Are Worst Practices Besting the Channel?

I am beginning to wonder if there is no such animal as channel ethics. Lately, the discussion of unethical behavior in the indirect sales channel has come up over and over. And, the most distressing part is that it seems to be accepted, if not enthusiastically at least resignedly, as the “way things have always been” — as if that passes for an excuse.

I recently blogged regarding what I termed “the channel’s dirty little secret” — agents conspiring with direct salespeople to get compensation for deals they didn’t work. This was news to me, but as I noted in my blog, I was the last to know. Those who commented on my blog were quick to set me straight on the longevity of that worst practice and to start a list of other unethical behaviors that are commonplace in the channel. Here are a few:

• Direct sales reps undercut their own agents (and offer such price concessions quicker than can an agent), so the agent invariably will lose the deal.
• Agents pay channel managers to get the leads funneled their way instead of to a competing agent.
• Agents forge competitive quotes to get promotional pricing and undercut competitors.
• Carriers renew agent accounts and remove them from their base, stopping commissions, without notice.

Most of these unethical situations, not surprisingly, arise from channel conflict, and the abuses are on both sides of the fence; no side wears the white hat as far as I can tell. The trouble was highlighted starkly in a recent lawsuit wherein Cisco Systems Inc. was sued by a partner and won (see Infra-Comm v. Cisco: Win Sets Precedent for Other Partner Suits.) The gearmaker was penalized for cutting its partner out of a registered deal, which it handed over the AT&T. A significant outcome, however, was that the judge found the “termination without cause” clause of Cisco’s partner agreement to be “unconscionable” and gave the vendor “unfair bargaining power” over its VARs.

There is ongoing discussion about whether the ramifications of this judgment will be changes to partner agreements across the board. I am not so optimistic, but I think it emboldens partners to ask for “termination without cause” clauses to be changed.

Carrier services agents are up against a different challenge. Few programs have deal registration, so arguments over who owns the deal are much more difficult to prove. And, to be honest, most carriers still advocate a “fox hunt” approach of having as many of their agents as possible chasing the deal, since no matter which one makes “the kill,” the carrier wins. (This is flawed logic, but a blog for another time perhaps.)

What is apparent is that for any of this to change, the rules of engagement must be known, written down — in many cases part of the contractual relationship — and managed by both partners. As one example, Josh Anderson, founder and CEO of master agency Telephony Partners, called for written, possibly contractual, guidelines on retention management. In his Nov. 10 blog, Are Vendors Stepping on Agents’ Toes? he said: “Even if the carrier says agents only get paid on what they renew, I would rather understand that policy clearly at the outset rather than have to battle it out with a carrier after the business disappears.”

In addition to Anderson’s plea, there may be some movement toward developing a more ethical channel. The Technology Channel Association (TCA), an association of agents that formed this summer, has the development of a code of ethics on its radar. TCA President Dany Bouchedid also will join a panel of agents, subagents, resellers and carriers to discuss Channel Ethics in a general session at the upcoming Channel Partners Conference & Expo, March 1-3, 2009, in Las Vegas (see Page XX). This exchange no doubt will be a lively debate about what’s fair and what’s not.

I’ll be there in the front row. And, for the sake of the channel, I hope you will join me.

Khali Henderson
Editor in Chief