspended the company from government contracting during an investigation, but the suspension was lifted as part of the agreement. FEMA said the corrective actions Gallup is taking provide assurance that the company can be trusted.
“Gallup acknowledges the conduct in question of its employees and has taken steps to repair and demonstrate its present responsibility in the eyes of the Government,” the agreement says.
In addition to signing the agreement, Gallup paid a $50,000 penalty related to the allegations. Federal law allows penalties and administrative actions against contractors that knowingly engage in employment discussions with government employees who have not disclosed they are seeking work with those contractors.
The issue came to light in a 2009 suit brought by a “whistle-blower,” a former Gallup employee who said he noticed the hiring conflict of interest while working for the company's government division. The whistle-blower also accused a Gallup employee of deliberately overbilling the government on contracts.
The U.S. Department of Justice joined the case and, in July, Gallup agreed to pay $10.5 million to settle both issues. The Justice Department also agreed not to prosecute the Gallup organization in connection with the hiring conflict partly because of the changes the company was making under the FEMA agreement. Gallup did not admit liability under the Justice Department settlement.
Clifton declined to comment for this story. Gallup officials said the company's agreement with the government prohibited them from discussing the facts and events detailed in the government documents. The Department of Homeland Security did not respond to requests for interviews about the agreement.
Clifton has been CEO of Gallup since 1988, when his Lincoln-based family business, Selection Research Inc., acquired Gallup.
Gallup's government division managing partner is Jon Clifton, who is Jim Clifton's son. He took that position in March 2011 and was not involved in the activities that led to the whistle-blower lawsuit, Krieger said. Jon Clifton now reports to Krieger and to William Kruse, the Gallup compliance officer and associate counsel who joined the firm in 2011.
Gallup intends to continue bidding on government contracts and said the changes the company agreed to make to its ethics program build on a written code first established in the 1980s.
“Gallup's code is ever evolving, and is revised continuously as business needs change, as new regulations are enacted and as our global business expands,” Krieger said.
Email excerpts from 2008 and 2009, contained in the government documents, show Jim Clifton and others discussing plans to hire a FEMA official, Timothy Cannon, if Cannon could get FEMA to award Gallup a contract. Gallup extended a written offer for a job paying $175,000 annually after Cannon secured the contract, according to the excerpts. He then announced his retirement from FEMA while falsely certifying that he had no post-government employment. Gallup postdated a second employment offer at Cannon's request. Gallup later rescinded the job offer when it became apparent the hire could harm future business prospects with FEMA, according to the Gallup emails cited in the ethics agreement.
A Gallup vice president, who was interviewed in 2012 by the FBI and other government officials, told authorities that Gallup withdrew the offer solely because a credit check revealed that Cannon had once filed for bankruptcy. The vice president was not named in the documents.
Cannon pleaded guilty in January to violating a federal conflict-of-interest statute and was sentenced to probation and fined $40,000.
The agreement Gallup signed requires the firm to make wide-ranging changes and improvements to its ethics practices, some of which the company already has implemented.
For example, Gallup has installed a toll-free, third-party hotline for confidential reporting of suspected misconduct and has appointed an ethics officer who reports directly to the board.
Some of the changes affect all of Gallup's approximately 2,000 employees, including the roughly 1,400 in Nebraska. Each employee must read the company code of ethics upon being hired, discuss it with a manager, and then read it again annually. Senior managers must have one hour of in-person ethics training annually.
An inability to contract with the government could have significantly affected Gallup's business. While the Gallup name is best known in connection with its public opinion polls, that is a small part of its revenue. Gallup makes most of its money on market research polls of clients' employees and customers as well as strategic consulting for government and corporate clients.
According to the government spending database USASpending.gov, Gallup has contracted with the government for more than $192 million since 1999. Gallup said USASpending.gov figures may not represent its business accurately because actual contract earnings can differ from contract approval amounts, and some of the funding shown may flow through to subcontractors.
Gallup, a privately held company with a board of eight that includes other Clifton family members, does not make its finances public; government documents filed in the case say total revenue was more than $300 million in 2008. Clifton told Bloomberg in 2012 that revenue was in the “high nine figures,” which could range up to nearly $1 billion.
In the emails cited in government documents, Clifton told government division leaders in 2008 that it was important to the business to land government contracts, which he referred to as “fish.”
Clifton emailed a Gallup executive about the firm's revenue and profit, saying, “The bad news is of course that our pipeline is the lowest it has been in some time, including government ... we have to find fish fast or we are going to get ourselves in trouble.”
Discussing a potential FEMA contract involving Cannon, Clifton asked a Gallup executive, “What size of fish will this be?” The executive responded that the deal was worth $6 million over five years, and Clifton responded, “[Y]es ... this is a very good fish ...”
The ethics changes the federal government is requiring of Gallup are “very comparable” to what a number of federal agencies have asked of other contractors that face suspension or debarment from government work, said Bob Meunier, chief executive officer of Debarment Solutions Institute, a Washington, D.C.-area consulting firm.
Meunier, an attorney and former federal suspension and debarment official, was hired by Gallup to review its ethics and compliance programs as part of the company's effort to avoid further suspension from contracting. The firm will continue to monitor Gallup's programs under the agreement. Krieger said the firm found “no material deficiencies” in Gallup's policies or corporate culture.
Meunier said that other widely known companies, such as IBM and BP, have faced similar actions suspending them from government contracting and that it is not uncommon for a high-ranking executive to face suspension, as Clifton does.
Gallup has fired two employees involved in the FEMA hiring and a third involved in the overbilling.
“Gallup is proud of its long-standing tradition of conducting business in an ethical manner, and looks forward to continuing and enhancing that tradition going forward,” Krieger said.
Gallup's nonprosecution agreement and fine come at a time when FEMA and the Department of Homeland Security are taking a closer look at contractors.
In 2011, the U.S. Government Accountability Office reviewed the frequency with which various government agencies suspend or, in more serious cases, debar businesses from government contracting, a more than $500 billion annual business.
The review found that FEMA had not suspended or debarred any contractors from 2006 to 2010. By comparison, the similar U.S. Immigration and Customs Enforcement agency had more than 100 suspension and debarment cases related to federal procurement.
Homeland Security has improved its programs, and since the initial 2011 report, FEMA has issued 72 suspension and debarment actions, including those related to the Gallup case.