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In his first week on the job as CIO of Compass Health, a behavioral health nonprofit based in Everett, Wash., Rich De Brino got a crash course in the seamier side of vendor relations.
First came the phone company representative, bearing free tickets to his company's suite at Safeco Field, home of the Seattle Mariners. The rep knew Compass was mulling a major Voice over Internet Protocol project. De Brino politely declined -- several times. Even after he bluntly explained the potential conflict of interest, the rep persisted, saying his predecessors at Compass had always accepted such gifts. "That was before me," De Brino told him.
Next up: a computer reseller representative who had done a lot of business with Compass. The rep ambushed De Brino in his office, tossed his catalog on the CIO's desk and said, "Pick anything you want. We'll have it delivered to your house." One flick of the forefinger, and De Brino could have landed a computer system worth several thousand dollars, complete with a flat-panel monitor. No one would have known.
"Let me make this really simple. Get out. Don't come back," De Brino recalls saying. Then he called the vendor's president and told him the company was off his vendor list for good. With $40 million a year in revenue, Compass would spend its money elsewhere.
"That was my first week. I got two different vendors trying to bribe me to make sure they continued the relationship," De Brino says.
Although IT spending is growing (however moderately), CIOs still have a lot of money to spend. This year, U.S. CIOs are expected to dole out $824.8 billion on IT projects, according to Stamford, Conn.-based research firm Gartner Inc. -- up 4% from last year. Multiple analyst firms peg the midmarket portion at anywhere between $250 billion and $350 billion. By 2009, Gartner expects overall U.S. IT spending to top $955 billion.
Vendors still try to win IT contracts with dinners, drinks, sports tickets or a few rounds of golf. But over the years, as government and shareholder scrutiny of expense accounts has increased, the volume of gift giving has declined. So too has tolerance on the part of the CIOs. "A lot of CIOs won't even let you buy them a cup of coffee these days," says Steve Hurley, vice president of learning and performance excellence for the Information Technology Services Marketing Association (ITSMA) in Lexington, Mass.
As the volume of offers has abated, however, the offers themselves have become more creative. Today, many vendors are offering gifts that CIOs can take home: computer equipment, golf clubs and Apple iPods, just to name a few. Some vendors offer what some CIOs consider an ethically questionable rewards program: discounts or other goodies in exchange for each instance in which the CIO acts as a customer reference.
And then, of course, there are outright bribes. Obviously, people who take bribes tend not to talk about them. But several CIOs we interviewed for this story confirm that they know of peers who collected perks ranging from $1,000 bottles of wine to a free swimming pool in their backyard. For every CIO like De Brino who turns away the offer of a free computer, there are many more who don't -- especially if the computer is offered on, say, "indefinite loan" for the CIO to review for possible use in his business.
The bottom line is that many vendors are giving gifts in hopes of getting a leg up on the next IT contract, whether it's for $25,000 or $25 million. Some companies try to prevent such influence by capping the value of acceptable gifts at $25 to $75. But ethics experts say that these rules are largely ineffective because clever people can get around them.
For this story, we interviewed several midmarket CIOs, from the West Coast to the East Coast and from a law firm to a purveyor of gas masks; none had a written ethics policy for CIOs -- or at least not one they could find.
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