PART SEVEN:  LOS ANGELES BBB --  THE ALGORITHM BEHIND BBB'S A-F GRADES

This is the seventh of a ten part investigative report into the standards and practices of the Better Business Bureau of the Southland, Inc., here-in-after referred to as the LA BBB.  This ten part report is the result of months of research, interviews, and information supplied or confirmed by a highly placed LA BBB employee of long standing who has requested confidentiality.

The bloom was hardly off the rose before discrepancies cropped up.  The Los Angeles Times noticed weird grades for Spago’s Restaurant and Canter’s Deli.  This reporter pointed out the Los Angeles Times and Disneyland both had “F” grades and Google had a “D” grade.  (The original story is here.) Grades for all five businesses were mysteriously transformed into “A” or “A-“ grades shortly thereafter.  There was no explanation or announcement, nor any noticeable differences in the complaint history or other relevant information about the companies that accompanied these changes.  Pay per Play allegations were also levied and reluctantly, the Better Business Bureau acknowledged that member businesses received a half grade bump in their Letter Grade simply by being a BBB member (and paying the $300 and up membership fee.)

Al-go-rithm is defined as “a predetermined set of instructions for solving a specific problem in a limited number of steps."   Here's a look at two currently used algorithms.

• The type of business and its business model.
• How long the business has been operating.
• Whether the business has appropriate competency licensing.
• Total volume of complaints filed against the business.
• The number of unanswered complaints.
• The number of unresolved complaints.
• The number of serious complaints.
• An overall complaint analysis..
• Government actions against the business.
• Any advertising issues found by BBB.
• The extent of background information available to BBB for evaluation.
• Whether the business has honored any mediation/arbitration commitments.
• Whether the business has attained BBB Accredited Business status.

• The type of business and its business model.
• How long the business has been operating.
• Whether the business has appropriate competency licensing.
• Total volume of complaints filed against the business.
• The number of unanswered complaints.
• The number of unresolved complaints.
• The number of serious complaints.
• An overall complaint analysis.
• The number of complaints with delayed resolution.
• Government actions against the business.
• Any advertising issues found by BBB.
• The extent of background information available to BBB for evaluation.
• The extent to which BBB can develop a clear understanding of the business.
• Whether the business has honored any mediation/arbitration commitments.
• Whether the business has attained BBB Accredited Business status.
• Whether the business has had its BBB Accreditation revoked.

Immediately, we are confronted with another hidden and controversial component of the algorithm: the type of business.  The Los Angeles BBB uses the roughly 7000 types of businesses (TOB) in the SIC (Standard Industrial Classification) code to pigeon hole all businesses into one of five categories.  In a side note: The Federal government switched from SIC codes to the NAICS (North America Industry Classification System) in 1997 as it provides more accurate business classifications.   

At the bottom of the barrel are businesses deemed unsavory by the Better Business Bureau: things like licking envelopes at home and more recently, debt settlement companies.  These “pond scum-like” Types of Business are given such a negative score for this component of the algorithm that there is no way for the algorithm to grade them higher than a “D.”  In the Los Angeles BBB, lawyers are one rung up from pond scum and again are given a negative score for Type of Business.  The result: even the most competent law firm is unlikely to earn higher than a “C” grade unless they join the LA BBB.  At the top of the Type of Business ladder, according to the LA BBB are restaurants and nightclubs. 

There are several inherent flaws and downsides to this thinking.  Determining the Type of Business a company is engaged in relies on a judgment call by a BBB employee as to which of the 7000 SIC codes the business belongs to.  There’s a 39 point swing in the scores for Type of Business, or the difference between an “A+” and a “D” grade.  We’ve already seen that judgment calls are not a strength of the BBB, and this is one with serious ramifications.  Additionally, there is an element of "sins of our fathers" guilt by association going on here, and that's just plain un-American. More importantly to the consumer, the Type of Business component of the BBB algorithm greatly reduces the value of the information on a business the BBB is trying to convey. 

For instance, if the consumer is in need of legal help, the BBB will have imposed an artificial cap on the letter grades because of the penalty given law firms under the Type of Business component.  I don’t know about you, but if I had need of a lawyer I’d like to be able to find one with an “A” grade, and according to the BBB algorithm that is almost impossible.  The BBB tries to explain this away by stating that the complaint component of the algorithm will provide its own ranking of firms so the good ones will float to the top and the bad ones to the bottom.  That may be true, but when the top is limited to a “B” I’m not going to find the grade “A” lawyer I’m looking for. 

This is especially relevant in times like these, where many people are in dire financial straits.  It is a fact that loan modification, refinancing, debt settlement, bankruptcy and the like have attracted some unqualified scammers.  This does not mean that all loan modification, refinancing, debt settlement or bankruptcy firms are scams. 

Components two and three actually make sense.  Length of time in business and whether the business has required licenses can be valid indicators of a business’ reliability.  Of course, we’ve seen several instances where the BBB can’t find out when a business started.  But on a whole, the BBB seems to accurately gauge these two components.

The next six components, four through nine deal with complaints.  Note: the CBBB piled another complaint component on the already overloaded complaint components.   Previously we have demonstrated the unreliability, unaccountability and error prone process that is LA BBB complaint process.  There is a 102 point swing between acing the complaint process and accruing maximum negative complaint points.

To this reporter, the issues with the remaining components are more of the same, and sort of like looking for more tax deductions when you’ve already maximized your refund.  You know they are there, but why bother looking for them?  What is interesting from my perspective is that with all the brouhaha by the media about BBB members receiving a better grade this is actually one of the lesser transgressions of the BBB Letter Grade algorithm.   (the BBB membership component of the algorithm receives a 4 point bump in the National algorithm and a 5 point bump in the Los Angeles BBB algorithm—both resulting in a half grade boost to a business’ Letter Grade.)  

BUSTED
The one thing this half-grade bump does is expose the LA BBB in an outright lie.  Presenting this lie as truthis totally misleading to the consumer.   For every non-member business in the LA BBB database there is a standard disclaimer  message  displayed on the webpage for that member.  Shown below, on the left is the Accreditation Box from the LA BBB website (located immediately below and to the right of the grade display for a non- member business); on the right is the LA BBB Algorithm point scales for "Commitment to Standards", a euphimism for Accreditation or Membership. 

LA BBB WEBSITE	LA BBB ALGORITHM
Editors note:  The language used for Accreditation by the Los Angeles BBB on their website for non-member businesses is NOT the standard language used for Accreditation on most regional BBB websites.

Dis-par-age means to lessen in value; to penalize.  The LA BBB algorithm flat out proves that a non-accredited business (a non-member business) suffers a five point penalty compared to an accredited, or member business.  A five point penalty equals a half-grade penalty, the difference between an A- and a B+ for instance.  If that is not an act that disparages the non-accredited, non-member business, I don't know what it is. 
In other words, the Los Angeles Better Business Bureau has just been caught in a LIE.

Of far greater concern are the issues pointed out in this report about the enormous impact the complaint history and the type of business components of the algorithm have on a company’s grade.  In the Los Angeles BBB version of the algorithm, the maximum point swing on the BBB membership component is only 5 points.  By contrast the maximum point swing is over  100 points on the complaint components and 39 points on the type of business component of the algorithm.  (This means either of these components can swing a company’s grade from an “A” to an “F” all by themselves.) 

The concern is not over whether or not complaints and type of business are relevant information to provide to the consumer, they are.  The concern instead is with the accuracy of the LA BBB’s rushed judgment calls that are made, on a daily basis, on these components, and what part BBB membership plays in these judgment calls, even if only subconsciously.

Most chilling of all is the response made in sworn testimony, by William G. Mitchell, CEO of the LA BBB on the question of whether there are any standardization guidelines for the information that ultimately goes into a company’s grade.

Q: Is there any document you know, any policy or procedure that's in a documented form either, that goes to your employees, either in hard copy, you know, with an email attachement or something that lists for them, here is the type of information that needs to go to the file {of a business being graded?}

A:  I don't -- no, not that I know of.