Fear and Loathing on the AmCham Campaign Trail

There are four kinds of news stories in the world, only one of which the average reader or television viewer is actually let in on. The first category includes all the stuff you normally read, watch or hear, the stories that media people think are interesting enough to expend ink or airtime on, but not too hot to handle. The second involves the stories that media types think are not sexy enough to investigate or mention, even if some of their readers or viewers may actually consider them important. A third, much smaller category includes those stories that reporters, editors or publishers choose to play down or "spike" out of fear of offending powerful individuals or interests. Rarest of all is the fourth category: the stories that are both somewhat tedious and at the same time so dangerous that only someone hell-bent on educating their readers or making trouble for themselves would bother publishing.

You are now reading a category four story.

As you may have heard, today is election day at the American Chamber of Commerce in Hungary. But if you have heard, it was probably by word of mouth. None of Budapest's three English-language weeklies reported on the election, or the issues surrounding it. From what we understand, out of the three newspapers, one declined to write anything because the story didn't seem interesting, and another because it was too interesting.

At issue is not just the AmCham presidency and three at-large board seats, but a crisis of confidence and culture at the leading international business association in one of the leading business capitals of the "New Europe." But the stakes are even larger, large enough to be of concern to anyone who cares about the way the "American" way of doing business is propagated and perceived around the world.

According to numerous AmCham members, employees and insiders we've spoken with over the past week, the problem is simple but stark. The Hungarian AmCham has ceased to be an institution dedicated to promoting the "American" way of doing business, and is instead now a local symbol of the most "un-American" of bad business habits, including cronyism, cartelism, non-transparency and even a degree of media coercion.

"They want the cachet of the name 'American,' but without the responsibilities," was how one aggrieved AmCham member summed it up to us, before mentioning that he did not want to speak on the record for fear of reprisals by what he called the "in group."

What is the "in group"? Well, one thing it is not is American. In fact, the first surprising thing most people learn about the AmCham is that, for several years, its most important leadership positions have been held by non-Americans running non-American companies. This trend started several years ago with the election of a Hungarian (András Sugár) in charge of a German-owned company (the local operation of T-Mobile, then known as Westel) as president of AmCham.

This change, and the resulting move to modify the AmCham's mission statement from the leading representative of US businesses, to "US and international businesses," led some American members to propose that the AmCham simply re-brand itself as the "International Chamber of Commerce in Hungary." But the new, non-American leadership decided that it wanted to keep the red-white-and-blue branding, leading some dissidents to begin talk of a second, competing AmCham actually run by American businesspeople on behalf of American businessmen. As so often happens in this part of the world, however, the powerful held firm, and the dissent eventually died out.

Having lost the battle to keep American companies or individuals in control of AmCham, the dissidents are now focusing on what they see as the organization's failure to promote or maintain US-style governance habits, or to adequately focus on the core mission of fighting for a better overall business environment.

Aside from a general sense that AmCham's primary function today is as yet another club for the already well-connected to use their personal ties to win or keep business, there are specific charges of cronyism and self-dealing. One set of allegations involves the improper use of goods and services by AmCham executives, including items provided the AmCham by companies in lieu of membership fees. (A specific example is some camera equipment given the organization as an in-kind payment that has allegedly become the de facto personal property of Péter Fáth, the AmCham's affable and long-serving executive director.)

The best of Budapest?: The four faces of AmCham presidential hopeful Peter Freed

But the extent of the self-dealing is better illustrated by the commercial ties between the organization and one of the three men running for AmCham president, Peter Freed. While his primary business is in the area of computers, Freed has for more than a decade operated various media businesses in Hungary, mostly targeting expatriates. Among the titles he publishes is Business Hungary, the monthly magazine of the AmCham, a contract he won six years ago in a tender that one competitor at the time describes as a "set-up."

We asked another active AmCham member if it was proper for a president of the organization, or a candidate for the top spot, to simultaneously serve as one of its primary commercial vendors. This executive, who also declined to be identified, said Freed should have to choose between the two.

"That contract would have to be terminated," the businessperson told us. "And I certainly don't think it would be proper of him to bid again. Instead, there should be a proper [tender], and it would be good to open it up" to whomever may be interested in bidding.

Freed, however, denies there is any conflict. "I do not believe that having performed services for AmCham should preclude anyone from further volunteering their time and experience for the good of the whole organization," he told us by email. "AmCham, as a policy, always intends to do business with AmCham members and will tender that business between members when possible."

Freed said that the agreement between the publishing firm of which he is managing director, Duax Kft, and the AmCham is "ongoing," but has been approved by three different boards over the past six years. "This issue was once again raised when I submitted my nomination for this year's election. The Board once again approved."

When asked to give details on the value of the agreement, Freed would only say that "there is no financial benefit accruing from AmCham to Duax for this contract," and that the product "is still being subsidized by Duax to this date."

We don't doubt that, in a strict sense, the AmCham's house organ could be a money-loser. Glossy magazines are expensive to produce, and when you stuff them with insipid PR fluff instead of actual editorial content nobody reads them. And when no one reads a magazine, eventually no one will want to advertise in it, no matter how glossy it is.

But there are other reasons Freed may be willing to underwrite the losses of AmCham's media properties. One is the benefits that may accrue to his other publishing ventures from the connections made and maintained through his AmCham contract.

Aside from Business Hungary, his three main publishing projects appear to be a magazine called Diplomacy and Trade, a website using the long-dead Budapest Week newspaper brand, and the long-running "Best of Budapest" guide book and awards program. Diplomacy and Trade is an even glossier version of Business Hungary, focusing on well-trod political stories, company profiles and generally friendly interviews with the region's political and business leaders. From what we understand, it is not widely read. As of this morning, the Budapest Week website contained just three feature stories, one from August, and two from May, suggesting to us that it is not a going concern in any meaningful sense. Meanwhile, the "Best of Budapest" is a well-known institution around the Hungarian capital, if less for its glossy guidebook than the plaques and stickers awarded to those businesses that "win" the annual awards. The website for Diplomacy and Trade also features a link for an event-planning agency with the same telephone number as Freed's other media operations. While it is impossible to prove without access to Freed's books that these other enterprises benefit from Freed's contacts and contracts with AmCham, we find it impossible to assume there is not some benefit. And this is not to mention any benefits that may accrue to Freed's primary businesses, some of which is in the area of public procurement, a field in which connections always count dearly, especially in a country like Hungary.

Yet even if Freed is being truthful about the financial benefits of his ongoing business relationship with AmCham, there is another, perhaps even more important reason why his publishing ventures are relevant to his race for the AmCham presidency. These ventures, especially the "Best of Budapest," are operated on terms inimical to AmCham's stated goals of fostering transparency and best practices in Hungary.

But bluntly, we consider the "Best of Budapest" is little more than a scam - albeit a legal scam - in which local purveyors of consumer goods and services are given what amounts to a semi-official quality seal for no other reason than they have purchased an advertising contract from Peter Freed, or are a friend of Peter Freed's. (We call it "semi-official" because the current year's "BoB" includes an official-sounding letter from Budapest Mayor Gábor Demszky, a man currently facing his own ethical challenges.) Put even more bluntly, if you have a bad meal in Budapest, you can in part blame Peter Freed, because he has spent years teaching local restaurateurs that having good food or good service comes second to having good friends in the media. And the thought of this becoming the official way of doing business at the premier organization in Hungary dedicated to business ethics makes us, well, sick.

Unfortunately, there are other ways in which AmCham has an unhealthy influence on the local media, especially the second-language media. Some of its leading members, especially Sugár and György Mosonyi, chief of energy giant MOL Rt, control advertising budgets so large that, with one phone call, they could put any publication in Hungary out of business. Moreover, their firms have a habit of lavishly supporting some publications with advertising contracts that would never be signed, were "normal" corporate communications the sole deciding factor. In other words, a main rationale for this advertising may simply be the ability to pull it. This is not lost on the editors and publishers of those publications you would expect to aggressively cover AmCham, which may explain why none of the country's three English-language newspapers reported on today's elections.

But again, this is a "category four" story, which means that some in the media found it unworthy of mention, as opposed to excessively sensitive. So the other problem with AmCham's focus on networking is that it has lead to a dilution of its powers as an advocate for business in Hungary. True, last week AmCham came out with a detailed proposal for tax reform in Hungary. But what does it say about AmCham's lobbying skills when its most important position paper of 2004 doesn't even merit a mention in the country's main foreign-language business newspaper?

While stressing that AmCham derives strength from a dual status as a networking and lobbying organization, Tibor Vidos, a veteran lobbyist who is running for one of the three board seats, says the balance may need to be re-adjusted. "I guess there is a lot of room to improve the lobbying part."

The other contenders: No time to be blasé when you can probably get more from Les

Happily, it appears that this year's election offers a genuine choice. In addition to Freed, two other candidates are on the ballot: Blaise Pasztory, a Hungarian-American who is senior counsel at the law firm of Komáromi és Erős Ügyvédi Iroda/Squire, Sanders & Dempsey LLP, and Canadian-Hungarian Les Nemethy, head of investment advisory boutique Euro-Phoenix Ltd.

From what we hear, the election is currently a dead heat between Freed and Nemethy. And from what have heard from and about Nemethy, the choice seems obvious.

"I am very much a proponent of having AmCham play a role in transferring North American practices to Hungary," Nemethy told us last week. "I'd like to believe that at AmCham we can move the agenda further towards transparency… we can play a role as an agent of change. But it's not going to happen overnight."

Of course, it's easy to talk the talk. And there remains the question of whether a majority of AmCham's members now even want the organization to work to reclaim its reputation as a powerful force driving Hungary closer to a commercial life in which price and quality - and not personal connections - make the sale.

But if there are still any undecided AmCham members out there, we strongly urge you to head to the ballroom of the Budapest Marriott Hotel at 3:00, and make your voice heard. Strike a blow for the "American way" of business, and vote for the Canadian.