September 25, 2008
Vendors Gain Access to CVS Execs Through Charity Work
Like most retailers, CVS has a very strict policy on proper conduct with trading partners including clear policies preventing buyers and other company officials from accepting gifts from suppliers. The goal of the policy is to keep the playing field even and not give particular manufacturers undue sway over product decisions, shelf space, promotions, display activity, etc.
Now, a Wall Street Journal report brings into question whether some vendors have been able to buy their way into the good graces of the chain by spending thousands of dollars to support the company’s annual golf tournament, the CVS Caremark Charity Classic.
According to the report, some CVS insiders see the tournament as a “pay to play” system that favors those companies that donate the most to support the event. CVS takes issue with any such characterization claiming, “Participation in the event each year is optional and does not affect our vendor selection process.”
The tournament is championed by CVS CEO Tom Ryan, who according to WSJ, is rated by Golf Digest as one of the top golf-playing CEOs in the country.
Vendors such as QMI Security Solutions, a company that sells security grates to CVS, see the tournament as a means to connect with the chain on a more relaxed level without concern about violating any rules of conduct.
“In today’s marketplace, giving gifts to any company’s employees — you can’t do it,” Jim Miller, president of QMI Security Solutions, told WSJ. “At Wal-Mart today, you can’t buy them lunch. Here, you have that opportunity to do it in a very nice setting where you are appreciated and discuss business. When you get done [on the course], the whole company is there with you.”
Some vendors such as KKM, a broker for manufacturers without a direct sales force, has been a sponsor of past tournaments and recently purchased a vacation package that was auctioned at the event that included a trip for to the private Carnegie Abbey Club on Narragansett Bay in Rhode Island. According to the auction program, the trip also included “two CVS Caremark executives of your choice as your guests.” KKM, according to the report, paid at least $50,000 to secure the vacation package with the CVS execs.
John Malmborg, president of KKM, said, “I take advantage of this Classic, asking the different manufacturers I work for if they want to participate. They all chip in and we work to get to a high level of participation and have access to CVS executives on an informal basis. It really is helpful.”
While the retailer and suppliers maintain everything is above board at the tournament and no quid pro quo exists, others such as Michael Levy, director of the Babson College Retail Supply Chain Institute, suggest that the appearance of impropriety is about as bad as the actual thing. Buying trips for customers, he said, places CVS and its vendors into an area colored by “shades of unethical” behavior.
Allowing company employees to accept anything beyond a gift of minor value, he said, “starts corrupting people’s judgments.”
Discussion Questions: Do you think that CVS is playing with ethical fire with its annual charity golf tournament? Is there reason to question whether those vendors that contribute to the event may be getting better treatment from the chain than those who choose not to participate or who do so on a much more limited level?
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Give us a break! Influence has been the province of “salesmanship” for 10,000 years. If a salesman can’t influence a customer then he/she is not a salesman. Is Coke exerting influence by sponsoring Special Olympics, the Paralympics and the Olympics? Yes they are! Would I, as a salesman for Coke, point these sponsorships out to customers and prospective customers? I would be an idiot not to do so.
If CVS has an annual golf tournament designed to benefit a charity, would I be wise to invest in a sponsorship to gain a little face time with CVS personnel? I think I would.
For gosh sakes folks, this is business. When did we become so pure that commerce could only be conducted in a vacuum? Oh yeah, I remember the date, it was the same time the international market began to dominate trade in the USA. The international business community doesn’t believe in any of this “politically correct” mumbo jumbo and they have been killing us with HARD business tactics for about 20 years now.
So what about vendors that can’t afford the kind of lavish spending required to make a splash at this type of charity event? A strict no-gift policy is supposed to even the playing field and make sure decisions are made in the company’s best interest. In theory, it makes it easier for smaller vendors to get equal access to decision makers. But it also may limit the ability of those smaller vendors to create the kind of personal relationships that bigger, well-established vendors already have. A trip to a smaller vendor’s headquarters for meaningful discussions with the people who create the product, for example, might not fit a decision maker’s travel budget, but might be just the kind of “gift” that would have driven a good decision for that company.
Are strict no-gift policies a substitute for real reform, the creation of an ethical corporate culture, and real training for employees in that culture? I can’t say. But every company should examine its policies and its programs and make sure it is doing as much to actively encourage the best business practices as discourage the worst, and how it can best balance them to drive innovation and growth in its business.
This is a normal business practice. It’s really not about the money but a show of power. Sometimes executives at certain retailers enjoy making their vendors dance like puppets.
One of my former employers recently sent out a notice to vendors and retailers that they were going to honor the CEO and wanted donations for the party. It was carefully worded as to not sound like an all out threat.
Like another reader said earlier, you have to pay to play. Not much different than me donating to a politician in order to get government sponsored projects. I know if I don’t pay, I don’t get to play.
CVS annual golfing event is not an ethical issue. The Charity Classic is quite different than a vendor lavishing gifts and money on buyer to get the buyer’s business. This type of gift to buyers can lead to buyers making decisions that are not in the best interest of the retailer or its stockholders–a situation that the corporation would certainly not approve of.
The CVS/Caremark event is sanctioned by the corporation and relatively transparent. Vendors often “pay” to sell their products to retailers. These payments can either in the form of advertising allowances, discounts to the wholesale price, or, in this case, sponsorship of an event and access to the retailer’s managers. But this event goes well beyond simply paying to sell products. It is an opportunity for CVS and its vendors to develop the informal relationships and trust that can build collaborative relationships benefiting both CVS and its vendors.
An interesting issue that stockholders might raise is CEO Tom Ryan’s golfing perks related to this event and others that he participates in. Is his participation in these golfing events a good use of his time?
First we have the statement “Strict Policy on Gifts.” Obviously, that policy is not too strict because the buyers and executives can accept gifts and gratuities. The only thing strict is how to get around the policies. A strict policy is very simple, “No gifts or gratuities.” Period. Is this harsh? No, because….
Second, all of these gifts, gratuities and donations ultimately effect the cost to the retailer and eventually, the consumer. There is no “extra” funding for these events or gifts. The supplier is well aware ahead of time what types of fees are expected to be paid when setting up a new item, and figures all of these into the costs of the product.
If I can sell a product to a true “Net, Net” retailer, let’s say for $1.00, the retailer accepts the product, applies a markup to it (let’s use 35%) and sells the product to the customer for $1.35. Retailers like CVS and most supermarkets expect an accrual, charge slotting, marketing support, dinners, donations and a myriad of other fees. So, the supplier projects what it believes its volume will be on the item and then totals up all of the associated fees it is going to have to pay to play and adds a bit of a cushion to it as safety mechanism. (Let’s assume these costs add up to $0.42) Now, the same $1.00 product goes to the retailer at $1.42. Apply the 35% markup and the selling price becomes $1.92.
This is exactly why Walmart always has a price advantage over any other retailer. Because they are a true Net, Net company who has a strict policy regarding gifts, dinners and donations…they don’t accept them period!
The CVS charity outing falls into the “heavy-handed” category mentioned by another panelist. The appearance of impropriety is stark when vendors are able to curry favor with CVS decision-makers through luxury trips and other “goodies.” Perhaps the worst aspect of this story is the meager amount of “fund raising” actually ending up in the hands of the designated charity.
These kinds of sponsorships probably don’t make too much difference in the day to day running of the business. But anytime there is a “jump ball” it can be the deal breaker or maker. And there is a lot of value in being known on a first name basis with the decision makers in a company, especially when there is a problem or an opportunity disguised as a problem.
Relationships are extremely important between a vendor and his customers. CVC and others are sending out the message that participating in these events are important to them and by that implying that the companies that respond to that are important to them as well. That should sound like a good investment to any company that can afford to pay to play.
Depending on the client, there are absolutely some instances where there is an expectation and a quid pro quo for supporting charities and aligning philanthropy. Some are more heavy-handed and imbalanced than others.
Reading the article yesterday left me wondering how the relationships really are away from the golf tournament and the specific impact. The reality is that relationships matter and finding common ground (relevance) as the basis for them can take many forms, including supporting causes.
While it can go both ways, as long as the cause is worthy and not misaligned for both parties, at least for us it’s part of being client centric.
Bottom line, the CVS Classic is a charitable event where manufacturers are encouraged to support the charity. Just like so many other outings across the industry, the CVS Classic is a great chance for CVS personnel and business partners to spend time together and build stronger personal relationships. Sure that might help an individual better understand or gain access to CVS management but CVS, like all the best retailers, is a for-profit organization that makes its buying decisions based on what is right for CVS and their shoppers.
Even as RSR launches its own survey on supply chain collaboration (where we had to try to scrub out any inherent assumptions that more is better), I wonder about these kinds of side effects. “Collaboration” is only a few words away from “collusion” in the dictionary, and I have a hard time picturing the future of the industry without either accusations of favoritism or actual preferences given to certain trading partners.
The reality is you can’t completely eliminate “undue” influence–especially when the retailer in question is trying to do things like serve the wider community. Whether a charity event starts out or evolves into a way for vendors to gain access to a retailer’s executives–or whether it is only perception and not any of these things at all–as a retailer, what can you do? Stop the event? We’re relationship-driven animals. The issue will just crop up in some other way. Better to know it and control for it as best you can, because it’s never going away.
This is a no-brainer; of course it affects decisions, or gives the appearance of doing so. I expect there’ll be some “piling on” against CVS as a result of this WSJ article, but we all know this is very, very widespread. (That doesn’t make it right.)
Relationships are the heart and soul of business, any business. There isn’t a seller alive that doesn’t want to have a better relationship with their customers. This is true whether the relationship is with the buyers or the GMM or the CEO. relationships lead to business.
Clearly, the CVS tournament is asking vendors to pay for access to senior executives, perhaps even access they might not otherwise have, although I would doubt that. And the contribution is going to charity. I don’t see it crossing an ethical line, although it might be approaching it.
Here’s another “Give us a break,” “for gosh sakes,” and “This is a no-brainer” comment. Forget top-down influences and consider bottom-up. Do retailers’ buyers receive compensation rewards tied to the benefits and allowances they pry out of suppliers? Well, duh! The buyers who facilitate this tournament that earns store benefits while raising charity cash have employment agreements that reward them with bonuses for this sort of activity. Simply put, the money is channeled to the individuals in a different way, but it’s still channeled. It’s just money laundering, and I’d call that undue sway.
OK, so everyone admits that something sounds a little fishy here, but let’s get back to the essence of what is going on. Someone at CVS is trying some good by linking charities with a sporting activity that, I’m sorry, gets too much attention.
Does it really matter how good a golfer a CEO is? Does that make stockholders feel better? Does it make the customer service in the stores better? Does it make prices more affordable for low-income customers? Does it help gain more breakthroughs in healthcare sciences? We criticize factory workers who care more about their weekend activities than their job of building a quality product, so doesn’t the same apply to the headquarters staff?
Anyway, back to the discussion; if vendors are not able to participate in charitable activities, without peddling influence, how else could these monies, or dollars used to bid on prizes be earned and redirected to those in need? Could companies require vendors to donate a fixed percentage of their sales to the company’s charity? What about the same thing for offering discounts across the board for low-income customers? Is there another way to level the playing field? How do we achieve equity? Let’s not lose the spirit of good will, just remove the PAYOLA aspect out of it.
This is an unethical offer, plain and simple. No retailer should be asking their vendors for any monies, of any type, or for participation in their corporate events. Business should be done at the headquarters, and limited to this. Walmart, the military (AAFES) and a few others have already done this. It levels the playing field and forces the best supplier to establish themselves with their retail partners, not the best golfer or contributor to a charity. If it looks like a duck, smells like a duck and quacks like a duck….
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Give us a break! Influence has been the province of “salesmanship” for 10,000 years. If a salesman can’t influence a customer then he/she is not a salesman. Is Coke exerting influence by sponsoring Special Olympics, the Paralympics and the Olympics? Yes they are! Would I, as a salesman for Coke, point these sponsorships out to customers and prospective customers? I would be an idiot not to do so.
If CVS has an annual golf tournament designed to benefit a charity, would I be wise to invest in a sponsorship to gain a little face time with CVS personnel? I think I would.
For gosh sakes folks, this is business. When did we become so pure that commerce could only be conducted in a vacuum? Oh yeah, I remember the date, it was the same time the international market began to dominate trade in the USA. The international business community doesn’t believe in any of this “politically correct” mumbo jumbo and they have been killing us with HARD business tactics for about 20 years now.
So what about vendors that can’t afford the kind of lavish spending required to make a splash at this type of charity event? A strict no-gift policy is supposed to even the playing field and make sure decisions are made in the company’s best interest. In theory, it makes it easier for smaller vendors to get equal access to decision makers. But it also may limit the ability of those smaller vendors to create the kind of personal relationships that bigger, well-established vendors already have. A trip to a smaller vendor’s headquarters for meaningful discussions with the people who create the product, for example, might not fit a decision maker’s travel budget, but might be just the kind of “gift” that would have driven a good decision for that company.
Are strict no-gift policies a substitute for real reform, the creation of an ethical corporate culture, and real training for employees in that culture? I can’t say. But every company should examine its policies and its programs and make sure it is doing as much to actively encourage the best business practices as discourage the worst, and how it can best balance them to drive innovation and growth in its business.
This is a normal business practice. It’s really not about the money but a show of power. Sometimes executives at certain retailers enjoy making their vendors dance like puppets.
One of my former employers recently sent out a notice to vendors and retailers that they were going to honor the CEO and wanted donations for the party. It was carefully worded as to not sound like an all out threat.
Like another reader said earlier, you have to pay to play. Not much different than me donating to a politician in order to get government sponsored projects. I know if I don’t pay, I don’t get to play.
CVS annual golfing event is not an ethical issue. The Charity Classic is quite different than a vendor lavishing gifts and money on buyer to get the buyer’s business. This type of gift to buyers can lead to buyers making decisions that are not in the best interest of the retailer or its stockholders–a situation that the corporation would certainly not approve of.
The CVS/Caremark event is sanctioned by the corporation and relatively transparent. Vendors often “pay” to sell their products to retailers. These payments can either in the form of advertising allowances, discounts to the wholesale price, or, in this case, sponsorship of an event and access to the retailer’s managers. But this event goes well beyond simply paying to sell products. It is an opportunity for CVS and its vendors to develop the informal relationships and trust that can build collaborative relationships benefiting both CVS and its vendors.
An interesting issue that stockholders might raise is CEO Tom Ryan’s golfing perks related to this event and others that he participates in. Is his participation in these golfing events a good use of his time?
First we have the statement “Strict Policy on Gifts.” Obviously, that policy is not too strict because the buyers and executives can accept gifts and gratuities. The only thing strict is how to get around the policies. A strict policy is very simple, “No gifts or gratuities.” Period. Is this harsh? No, because….
Second, all of these gifts, gratuities and donations ultimately effect the cost to the retailer and eventually, the consumer. There is no “extra” funding for these events or gifts. The supplier is well aware ahead of time what types of fees are expected to be paid when setting up a new item, and figures all of these into the costs of the product.
If I can sell a product to a true “Net, Net” retailer, let’s say for $1.00, the retailer accepts the product, applies a markup to it (let’s use 35%) and sells the product to the customer for $1.35. Retailers like CVS and most supermarkets expect an accrual, charge slotting, marketing support, dinners, donations and a myriad of other fees. So, the supplier projects what it believes its volume will be on the item and then totals up all of the associated fees it is going to have to pay to play and adds a bit of a cushion to it as safety mechanism. (Let’s assume these costs add up to $0.42) Now, the same $1.00 product goes to the retailer at $1.42. Apply the 35% markup and the selling price becomes $1.92.
This is exactly why Walmart always has a price advantage over any other retailer. Because they are a true Net, Net company who has a strict policy regarding gifts, dinners and donations…they don’t accept them period!
The CVS charity outing falls into the “heavy-handed” category mentioned by another panelist. The appearance of impropriety is stark when vendors are able to curry favor with CVS decision-makers through luxury trips and other “goodies.” Perhaps the worst aspect of this story is the meager amount of “fund raising” actually ending up in the hands of the designated charity.
These kinds of sponsorships probably don’t make too much difference in the day to day running of the business. But anytime there is a “jump ball” it can be the deal breaker or maker. And there is a lot of value in being known on a first name basis with the decision makers in a company, especially when there is a problem or an opportunity disguised as a problem.
Relationships are extremely important between a vendor and his customers. CVC and others are sending out the message that participating in these events are important to them and by that implying that the companies that respond to that are important to them as well. That should sound like a good investment to any company that can afford to pay to play.
Depending on the client, there are absolutely some instances where there is an expectation and a quid pro quo for supporting charities and aligning philanthropy. Some are more heavy-handed and imbalanced than others.
Reading the article yesterday left me wondering how the relationships really are away from the golf tournament and the specific impact. The reality is that relationships matter and finding common ground (relevance) as the basis for them can take many forms, including supporting causes.
While it can go both ways, as long as the cause is worthy and not misaligned for both parties, at least for us it’s part of being client centric.
Bottom line, the CVS Classic is a charitable event where manufacturers are encouraged to support the charity. Just like so many other outings across the industry, the CVS Classic is a great chance for CVS personnel and business partners to spend time together and build stronger personal relationships. Sure that might help an individual better understand or gain access to CVS management but CVS, like all the best retailers, is a for-profit organization that makes its buying decisions based on what is right for CVS and their shoppers.
Even as RSR launches its own survey on supply chain collaboration (where we had to try to scrub out any inherent assumptions that more is better), I wonder about these kinds of side effects. “Collaboration” is only a few words away from “collusion” in the dictionary, and I have a hard time picturing the future of the industry without either accusations of favoritism or actual preferences given to certain trading partners.
The reality is you can’t completely eliminate “undue” influence–especially when the retailer in question is trying to do things like serve the wider community. Whether a charity event starts out or evolves into a way for vendors to gain access to a retailer’s executives–or whether it is only perception and not any of these things at all–as a retailer, what can you do? Stop the event? We’re relationship-driven animals. The issue will just crop up in some other way. Better to know it and control for it as best you can, because it’s never going away.
This is a no-brainer; of course it affects decisions, or gives the appearance of doing so. I expect there’ll be some “piling on” against CVS as a result of this WSJ article, but we all know this is very, very widespread. (That doesn’t make it right.)
Relationships are the heart and soul of business, any business. There isn’t a seller alive that doesn’t want to have a better relationship with their customers. This is true whether the relationship is with the buyers or the GMM or the CEO. relationships lead to business.
Clearly, the CVS tournament is asking vendors to pay for access to senior executives, perhaps even access they might not otherwise have, although I would doubt that. And the contribution is going to charity. I don’t see it crossing an ethical line, although it might be approaching it.
Here’s another “Give us a break,” “for gosh sakes,” and “This is a no-brainer” comment. Forget top-down influences and consider bottom-up. Do retailers’ buyers receive compensation rewards tied to the benefits and allowances they pry out of suppliers? Well, duh! The buyers who facilitate this tournament that earns store benefits while raising charity cash have employment agreements that reward them with bonuses for this sort of activity. Simply put, the money is channeled to the individuals in a different way, but it’s still channeled. It’s just money laundering, and I’d call that undue sway.
OK, so everyone admits that something sounds a little fishy here, but let’s get back to the essence of what is going on. Someone at CVS is trying some good by linking charities with a sporting activity that, I’m sorry, gets too much attention.
Does it really matter how good a golfer a CEO is? Does that make stockholders feel better? Does it make the customer service in the stores better? Does it make prices more affordable for low-income customers? Does it help gain more breakthroughs in healthcare sciences? We criticize factory workers who care more about their weekend activities than their job of building a quality product, so doesn’t the same apply to the headquarters staff?
Anyway, back to the discussion; if vendors are not able to participate in charitable activities, without peddling influence, how else could these monies, or dollars used to bid on prizes be earned and redirected to those in need? Could companies require vendors to donate a fixed percentage of their sales to the company’s charity? What about the same thing for offering discounts across the board for low-income customers? Is there another way to level the playing field? How do we achieve equity? Let’s not lose the spirit of good will, just remove the PAYOLA aspect out of it.
This is an unethical offer, plain and simple. No retailer should be asking their vendors for any monies, of any type, or for participation in their corporate events. Business should be done at the headquarters, and limited to this. Walmart, the military (AAFES) and a few others have already done this. It levels the playing field and forces the best supplier to establish themselves with their retail partners, not the best golfer or contributor to a charity. If it looks like a duck, smells like a duck and quacks like a duck….