Corporate Security - Companies walk ethical tightrope

SURVEY - CORPORATE SECURITY - Companies walk ethical tightrope - COMPETITIVE INTELLIGENCE by Matthew Leising and Andrew Heavens - The natural interest by businesses in their rivals' activities has encouraged a growing industry in information gathering.

Silicon Valley's top entrepreneurs don't often get their hands dirty in the rarefied world of software development and computer systems design.

That changed in a very real way last year when Oracle admitted hiring detectives to rifle through rubbish dumped by companies that supported arch-rival Microsoft during its antitrust trial.

The incident, promptly dubbed "garbage gate", raised a storm of controversy. But Larry Ellison, Oracle's flamboyant chief executive, did not hesitate in defending his company's role in the affair. "Maybe our investigation organization may have done unsavoury things, but it's not illegal," he told reporters last June.

The case highlighted the lengths to which companies will go to find information that might give them a competitive edge on their competitors. Mr. Ellison's comments also neatly illustrated the ethical tightrope that companies walk as they set about gathering that information. Companies' natural interest in their rivals' activities, and a corresponding desire to protect their own information, have fuelled a growing industry for competitive intelligence.

A joint study by the Computer Security Institute and the FBI Computer Intrusion Squad found American companies rated security threats from their own competitors third in importance, behind those of disgruntled employees and hackers. "In more and more industries, knowledge capital is more important than financial capital," says Stephen Miller, from the Society of Competitive Intelligence Professionals (SCIP). "As companies become more aware of the value of their intellectual property, their efforts to retain that information will increase."

SCIP, with offices in London and Alexandria, Virginia, was founded in 1986 with 150 members. Today, its membership has grown to 7,000. It sees one of its main tasks as protecting the reputation of the competitive intelligence industry. Members have to sign a code of ethics before joining, agreeing never to gather facts through misrepresentation - pretending to be someone else such as a journalist or an employee. The society even has a Boy Scout-style motto: "Economic espionage is the failure of competitive intelligence".

Mr. Miller says: "It is stupid to do anything unethical and it is stupid to do anything that you would not want to see on the of tomorrow's paper," In his view, competitive intelligence is a relatively new and sleek term for what used to be known as "doing one's homework".

An investigator's job might be as straightforward as calling up a sales representative and asking what new products are slated for release. As long as the target company is unfamiliar with competitive intelligence tactics, "they will tell you anything you want to hear," says one agent based in Ventura, California, who asked not to be named. "You would be surprised what you can find out by talking to someone on their cigarette break."

Other obvious avenues for investigation in this high-tech age include the Internet and well-known news databases, such as Lexis-Nexis.

"What you are doing is seeing what is available in public records and what it means," says another agent based in Los Angeles. "The goal is not to be a spy. The goal is to be an intelligent observer."

While going through a company's trash might be unpleasant, it is not illegal as long as it is not on private property.

Arthur Weiss, managing partner of UK-based Aware, likens his profession to market research, "only much more specialised and skilled as we are only involved in gathering competitive information".

Typical jobs range from simply profiling competitors, to checking rumours and doing common or garden due diligence. One recent client asked Aware to interview customers of a company it was considering including in a partnership. Mr Weiss uncovered a trail of unhappy customers and the partnership plan was cancelled.

"We never misrepresent ourselves. If someone asks who I am on the phone, I say 'Arthur Weiss of Aware', then go on and ask the questions. If they want more, I say I'm doing research on this, totally straight up."

A lot of competitive intelligence is done in-house. Companies such as Cisco Systems and Nortel Networks price themselves on the efficiency of their CI departments at digging out information on rivals and potential acquisition targets.

Before the deteriorating US economy curtailed their activities, venture capitalists were also experts at using investigative techniques to try to spot winners among the crowds of start-ups that came to their doors.

Not every investigative activity, however, is so cut and dried. "The world is not black or white. It's shades of grey when it comes to ethics," says Arturo Perez-Reyes, a lecturer in ethics at UC Berkeley's Haas School of Business. "There are many scales of value and they all conflict. Competitive intelligence is a spectrum of behaviour. Some of those behaviours are legal, some are illegal," he says.

Companies that go all out to get their hands on rival's trade secrets - such as the finger-lickin-good secret ingredient to Kentucky Fried Chicken - are also skating on thin legal ice. The issue was highlighted earlier this year when Kraft Foods sued Schwan's Sales Enterprises, accusing it of getting hold of marketing secrets by hiring a former Kraft consultant.

With the financial stakes high, some companies are prepared to stretch the limits, admits the Ventura-based agent. "All it comes down to is how much they are willing to pay. Basically, any type of information can be discovered, given enough money, but at times that will go into the illegal aspects. In my experience, a lot of people go over the line - and they just don't get caught."

For the large competitive intelligence firms, though, whose reputation is paramount, the ethics are quite clear. "The reputable long-term firms live on their reputation," says Lee Curtis, the director of high-tech investigations for Kroll Associates, one of the largest competitive intelligence companies.

His advice to business leaders who are unfamiliar with competitive intelligence is simple and direct. "Nothing is confidential, everyone leaves a financial trail and in the continental US, at least, nothing is private."

So, never believe that no one is watching and be careful what you leave out in the trash.