Conferences in the Crosshairs

Bailout money and events at resort hotels do not mix, say many in Congress. But what of the business those events generate?

These days, where is the line between a frivolous junket and a legitimate business event?

That, it seems, depends on who you ask. News that Northern Trust Bank had flown hundreds of employees to the Northern Trust Open, an annual PGA Tour golf tournament in Los Angeles, resulted in a scathing letter from Representative Barney Frank (D-Mass) and 17 other members of Congress.

The bank, which sponsors the tournament, received about $1.6 billion from the federal government’s Capital Purchase Program last fall, and news that its employees had attended parties, concerts, and other client events at the tournament did not sit well with Washington lawmakers.

“This behavior demonstrates extraordinary levels of irresponsibility and arrogance,” Frank and his fellow congressmen wrote. “We insist that you immediately return to the federal government the equivalent of what Northern Trust frittered away on these lavish events.”

Meanwhile, Senator John Kerry (D-Mass) has proposed legislation that would prohibit firms that take government funds from hosting, sponsoring, or paying for any conferences and events unless they get a waiver from the Secretary of the Treasury for events they believed to be “directly related to the operation of the business.” A violation would result in a $100,000 fine plus reimbursement to the government for the cost of the event.

But how does one define “directly related to the operation of the business”?

Northern Trust claims that “more than 2,000 clients and prospects from around the globe participated in activities” at the Los Angeles tournament, “including three financial education seminars for our personal and institutional clients.”

In a reply to Frank’s letter, Northern Trust CEO Frederick Waddell said that the bank’s “client educational and entertainment activities have all been within applicable guidelines under the Capital Purchase Program.” It also noted that the events would have taken place even if the bank had not received government funds (which, Waddell noted in a separate open letter to stakeholders, the bank had not sought, but agreed to accept at the government’s request).

But not all financial institutions have been so brave in defending their events as legitimate business. The same day that Northern Trust received Frank’s letter, Morgan Stanley said it would eliminate all client events at a May PGA Tour event in Ohio, the Memorial Tournament, which it is sponsoring for the ninth straight year.

Clearly, though, the top Congressional whipping firm is AIG, which last fall canceled more than 160 meetings and events that would have cost a combined $80 million. Even so, the company was excoriated in the media for holding an event that marketed AIG’s annuity products to independent sales representatives who had brought the company some $100 million in sales that year. Largely underwritten by sponsors, the event cost AIG a mere $23,000.

One unintended result of all this legislative and media outrage, says the National Business Travel Association, has been “a chilling effect on the entire travel community. Companies that have never taken a cent of government assistance are canceling meetings and events because they are afraid of being attacked as wasteful.”

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