VARs Behaving Badly

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Would you hire a salesman from a competitor and urge him to bring over the accounts in his territory?

How about underbidding a competitor on a big deal, promising the customer a service level you know very well cannot be met?

If that doesn't bother you, would you undermine your own company by secretly working behind the scenes to move deals to a competitor?

Would you ever pass off used equipment as new?

These are not hypothetical questions from a Business Ethics 101 course. They are real-world examples of bad behavior in the solution provider business.

Unscrupulous actions have always been an issue in the rough-and-tumble technology solution sales trenches, where winning a sizable deal can mean the difference between a big sales commission and losing your job. But solution providers say they see a disturbing rise in VARs' willingness to cross that ethical line to win business and make fast cash--at the expense of those refusing to compromise their integrity.

It's a "Jersey Shore" kind of world.

Whether it's due to pressures from the economic meltdown or a more disturbing general decline in moral standards, solution providers say they see more and more of their peers engaging in behavior that would have been unimaginable in a bygone era.

Case in point: Technology Integration Group (TIG) and FusionStorm. In July, a jury awarded TIG $10.9 million after a six-week trial in which FusionStorm and some former TIG employees were found to be liable for misappropriation of trade secrets, breach of fiduciary duty and breach of loyalty. The two powerhouses, both on Everything Channel's 2010 VAR500 list, reached an out-of-court settlement on Aug. 17 under which FusionStorm agreed to pay TIG nearly $11 million to resolve the case.

The case shined a light on the unseemly practices that go on behind the scenes--in this case between two California-based companies battling for share in the Tampa, Fla., market.

"It is appalling the measures some people will go to to make money," said TIG CEO Bruce Geier, who said the case cost his company millions of dollars in business, $8 million in legal fees and countless man-hours in lost productivity. "Greed. It's all about greed," he said.

The list of alleged misdeeds, which dates back four years ago, is long and distressing. Among the more disturbing examples:

• A TIG regional sales director who had been with the company for two and a half years allegedly was a "mole" for nearly three months, steering multiple TIG employees to work for FusionStorm even while he was being paid by TIG.

• The same TIG regional sales director allegedly also sent confidential Tampa TIG profit-and-loss statements to FusionStorm and received a reply from a FusionStorm executive, stating: "Sounds great."

• TIG engineers allegedly were working in late 2006 for FusionStorm while remaining on the TIG payroll.

• A TIG employee allegedly spread rumors and convinced EMC to move a registered deal from TIG to FusionStorm by telling the vendor TIG was going bankrupt.

Geier said the misdeeds may have occurred four years ago, but he is convinced that unethical behavior is more prevalent today than at any other time in the relatively young history of the solution provider business.

"I think there is more unethical behavior going on right now because the economy is down and just isn't growing like it has been most of our lives," he said. "I think people sometimes leverage their ethics and logic to continue pushing sales numbers."

FusionStorm President Daniel Serpico, in an interview with CRN, said the company's management team has almost completely changed since the incidents that led to the TIG lawsuit. And the team has put "different and more stringent protocols" in place concerncing its hiring practices, Serpico said.

"Smaller companies tend to hire people more on the basis of their instincts," he said. "As we've gotten bigger and certainly wiser, we've recognized there needs to be balance and a more rigorous process."

With the TIG court case behind it, FusionStorm has revamped its hiring process to more closely scrutinize prospective employees' backgrounds, including whether they have any contracts or noncompete agreements with their current employer and whether they posssess any intelletual property that could prove problematic.

FusionStorm's legal counsel now plays a role in the hiring process, Serpico said, and the company creates documents about job candidates during the hiring process and holds them responsible for their representations.

FusionStorm Chairman and CEO John Varel dismissed the executives who were found by the jury in the case to be culpable for the actions that led to the lawsuit. Serpico said he believes the new management team "would approach such a situation very differently today" given the new protocols in place.

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