BusinessWeek: August 7, 1995||
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News: Analysis & Commentary: INVESTIGATIONS
DID DIRTY TRICKS CREATE A BEST-SELLER?
Susan Hensley was sitting in her glassed-in office on the floor of San Diego Technical Books Inc. on Jan. 25 when she received an intriguing phone call from a woman who identified herself as Leeann Falzone. Falzone said that she wanted to buy 125 copies of The Discipline of Market Leaders, a just-released book from Addison-Wesley Publishing Co.
Hensley, the store's president, didn't have nearly that many in stock. No matter. Falzone wanted the books shipped directly from Addison's warehouse to a corporate address in San Francisco. All Hensley had to do was process the paperwork. Hensley's store would pocket about $1,000 on the $2,412 order. "The arrangement sounded kind of fishy to me," recalls Hensley, "but it was easy money, so I took the crder."
During the following months, dozens of bookstores across the U.S. received similar calls. By filling the orders, a BUSINESS WEEK investigation reveals, they unwittingly aided the book's authors and publisher in what appears to be a carefully planned campaign to inflate sales and breach the integrity of the prestigious New York Times best-seller list, along with other such tallies, including BUSINESS WEEK's monthly list of best-selling business books. It isn't clear whether such alleged practices would be illegal, but publishers and booksellers say they are highly unethical.
Discipline was written by a pair of ambitious consultants, Michael Treacy, 39, and Fred Wiersema, 43. Treacy, a former assistant professor at Massachusetts Institute of Technology's Sloan School of Management, consults regularly for CSC Index, an international consulting firm, and keeps an office at its Cambridge (Mass.) headquarters; Wiersema is a senior vice-president at the firm, which shares Discipline's copyright with its authors. Falzone is a CSC secretary who works for both consultants. The basic theme of the book: that companies can dominate their markets by narrowing their focus.
Before Discipline was even off the presses, Treacy, with some legwork from Wiersema, focused his expertise on a tough marketing problem: How to ensure that their $25 book made it onto The New York Times best-seller list. Getting there wouldn't make them rich--even a best-selling business book rarely sells very many copies. But inclusion on the Times list would be money in the bank in terms of new clients for CSC and lucrative speaking engagements for Treacy and Wiersema.
THE JACKPOT. The authors knew firsthand the kind of boost consultants could get from best-selling management books. Two years earlier, another CSC Index book, Reengineering the Corporation, by consultants Michael Hammer and James Champy, hit the publishing jackpot, becoming a 2 million-copy best-seller. By Mar. 5, Treacy and Wiersema's 208-page hardcover climbed onto the Times' nonfiction list at No. 8, and as recently as July 9 had appeared for a total of 15 weeks. It was No. 1 on BUSINESS WEEK's most recent list. Treacy and Addison-Wesley estimate that sales for the book so far total 230,000. Addison-Wesley is a division of London-based Pearson PLC.
But interviews with more than two-dozen bookstores across the nation, as well as over 100 interviews with book industry representatives, indicate that CSC Index and the authors spent at least $250,000 buying more than 10,000 copies of Discipline. In addition, CSC funneled bulk purchases by corporate clients of another 30,000 to 40,000 copies through bookstores. Addison-Wesley says the sales were spread to bookstores across the U.S. as part of its Triangle program, meant to give retailers a cut of corporate sales--hardly a nefarious practice. But bookstore sources who talked to Treacy say the purchases were systematically made in relatively small numbers at key locations. They say the plan, which was based on extensive research by Treacy into how books hit the best-seller lists, was to create the appearance of widespread demand for their book.
Why did Treacy and his partner go to all the trouble? "The New York Times has the preeminent national best-sellers list; getting on the Times list has many potential financial rewards beyond prestige and personal cachet," says Stuart Applebaum, a spokesman for Bantam Doubleday Dell Publishing Group. Best-sellers get better display in stores and typically fetch bigger fees when foreign and paperback rights are sold. Their authors get bigger advances the next time around.
But the real rewards lie beyond book sales. Wiersema and Treacy have become business celebrities and hot items on the lecture circuit. Treacy, who is now giving some 80 speeches a year, charges $30,000 per talk, up from $25,000 a year ago. Wiersema's fee is normally $20,000. Who shells out those kinds of bucks? Lots of folks, including The McGraw-Hill Companies (BUSINESS WEEK's parent), which paid Wiersema $30,000 in June to address senior executives at a retreat in Leesburg, Va.
Best-selling books also have become key marketing tools for consulting firms. They build credibility in the marketplace and popularize a firm's proprietary management concepts and trademark buzzwords. CSC, with revenues of about $250 million and some 300 consultants, has emerged as one of the nation's fastest-growing consulting firms--at least partly because of the widespread success of Reengineering the Corporation. Eager to prove that the firm is not a one-trick pony, CSC began to back Treacy and Wiersema's value-discipline approach. A best-selling book could win mass acceptance for the idea and allow CSC to gain tens of millions of dollars in consulting fees.
Of course, lots of authors buy extra copies of their work directly from publishers to hand out to friends and clients. Gemini Consulting, for instance, says it bought as many as 5,000 copies of Transforming the Organization, published by McGraw-Hill and written by two Gemini consultants. Those sales may have played a role in propelling that book to the No. 1 spot on BUSINESS WEEK's July 3, 1995 best-seller list.
Most best-seller lists try to weed out such bulk sales when making their tabulations. But CSC placed dozens of small orders at retail--an inefficient and costly approach that improved the chances that the purchases would be included in the best-seller counts.
Treacy and Addison-Wesley deny taking part in any such scheme. Treacy says the numerous small orders were made as speaking engagements and client requests were booked. "Did we aggressively and energetically market the book? You bet," says Treacy. "Did we cross the line? Absolutely not. No way we did anything unethical." Treacy says that he has "no clear recollection" of ever researching how to make the book a Times best-seller; he says fewer than 10,000 books were purchased by CSC, all for legitimate purposes.
Wiersema also denies taking part in any scheme. "I want to distinguish smart marketing to get a book promoted well, and manipulation," says Wiersema. "We did all the right things to market a book." Addison-Wesley also denies that it took part in any unethical marketing practices.
"SULLIED." For its part, the Times stands by the integrity of its list. "We were on to the bulk purchases of Discipline for months," reports Michael Kagay, news surveys editor for the Times. "We are confident that our list has not been manipulated." CSC, in a brief written comment, said the book's popularity was propelled by its own merit, and declined to respond further.
Sources close to the authors and publisher say the campaign was orchestrated by Treacy and carried out with the help of Wiersema, Addison-Wesley, and CSC. The notion of systematic purchases designed to distort the real demand for the book outrages many people in publishing, who believe that an attempt to buy a place on a best-seller list would be misleading to book buyers and other publishers. "I'm sad to see our distinguished profession sullied by these operators," said Roger Straus Sr., president and CEO of Farrar Straus & Giroux, when told of the alleged scheme. "I think it's disgusting."
Here's how the campaign worked, say sources who claim Treacy confided in them: As early as last fall, Treacy was working the phones, picking the brains of many of the nation's best-known business-book buyers, including, for example, Brian Baxter of Baxter's Books in Minneapolis and LeeAnn Langdon of The Library Ltd. Bookstore in St. Louis. Several booksellers reported the same refrain from Treacy: "How can we ensure that Discipline becomes a best-seller?" Treacy and Wiersema say that, as good marketers, they merely did extensive research aimed at making the book a success.
After many such interviews, Treacy seems to have learned three valuable lessons: To ensure best-seller status, the massive book purchases had to be spread nationwide among the right bookstores; they had to be carefully spaced so as to not alert the Times' computers; and the purchases could not be traced to the authors or the firm.
Getting a list of the right bookstores proved relatively easy. Addison-Wesley sales representatives told BUSINESS WEEK they were asked by Margo Hanson, the firm's national field sales director, to call corporate headquarters in Reading, Mass. with names of stores in their areas believed to report to the Times. Goehring says that like all publishers, his company routinely seeks such information. The names are supposed to be secret, but stores eager for corporate sales often let their status slip to sales reps. Later, the reps say, Hanson pressured them to try to discern if these stores were reporting Falzone's purchases as part of their weekly sales. Hanson said she could not comment.
But a major problem loomed: How to make sure CSC's purchases weren't screened out by the Times? The newspaper's methodology is secret, but it purports to be able to detect and eliminate institutional buys or other unusual sales blips--supposedly making manipulation through bulk purchasing by well-heeled authors or publishers impossible.
Falzone and Lore Caturano, another CSC Index secretary, were tapped to handle the transactions. In some cases, they simply used credit cards belonging to CSC consultants around the country. The card-holders were reimbursed by the firm. The books were shipped to CSC clients, vendors, and, in at least one case, to a CSC office under the name of a company CSC bought years earlier. That way, the names of neither the firm, nor Treacy, nor Wiersema ever surfaced.
For example, an AmEx card used by Falzone for a corporate order belonged to Aaron B. Clayton, a CSC consultant in Cambridge, according to sales records supplied by the bookseller. Treacy says the consultants routinely ordered and charged the books themselves to cultivate their own clients. Clayton declined to comment. The order, placed with a Salt Lake City store, was shipped to a CSC affiliate office in Bethesda, Md., under a corporate name, Intelicom, that hadn't been used since 1994.
Many booksellers besides San Diego Technical, including Elliott Bay Book Co. in Seattle and Brown Book Shop in Houston, took profitable orders from Falzone. The retailers typically paid Addison-Wesley $9.60 for each book and sold it at $17.50. "I loved those orders from Leeann," recalls Sherie Chalas of Brown. "It was easy money and we didn't have to touch the books." In fact, so liberal was Falzone with her orders that booksellers came to see her as a safety net. "One month, I saw I wasn't going to make my numbers," says one buyer. "I called Leeann and told her I needed a big order. She delivered. It was a hell of a gravy train."
DEMAND AND SUPPLY. Many bookstores reported getting calls from Falzone to send books to Paragon Co., a database marketing firm in Oxford, Ohio. Paragon President Ron Lerman acknowledges that CSC is a client and that CSC had paid for the 10,000-plus copies of Discipline sent to his firm. Total cost to CSC: About $200,000.
Treacy says Paragon often handles mass mailings for CSC, and the books appear to have been used for legitimate promotional purposes. However, sources close to Paragon told BUSINESS WEEK that Lerman had boasted around the office that he was part of a "clever scheme" to help CSC get the book on the Times' best-seller list. At one point, so many copies of Discipline were pouring into Paragon's office that they had to be stored in a tractor-trailer Paragon maintained outside its former office on College Corner Pike.
To make sure that the Times' computers would not detect any unusual surges, sources say, orders were placed at steady intervals around the country. The Times' Kagay says that if such tactics were used, they wouldn't have worked. He says the Times routinely asked booksellers about bulk purchases of Discipline and discounted overall sales to account for them. None of the many bookstores BUSINESS WEEK specifically asked about such calls from the Times said they had received one. If the Times was duped, it wasn't alone. According to information supplied by the book's publicists at Addison-Wesley, Discipline appeared on every major best-seller list in the country.
Of course, plenty of real-live readers bought the book by Treacy and Wiersema. The question is, would Discipline have become a market leader on its own merits?
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