Did IBM bribe the House Speaker in Massachusetts?

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In Massachusetts, it has been about 15 years since we had a speaker of our House of Representatives who has not left a cloud of ethical problems in his wake. The latest is happening right now, starring Sal DiMasi, who staged a reelection as Speaker, followed by a January 2009 resignation and the recent revelations about the real reason for that departure. And it involves the bluest of blue chip firms, International Business Machines (IBM).

While IBM has managed to keep its name out of this story up until now, IBM bought the software company, Cognos, that allegedly bribed DiMasi and his associates to win two contracts, including a $13 million software contract with Massachusetts signed in August 2007. The $57,000 in payments from Cognos to a law firm to DiMasi were allegedly made in 2006 and 2007.

IBM announced that it would buy Cognos just a few months after that $13 million software deal closed -- in November 2007 -- for $4.9 billion. So IBM either knew about this DiMasi bribery investigation as part of its due diligence during the acquisition process and failed to disclose it or failed to do its due diligence.

Either way, IBM has to tune up its procedures for vetting acquisition targets in the future. It must also now pay the legal costs associated with Cognos's alleged misbehavior.

As more details come out, IBM executives may be forced to take further steps to wipe the tarnish that this scheme could have on IBM's sterling reputation. One thing seems sure to me -- IBM will not be able to continue to dismiss this with a simple "no comment."

UPDATE: IBM contacted me about this post to complain about its accuracy, and supplied the following comment:

The alleged events and transactions noted in the DiMasi indictment occurred before IBM's acquisition of Cognos. IBM has cooperated fully with the government. Neither IBM, its Cognos business unit, nor any of its current employees were indicted, and none of those indicted has any current relationship with IBM or Cognos.

However, my questions about IBM's due diligence on this matter remain unanswered and it will be interesting to see what facts come out in the future.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

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