Ethical BehaviorethicsEthics Training

Business Ethics: Fraud Punishment at Pilot Flying J

By March 17, 2016 No Comments

What is a promise worth? Apparently, it was not worth very much to the former top executives at the Pilot Flying J chain of truck stops. The story first came to interest me as the chain as well as the NFL’s Cleveland Browns franchise, is owned by Jimmy Haslam. Haslam is phenomenally wealthy as the truck stops are worth about $31 billion, but apparently all of that wealth was not Pilot Flying Jenough for the company’s top executives.

The top executives including former president Mark Hazelwood, John Freeman and Scott Wombold were involved in a massive conspiracy scheme along with witness tampering in regard to defraud major trucking companies of fuel rebates.

In an attempt to attract business to the business, the Pilot chain promised fuel rebates to the trucking companies, but never paid them. According to reports, the fraud amounted to about $56 million. The company has received a penalty of $92 million from the federal government.

Fuel is King

To a trucking company, fuel is king. Cheaper fuel prices mean higher profits. Conversely, to a company such as Pilot Flying J, selling fuel as “expensively as possible,” may also mean higher profits. Therefore, the higher the price of the fuel, the more profit that is built into each gallon. There is this constant push-pull.

Now, Pilot Flying J is hardly like you or me filling up our vans, SUV’s or light trucks. They deal in the millions of gallons. Buyers at these chains negotiate huge deals with the gas and oil companies. A guy like Hazelwood has his compensation tied into his ability (and the ability of his staff) to make the fuel negotiations and sales as profitable as possible.

The major trucking companies have a choice of truck stops. They use hundreds of thousands of gallons of fuel on an annual basis. When a truck stop chain promises rebates as a preferred vendor it is a very big deal. In intentionally withholding rebates, the executives did extremely well in terms of compensation.

Awful Ethics in Play

As the lack of ethics began to unravel, and the trucking companies began to wonder where their rebates were, not only did the top executives at Pilot Flying J claim ignorance, behind the scenes they hindered their “underlings” from communicating with investigators. They were buying time – and to extent still are in that they have pushed back trials.

This case strikes me as being somewhat similar to the Enron fiasco, where executive arrogance and bullying kept employees in line for many years. In the case of Pilot Flying J, the conspiracy had taken place between 2008 and 2013 and it was not until the feds raided the company’s offices in the spring of 2013 that the case blew up in their faces.

The logical question is to ask how these blatant lies, threats and bullying could take place at such a large scale, with such a large company in the tens of millions of dollars. Let us also not forget while we’re at it, that this wasn’t just one employee, but an entire executive team.

Though Pilot Flying J now claims it has the toughest standards in the industry, my response is that unless they institute an ethical training framework very little could ethically change in the future. The opportunity for fraud could still be in place. And that’s the key word.

The executive team at Pilot Flying J, headed by Mark Hazelwood, was insulated and isolated from Jimmy Haslam. They operated without a formal reporting structure and they conducted their fraud with impunity. They placed themselves above ownership and in a sense outside of responsibility.

They have cost the company millions of dollars in fines and in owed rebates. In their arrogance, they nearly ruined a great company and forced the NFL to examine Haslam himself. Poor ethics infects and affects everyone. No one is untouched. Routine, ethical counseling might have prevented this scandal from ever taking wing.


Leave a Reply