Corporate Espionage Case

PROCTER AND GAMBLE V. UNILIVER A CASE OF CORPORATE ESPIONAGE

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INTRODUCTION Espionage is the use of illegal means or deceptive practices to gather information. It is also commonly referred to as industrial or economic espionage. Industrial Espionage (or Economic Espionage) is the clandestine collection of sensitive, restricted or classified information. This information by its very nature is not openly accessible and can only be obtained through covert collection means. Industrial Espionage might include the theft of

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sensitive or restricted competitor information (such as financial data, restricted manufacturing processes, customer accounts, etc.), covert recruitment of sources within a competitor’s firm, and other such methods. Each and every day covert activities are being conducted for the purpose of obtaining information that can create value for another organization, be it a business or another government.

PROCTER AND GAMBLE V. UNILIVER A CASE OF CORPORATE ESPIONAGE

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To begin with, ‘Corporate’ initially meant ‘united in one body’ (1398, from L. corporatus or corpus which means body1). However, in due course of time the term & the connotations attached with it finally paved way for the new age definition which is ‘pertaining to a corporation or a group come together for a common goal’. Moving onto ‘Espionage’, it means ‘the systematic use of spies to get military, political or industrial secrets’ (1793, from 1 http://dictionary.reference.com/browse/corporate

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Fr. Espionage2). Now going back to where we started, ‘Corporate Espionage’ basically suggests impregnating a corporate system or structure with spies or systems so as to facilitate leakage of information which could in all probability mar the growth, financial stability & the prospects of the victim organization to have sustained development in future. Now that we have defined what the purists have to say about ‘Corporate Espionage’ let’s 2 http://dictionary.reference.com/browse/espionage

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look at it from an objective point of view so as to understand the magnitude of malpractices that comes under the umbrella of this terminology. ‘Corporate Espionage’ would cover illicit activities like theft of trade secrets, bribery, blackmail & technological surveillance. And with developments that followed in the recent years, even attempts to sabotage a corporation may be considered corporate espionage. Although from the looks of the definition the distinction is crystal clear, in practice it is quite difficult to sometimes tell the difference between legal & illegal methods.

PROCTER AND GAMBLE V. UNILIVER A CASE OF CORPORATE ESPIONAGE

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Basically there are three primary motivations behind corporate espionage. First, an individual corporation may use corporate espionage to advance their goals towards maximizing shareholder value. Secondly, state-sponsored corporate espionage is an essential ingredient of modern day economic warfare or military application of the intellectual property. Third and finally, special interest groups may conduct corporate espionage to gather data to further their cause (i.e. environment interests).

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Of course firms also spy on each through more nefarious means. First, corporate espionage whether legal or illegal is an issue of growing concern. Second, such activities are more likely in high-tech firms, the drug industry and the defence related sector. Typically it is also the case that such firms are involved in producing more than one product often with interrelated costs. Third, firms are aware that their competitors are attempting to obtain information about them and often take a variety of actions to curb it. Finally, despite protective measures, rival firms are often able to engage in successful spying.

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There are also instances where the distinction between legal and illegal intelligence gathering activities is blurred. Probably the most notorious case of corporate espionage that has been dealt in this study is Proctor and Gamble’s attempt to find out more about Unilever’s hair care business by hunting through their garbage bins.

PROCTER AND GAMBLE V. UNILIVER A CASE OF CORPORATE ESPIONAGE

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PROCTER AND GAMBLE V. UNILIVER A CASE OF CORPORATE ESPIONAGE

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Question 1: What Separates Corporate Espionage From Competitive Intelligence? Examine The Evolution Of Corporate Espionage Over The Decades And The Rationale Behind The Use Of Such Practices? Do You Think It Is Ethical For Companies To Engage In Corporate Espionage Against Their Competitors?

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 Distinction between corporate espionage and competitive intelligence I. The difference between competitive intelligence and industrial espionage, for example, is significant. By definition, industrial espionage refers to illegal activities which range everywhere from outright theft to bribery and everywhere in between. Conversely, competitive intelligence collection is governed for the most part by

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adherence to corporate and professional ethics which preclude the use of illegal means to obtain information. II. Moreover, the distinction between the two is in terms of modus operandi. At bottom,

the competitive intelligence process consists of collecting information - as elements which when legally, ethically but rigorously collected and analyzed, can provide the same kinds of information as might otherwise have only been available through such illicit means as theft. Burglary, outright theft or bribery might be some of the ways

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that criminals would resort to in order to obtain what a competitor may need constituting an act of corporate espionage.

 The evolution of corporate espionage over decades and the rationale behind its use The history of corporate/industrial espionage probably dates back to the sixth century when Justinian, the Byzantine emperor hired two monks to visit China. He wanted them to gain an

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understanding of silk production in China and to smuggle silkworm eggs and mulberry seeds out of that country to break its worldwide monopoly on silk production. The monks smuggled these eggs and seeds out of China in hollow bamboo walking sticks. Subsequently, in a few years the Byzantine Empire replaced China as the largest silk producer in the world.

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Over the centuries, industrial espionage practices continued to play a major part in the development of many countries. In the 18th century, alarmed by the industrial and military supremacy of Great Britain, France sent its spies to steal the latter's industrial secrets. Corporate espionage gained more attention in the last few decades. Some of such instances are mentioned herein:

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✔ In 1999, one of the most famous cases of corporate treachery, a Taiwanese

company head was arrested as he was convicted to have paid an Avery Dennison (U.S. Label manufacturer) employee $160,000 for the secret formulas for the company’s pressure-sensitive adhesive. ✔ In 1996, General Motors sued Volkswagen, charging that GM’s former head of

production had stolen trade secrets & turned them over to Volkswagen.

PROCTER AND GAMBLE V. UNILIVER A CASE OF CORPORATE ESPIONAGE

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✔ In 2000, Oracle Corporation head Larry Ellison had hired an investigation firm to dig out embarrassing secrets about Bill Gates headed Microsoft. ✔ In 2001, FBI arrested two employees from Lucent Technologies for conspiring

to steal lucent trade secrets & sell them to the Chinese government. ✔ In 2003, Italian auto manufacturer Ferrari charged Toyota with stealing the

design for its Formula One racing car.

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Looking at the recent trend it becomes clear that corporate espionage cases have been increasing by leaps and bounds. The reasons for this can be attributed as:

WHY

CORPORATE ESPIONAGE IS EASIER NOW

Advent of the information age with its tools and technologies has made it much easier to 'gather' information and analyse intelligence.

PROCTER AND GAMBLE V. UNILIVER A CASE OF CORPORATE ESPIONAGE

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Trained intelligence analysts can easily ferret out deeper information through masqueraded phone calls, purported interviews of the victim company's employees, going through their garbage, creating 'e-relationships' with employees or joining use nets frequented by them. The second issue that places most companies at risk is lack of employee awareness and education. At times, the management is to blame for the myopic approach that IT security should safeguard its intellectual property. The misplaced over-dependence

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on technology to protect the company's intellectual property is ridiculous, given that, even in the most 'digitised' companies, over 70 per cent of critical information is still in non-digital forms. Companies that invest hundreds of thousands of dollars in firewalls and PKIs (public key infrastructure) forget that over 15 per cent of their employees are talking to prospective new employers (or competition) at that very moment. Or that several

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third parties and temporary employees are swarming all over their organisation with complete access. The single factor that makes corporate espionage devastating is its transparent nature. Physical assets -- when stolen get noticed and things can be attended to rapidly. But a company could be getting robbed of intellectual property or competitive advantage for years and might still not know what exactly is going wrong.

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 Is it ethical for companies to engage in corporate espionage against their competitors? At last, answering the question of ethics, in my view it is not at all ethical to use espionage techniques so as to strive through the competition in the market. In the advent of the digital age, industrial espionage has replaced competitive intelligence as a result of technological opportunities available to us. This form of espionage is cancerous to any business, but more so to businesses which depend heavily on information and knowledge—after all, not only

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are these intangible assets easy to transfer, the theft of these assets is also equally difficult to prove. In a world where information is knowledge and knowledge is power, the lines between competitive intelligence—which accounts for that difference between corporate success and failure—and corporate espionage, are getting increasingly blurred. In other words, what began as that ‘innocuous’ glance at what competition is doing, just to keep oneself abreast of the latest developments in the business one was in, is now taking the ugliest forms of ethical and legal violation. And this includes the entire gamut of

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wrongdoing: the selling of technological knowhow, product design, research papers, client lists and other trade secrets by loyal employees, infringing intellectual property law, teams resigning en masse from a company, taking along with themselves upscale, lucrative customers to the new entity, selling defence secrets in the lure of monetary kickbacks, and what not. In fact, corporate espionage has moved far from within the confines of the corporate sector to foreign nations, with many IT expatriates and even foreign employees with acquired citizenship acting as a conduit for the flow of confidential information from

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one corporate to another, from one nation to another. Cross border businesses and employees, remotely located customers in an era of E-Commerce, telecommuting contractual employees—all these are adding to the ease with which these acts of malfeasance are being committed.

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Ques 2: Examine the covert operation undertaken by P&G to spy unilever and critically comment on the response of both the companies on discovering the operation. How did the companies settle the issue?  THE ACT OF CORPOARATE ESPIONAGE BY A BIG BRAND In spring of 2001, John Pepper, then chairman of Procter and Gamble, discovered that members of P&G’s competitive analysis department engaged in corporate spying practices

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at its rival corporation, Unilever. The spying operation gathered about eighty documents detailing Unilever’s plans for its U. S. hair care business over the next three years, including information on its launch-plans, prices, and margins. This information came as a complete surprise to Pepper, who had not commissioned nor condoned this operation. First, managers at the company hired an outside firm to undertake the operation. These corporate spies allegedly operated out of a safe house, known as, “The Ranch,” which was located in Cincinnati, the same city as P&G’s headquarters. The spies participated in

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“dumpster diving” operations, or as some in the industry called it, “rubbish archaeology.” This included rummaging through dumpsters on Unilever’s property in search of unshredded documents containing key strategic plans. Dumpster diving was not thought to be a common practice in mainstream corporate America. Prior to this incident, corporate intelligence experts purported that searching for competitive secrets in a rival’s trash was an anomaly. In addition, P&G had their competitive intelligence operatives misrepresent themselves to

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Unilever employees, claiming that they were market analysts, journalists, and students – although P&G denied this accusation. Pepper and other P&G executives were aware that their snooping did not violate U.S. law, but only that they “violated [their] strict guidelines regarding [P&G] business policies.”

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 Severe competition between P&G and Uniliver a reason for the act P&G and Unilever are fierce competitors in the shampoo industry. P&G, the world’s largest producer of hair care products, owns brands such as Pantene, Head and Shoulders, and Pert, whereas, Unilever owns competing brands, Salon Selectives, Finesse, and ThermaSilk. P&G is trying to increase its position in the industry by introducing new brands, like Physique, and buying others, like Clairol.

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 Was Dumpster Diving Illegal? According to experts on corporate security, much of the law on intelligence gathering is “a muddle.” In fact, P&G’s rifling through dumpsters on public property crossed no U.S. legal boundaries; however, these laws vary from country-to country, as well as state-to-state. In some states, trash is treated as abandoned property and is freely accessible. In others, the law depends on if it is located in the organization’s own dumpster or one owned by a refuse company. While most competitive intelligence practices are unregulated, experts in the field

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suggest that corporations use the “sniff test” to monitor their own behavior. This means asking oneself, “how would this look on the front page if it were to come to light?” If the answer is “bad,” then plans should be scrapped or altered.

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 Corporate Code of Ethics as a Guidepost If no laws were broken in the P&G/Unilever case, what does P&G’s code of ethics say about how to deal with the situation? P&G’s Values and Policy Booklet in directly addressing the issue of competitive intelligence practices, it states: “We collect competitive information through proper public or other lawful channels but do not use information that was obtained illegally or improperly by others, including through misrepresentation, invasion of property of privacy, or coercion.”

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Unilever also has a similar statement, which it terms the Code of Business Principles. The code states that: We conduct our operations with honesty, integrity and openness, and with respect for the human rights and interests of our employees. We shall similarly respect the legitimate interests of those with whom we have relationships… Unilever believes in vigorous yet fair competition and supports the development of appropriate competition laws. Unilever

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companies and employees will conduct their operations in accordance with the principles of fair competition and all application regulations. By looking at this it becomes clear that the act done by the hired agents of P&G were against the code of ethics of the company. However, it is interesting to note that this overt act of P&G was not against any legal provisions of the Economic Espionage Act, 1996 of U.S.A.

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 Pepper’s Dilemma Chairman Pepper is confronted with the knowledge that his subordinates participated in activities that are not in violation of the law, but are in violation of the corporation’s principles and values. In a highly competitive industry this information is beneficial for the corporation’s plans and product development. At this point, the knowledge that P&G has gleaned information from Unilever has not been discovered by its rival and is likely to never be discovered. Procter & Gamble confirmed that it fired three employees "who were directly

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involved in the project." After Pepper and senior managers discovered what the company is calling a "rogue operation," P&G executives wrote a letter to Unilever outlining the situation. Pepper personally called Unilever chairman Niall Fitzgerald in an effort to settle the matter.

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 Proceedings after discovery of corporate espionage P&G invited Unilever officials to interview P&G managers as well as the operatives themselves. But one source says that Unilever has been unhappy about the level of P&G's cooperation, and that is why the negotiations have dragged on so long. The source adds that P&G first provided Unilever with two documents, and then, after further prodding by Unilever, came up with more than 50 additional documents.

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Through its spying operation, P&G learned myriad details of Unilever's hair care business, which includes brands such as Salon Selectives, Finesse, and Thermasilk, in an effort to bolster P&G's brands, which include Pantene, Head and Shoulders, and Pert. Unilever was said to be looking not only for financial restitution, but other remedies such as the transfer of key personnel out of P&G's hair care business and into other areas within that company. P&G said that none of the information that was gathered in this operation was ever used by P&G or will ever be used.

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 ANALYTICAL SUMMARY OF THE CASE To start with, we consider an incident of spying that involved the branded-goods companies Procter & Gamble and Unilever The espionage scandal exploded in 2001 when it was made public that professional spies, appointed by Procter & Gamble in the US to know out more about its competitors hair care business, were alleged to have disguised themselves as market analysts and sifted through rubbish bins outside Unilever offices in search of confidential information. The objective of the intelligence activity was to uncover operations

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that would have been of particular concern to Unilever, coming when the two companies were involved in an auction for the Clairol hair care brand in which Procter & Gamble ultimately won. Although not necessarily illegal different countries have different rules on the legal status of rubbish, Unilever accused Procter & Gamble’s tycoons of industrial espionage and threatened legal action against the company. Procter & Gamble’s reply was to reject the claim that its agents disguised themselves as market analysts and declared that it had not indulged in any illegal activities. Yet, even though Procter & Gamble stated that

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these activities were against its strict business policies and guidelines, there is some scepticism about this explanation. It is quite common practice for companies that want to engage in dubious practices to contract professional spies to do the dirty work and provide, plausible deniability, in case the operation goes wrong. The two companies started negotiations to settle the issue amicably. Unilever stated that if a settlement agreement was not signed by the end of August 2001, it would start legal proceedings against Procter & Gamble. The case was finally resolved when

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Procter & Gamble surprisingly admitted corporate espionage against Unilever and made an out-of-court settlement of about $10m. Thus it can be justified that the admission of the guilt by P&G before the discovery of act by uniliver is commendable. It is appreciable because the overt act of espionage was only against the code of ethics of the company and was not against any law. It might have gone unnoticed had P&G never admitted it on its own, overlooking the legal consequences that would arise after that.

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Ques 3: Whose responsibility is it to eradicate corporate espionage- the government or the corporate world? Why? Suggest some measures through which the government or companies can arrest such practices. Also suggest some measures the companies can adopt to prevent themselves from becoming victims of corporate espionage.

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After looking at the case it becomes difficult to say that on whom the responsibility of eradicating corporate espionage lays- government or companies. The answer to this can be provided by saying that preventive measures against corporate espionage have to be taken mutually both by government and companies. However, the role to be played by both these agents may vary as follows:

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 Government Involvement in the Espionage Threat Countermeasures The government must conduct a threat assessment to determine risk and External / Internal flaws in the security the major corporations both private and public sector undertakings so as to prevent any possible attack of espionage. This would help protect such information as is necessary for keeping the economy of nation on track

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and preventing from it from any derailment by the financial loss that might be caused due to espionage activities. There is a need of initiative on the part of government to make policies and procedures that would help in controlling the rampant increase of espionage activities. Such policies and procedures must be in writing and easy to understand and should be accessible easily. Further it is also needed that such regulations passed

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by government must be disseminated so that it becomes friendlier for the victim of corporate espionage to take recourse to the measures provided under this. The government must also stay updated with regard to various developments that take place in the corporate world. For this revision of such policies and procedures is required from time to time. Such policies must also be updated annually so as to keep in touch with the latest technological developments.

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The government must also take care of its assets, its people, its information, and its property so that it can utilize all these resources properly without any threat of being espionage by enemy organizations. The government while handling various public sector undertakings must take care of its human resources. There must be Proper Position Descriptions of all the employees which must be accompanied with Pre-Employment Investigations about their

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background. It must be followed by Periodic Investigations so as to check any change in the behavior of a disgruntled employee. The government must also advocate for the publication and release of Audits and Investigations. There must be regular audits of all areas, as this would help in investigations of losses and investigations of violations of policy. After doing this the government would be successfully able to check corporate espionage.

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 Company’s Involvement in The Espionage Threat Countermeasures Think of protection inward out. We constantly advise companies on an obvious, yet often missed, fact. All companies have hundreds of security experts willing to work for free -- if only someone told them how! Employees must form the organisation's first line of defence. Educated and aware employees are several times

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more efficient than the most sophisticated of security systems and available at a fraction of the cost. Think Information Security, not IT Security. IT certainly needs to be secure and the tools have their place in an organisation. But it is (and must be understood to be) a subset of the InfoSec umbrella. Designing of robust processes and standard operating procedures such as classification of information and handling instructions for classified information (in all its forms) is an important part of this step. Process

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interlocks and change management initiatives take time and expertise to implement, but once in place they improve efficiencies dramatically because they are selfsustaining initiatives. Never expose your internal network to outsiders: It is vital all SMEs and larger companies have a single data access channel to where data is stored, while making doubly sure that a strict protocol, which blocks code from entering, is available for remote users.

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Make sure all storage areas are secure: Encryption can be over-ridden by a systems administrator, so although encryption is acceptable for maintaining a level of confidentiality, it does not protect data from intentional deletion or over-writing. Ensure that data at rest is properly protected: Make sure data at rest, not just data in motion, is encrypted. This ensures that the data is not readable. The use of advanced cryptographic protocols, such as AES 256bit for both storage and session encryption and signing, guarantees data security.

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Protect against data deletion and data loss: The protection of data by encryption is only a part of the problem. Files can be accidentally or intentionally deleted or overwritten. Always keep older versions of files. This means you can revert to the correct file, or recover from data deletion. Protection from data tampering: Data held inside protected storage must be made tamper-proof. This can be done by integrating authentication and access controls which will guarantee only authorized users can make changes to the data. Also make

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sure data manipulation does not go unnoticed by making use of digital signatures to detect unauthorized changes in files. Regular auditing, and random and regular monitoring: Comprehensive auditing and monitoring is essential for security. It allows the company to check that its guidelines are being properly carried out. The manager has the ability to track how data is being used. Random, as well as regular monitoring acts as a deterrent for potential spies. Finally, it provides the security administrator with tools with which

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they can examine the security infrastructure, confirm that it is working properly and expose unauthorized usage. However all aspiring corporate moles should be aware that however much technology protects boardroom secrets, it is no match for human fallibility as various businesses have found to their cost.

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CONCLUSION Corporate Espionage has risen to epidemic levels. Espionage strategies range from illegal to merely seedy. In most cases, the best defense is employee awareness. The current organizational focus on risk management, governance, and compliance has, for some, blurred the responsibility for ensuring the security of an organization’s assets. Corporations have to reconsider the effectiveness of their overall security programs, given the current

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threat of corporate espionage. Comprehensive security programs should address this threat. Though espionage cannot be eliminated, implementing multi-layer safeguards will at least minimize losses. The techniques and technologies discussed in this paper are not even close to the tip of the iceberg of what methods can be used to steal information for fun or profit. As competition in the global market place increases, so will the instances of corporate espionage. Therefore, companies both big and small need to take steps necessary to protect themselves from

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becoming a victim. Here are four necessary steps to help protect valuable data from falling into the hands of competitors. 1. Companies must identify what information is sensitive and classify it as such. Information such as R&D processes and innovations or new market strategies are easily identified as “sensitive.” However, other information such as personnel files, pricing structure, and customer lists are often overlooked and left unprotected.

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2. A company should conduct a risk assessment to identify vulnerabilities, and the probability that someone will exploit those vulnerabilities and obtain sensitive information. 3. Establish, review and update security policies and appropriate safeguards, both procedurally and technologically, to thwart attempts to exploit vulnerabilities and gain access to valuable company data. 4. Train all employees. Users, managers and IT staff all need to be trained in what business information needs to be safe guarded, techniques that can be used to gain access to sensitive

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data, and what procedures should be taken to report compromises or suspected attempts to solicit sensitive information. “Knowledge is power. The more knowledge corporations have about the threats that are out there, the better they will be able to defend themselves from attempts to steal their jackpot”.