Ethics in Competitive Intelligence

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Introduction

Competitive intelligence (CI) is receiving more notoriety in every industry sector. This discipline can aid companies to make better strategic decisions by gathering information about their industry. CI is a young discipline compared to professional areas such as accounting and medicine that have established guidelines in areas such as ethics. Albeit there are general CI ethical guidelines communicated by the Society for Competitive Intelligence Professionals (SCIP), there are many litigious situations that CI practitioners encounter whereby their decisions can be either construed as ethical or non-ethical depending on the person’s point of view. This is a challenge for many CI practitioners because there is no distinct code of conduct for these situations.

We will discuss these ambiguous situations in more detail and provide some helpful hints in handling these challenging situations. We will also discuss cases of organizations accused of unethical CI practices and highlight the existence of misconceptions about CI that these cases reveal.


Ethical Challenges in Competitive Intelligence[1]

Misrepresentation

Misrepresentation is the most common issue that subdivides many CI practitioners in many ambiguous ethical issues. Misrepresentation is falsely identifying oneself in order to receive or access information that would not have been provided if one’s identity was used. There are three common cases of misrepresentation where there is some ambiguity:

  1. Omitting some details about one’s identity
  2. Not revealing one’s identity in a public venue after overhearing classified information
  3. Not disclosing true intent on how information will be used


Omitting some details about one’s identity

CI practitioners agree that lying about one’s true identity to obtain information that would not have been provided if someone had given their true identity is unethical. However some practitioners believe that it is acceptable to omit details about one’s true identity to get information. For instance if someone has two identities, a part-time student and a director for a major company, and this person has a school assignment to collect information about a company that happens to be a competitor of the person’s employer, some CI practitioners believe it is fine to not reveal that they work for a competitor in order to receive the information they need to complete the school assignment. Although this raise some concerns because the competitor may have not provided any information to the person if the competitor found out that this person worked for a direct competitor.


Not revealing one’s identity in a public venue after overhearing classified information

Another issue where some CI practitioners felt it was not necessary to reveal their identity is when they overhear classified information about a competitor at a public place. CI practitioners argue that the person who disclosed the classified information is at fault because they should have been aware of their surroundings. At the same time some people argue that CI practitioners could have planned to be in the vicinity in hopes to hear any unravelling information about a competitor.


Not disclosing true intent on how information will be used

Another misrepresentation issue is not disclosing the true intent on how the information will be used. Many CI practitioners are consultants who are paid by their clients to get information about their competitors. Some CI practitioners would get the information required by surveying the competitors and suggesting to the competitor that they are collecting industry information although not revealing the true intent on how information will be used.

Similar to the other two misrepresentation examples, the common theme they all have is “what is the intent of the CI practitioner?” The person’s intent is the source of whether the situation is ethical or non-ethical.


Client Conflict

Client conflict arises mostly with CI practitioners who are consultants. CI consultants agree that there should never service competing clients at the same time because the practitioner may act in favour of one of the clients and share classified information about a competitor. On the other hand many CI consultants are industry experts and there going to be instances where their experience and knowledge they gained from the industry over the years may bring them to face an ethical stance on which information he or she can share with a client because it could be classified information about a competitor.

Another conflicting issue is the client and CI consultant relationship. Usually clients often seek CI consultants to gather information about their competitors. The ethical issue is at what cost or length does the clients expect the CI consultants to get the information. CI consultants are a midst of a lot of pressures to provide the information that the clients are seeking and they tend to encounter ethical issues when getting the information. One of the reasons the clients hire a CI consultant is to try to distance themselves from facing those ethical situations.


Ethical Guidelines in Competitive Intelligence

CI practitioners who aim at conducting their activities in a completely ethical manner can consider several elements for guidance: the law, industry guidelines; corporate ethics policies - if they exist - and personal moral codes.


Law and Ethics

In general and in competitive intelligence in particular, what is legal can be ethically questionable. There are many gray areas.

This is exacerbated by the fact that there is no specific Canadian legislation dealing with industrial espionage, as there is in the US, with the Economic Espionage Act or the Uniform Trade Secrets Act. Currently, Canadian businesses have to rely on common law and criminal provisions to protect confidential business information.

But these provisions are not appropriate. For instance, no statutory definition exists for confidential information.[2] A list of factors make up for the definition, which includes “whether the owner of the information has clearly communicated that it was confidential in nature and took measures to ensure the information remained secret, […] whether only a few people knew of the information, whether it is unique, and whether time, effort, and money were expended in compiling the information”.[2] When firms claim that there was a breach of confidential information, they have to rely on this set of factors.

When a trade secret has been stolen, businesses also have to rely on the Criminal Code. However, the jurisdiction says that information cannot be defined as property, since theft of information does not deprive the owner of its use.[2]

Yet, a few companies such as Air Canada were successful in using the theft and fraud provisions of the Criminal Code. Air Canada argued that, because its competitor WestJet had stolen confidential information from its Intranet, it was “deprived of passengers and of the ability to compete effectively in the marketplace”, and won the case.[2]

The fact remains that, in particular in Canada, the law does not provide much guidance for CI professionals. Thus, we have to take a closer look at formal codes.


Formal Codes of Ethics

Industry Guidelines

SCIP

The Society of Competitive Intelligence Professionals (SCIP), whose motto is “Economic espionage is the failure of competitive intelligence”, has published the following ethical guidelines for CI professionals. [3] When joining, its members voluntarily agree to abide by the SCIP Code of Ethics.

  • To continually strive to increase the recognition and respect of the profession.
  • To comply with all applicable laws, domestic and international.
  • To accurately disclose all relevant information, including one’s identity and organization, prior to all interviews.
  • To avoid conflicts of interest in fulfilling one’s duties.
  • To provide honest and realistic recommendations and conclusions in the execution of one’s duties.
  • To promote this code of ethics within one’s company, with third-party contractors and within the entire profession.
  • To faithfully adhere to and abide by one’s company policies, objectives, and guidelines.

However, the Code does not address specific CI activities, apart from disclosure of information and confidentiality requests.[4]


Fuld & Company

Fuld & Company has also published its own guidelines, known as the “Ten Commandments of Legal and Ethical Intelligence Gathering”:[5]

  1. Thou shalt not lie when representing thyself.
  2. Thou shalt observe thy company’s legal guidelines as set forth by the legal department.
  3. Thou shalt not tape-record a conversation.
  4. Thou shalt not bribe.
  5. Thou shalt not plant eavesdropping devices.
  6. Thou shalt not deliberately mislead anyone in an interview.
  7. Thou shalt neither obtain from nor give price information to thy competitor.
  8. Thou shalt not swap misinformation.
  9. Thou shalt not steal a trade secret (or steal employees away in hopes of learning a trade secret).
  10. Thou shalt not knowingly press someone for information if it may jeopardize that person’s job or reputation.


The Wade System

Another guidance for CI professionals is “the Wade System of Graduation of Sources of Information”. In 1966, Dr. Worth Wade published a list of tactics and sources in descending order of ethicality.[6]

  1. Published material, and public documents such as court records.
  2. Disclosures made by competitors’ employees, and obtained without subterfuge.
  3. Market surveys and consultants’ reports.
  4. Financial reports and brokers’ research surveys.
  5. Trade fairs, exhibits, and competitors’ brochures.
  6. Analysis of competitors’ products.
  7. Reports of salesmen and purchasing agents.
  8. Legitimate employment interviews with people who worked for competitor.
  9. Camouflaged questioning and ‘drawing out’ of competitors’ employees at technical meetings.
  10. Direct observation under secret conditions.
  11. False job interviews with competitors’ employees (i.e. where there is no real intent to hire).
  12. False negotiations with competitor for license.
  13. Hiring professional investigators to obtain a specific piece of information.
  14. Hiring an employee away from the competitor, to get specific know-how.
  15. Trespassing on competitors’ property.
  16. Bribing competitors’ supplier or employee.
  17. ‘Planting’ your agent on competitors’ payroll.
  18. Eavesdropping on competitors (e.g. via wire-tapping).
  19. Theft of drawings, samples, documents and similar property.
  20. Blackmail and extortion.

According to Dr. Wade the first seven methods are usually ethical and legal business intelligence and the remaining thirteen are in a descending order of ethics or legality and are regarded as industrial espionage.


"The Bible of BI Ethics"

Egideria, a CI consultancy based in Paris, abides by the code of professional conduct of the SCIP, and has also developed a bible of BI ethics, which gives an indication of what to do and not to do in 12 contentious situations:[7]

Bible of BI ethics.jpg


Corporate Codes of Ethics

Companies should always have their own code of ethics to give guidance to their employees and avoid unethical behaviours. Unfortunately, “corporate policies addressing CI are sparse and often woefully inadequate”.[4] And yet, these play an important role, since they can lead to a powerful personnel and cultural control within the company. The organizational culture can influence the way the practitioner conducts themselves when faced with ethical decisions. Research has shown that an organization that has a strong ethical environment where there is support from management, and there is training and guidance on good and bad practices help CI practitioners to refuse not to engage in any unethical practices because they feel they have support from top management and that they will not get punished for their actions. Conversely this would not be the case in an organization with a weak ethical environment.[1]

A good example of a corporate code of ethics is the one developed by Fuld & Company[8]:


Just the Facts - Ethical Policies for Fuld & Company - Employees and Contractors

Begin telephone calls by (1) asking your questions. (2) When asked to identify yourself, give your full name, and (3) if also asked where you are calling from, state “Fuld & Company,” or the Fuld subsidiary you may be calling from, (4) and the company phone number or direct dial phone number as well, when asked or when you need to receive a call back. Never misrepresent yourself. Do not make a false statement.

  • It is not necessary to be specific regarding identification of the client or the purpose of the project with a source about the project, but it is our policy to gather information in a truthful, professional and ethical manner.
  • You can identify Fuld & Company or a Fuld subsidiary as a firm that does industry analysis. If you are asked at some point in the conversation to identify the nature of your business, state that you work for a research, a consulting firm, strategic or business analysis firm, or another phrase that accurately describes the various services we offer. If appropriate refer the source to the Fuld or subsidiary Web site.
  • Never induce or pressure a source to disclose information they have specifically categorized as proprietary, confidential or a trade secret. Making use of information you know to be confidential is illegal and unethical, regardless of the manner in which you obtained the information.
  • If you believe information has come into your hands illegally, or through someone who was breaking a confidentiality agreement when disclosing the information, bring the information to the attention of your Project Manager.
  • Never disclose a client’s name to a source or to anyone outside the firm. Unless you are told otherwise, consider client confidential, and do not discuss projects, clients or project information with anyone outside the company or in public places.
  • Do not pay a contact for information, unless a Project Manager at Fuld & Company has approved that payment in advance. (Small honoraria, when paid, are usually limited to doctors or other professionals. You are never to pay a competitor’s employee).
  • Never talk directly to a client without first receiving permission from the Project Manager.
  • Never remove project information from Fuld & Company offices, including papers, data disks or other project-related information, unless you have first received permission to do so from the Project Manager.
  • Most importantly, conduct yourself in a professional and ethical manner. Use common sense. If you believe your actions in gathering information are questionable, it is likely that they are. Ask your Project Manager for guidance and support.
  • Remember, the manner in which you conduct yourself is not only a reflection on you as a professional, it also reflects how Fuld & Company is viewed by potential clients and others in the marketplace. Our reputation is important, so please act accordingly.


Personal Ethical Considerations

Handling ethical situations can be difficult for many CI practitioners especially when there is no specific conduct that states what to do for a given situation. There are several methods that can help confront the ethical situation:


Three Tests

  • The Harm Rule

According to Leonard Fuld[5], “the quickest way to find [whether you are stepping over the ethical line] is through the Harm Rule”: “I will not do anything that may now or in the future harm or embarrass the corporation.”


  • The "Gut Check"

The “Gut Check” is one’s instincts. If the decision does not feel right, or makes your stomach uneasy (hence the term “Gut Check”) then the decision may be the wrong one. Often instincts should lead someone to their ultimate decision, but remember not everyone who uses their instincts to make decisions will end up choosing the same decision. This is a result of people having different educational, cultural, and professional backgrounds. The gut check does not reveal the right or wrong decision it provides CI practitioners a way to make decisions based on their comfort level.[1]


  • The Public Disclosure Test

The public disclosure test is a test the can help a CI practitioner assess the decision they would make in an ethical situation. The CI practitioner would pose the following question to themselves: “Would I feel comfortable with the decision if it became public?”. This is a good litmus test to decide whether the practitioner can live with the decision knowing that other people would be aware of what he or she did.[1]

Variants of this test include questions such as: “Would I like my family to know about it?” Herring, a 20-year veteran of the C.I.A., uses what he calls “the mommy test”: “If I do this, will my mommy be happy with me?”[9]


Ethical Frameworks

Personal ethics is dependent on one’s own personal history codes. The following ethical frameworks can help structure one’s thinking.[4]


  • Utilitarian Ethics

When assessing the ethics of an action, utilitarianism only considers its result. To be ethical, the action must yield more overall benefits than it causes harm. The evaluation should consider harms and benefits that accrue to the community at large, i.e. all impacted stakeholders. However, one limit of utilitarianism is that it can be very difficult or even impossible to forecast the total benefits and harms that may be caused by an action.


  • Kantian Ethics

For Kant, an action is ethical if it meets certain fundamental imperatives, regardless of its results. First, all actions must respect human rationality. Kant also defines the following categorical imperative: “all humanity should be treated as an end and never as a means only.”


  • Virtue Ethics

Virtue ethics can be considered on two different levels.

The first is the individual perspective. This theory is the most frequently used perspective. Virtue ethics focuses on the question: “what kind of question should I be?” rather than “what actions are right?”. It assumes that people pursue an ideal end and that they pursue and maintain virtues that they have identified as promoting the ideal end. Whether one defines wealth creation or personal fulfilment as the ideal end of business activity will lead to the definition of different virtues.

The second perspective is based on the community. A good implementation of this theory would be to ask yourself whether you would be comfortable explaining your action to the general public. This is a good framework since it involves taking into account the different virtues of all the individuals that make up the community.


  • The CHIP Model

Darren Charters[4] suggests a framework that integrates these three theories into one model: the “CHIP model”:


The CHIP Model.jpg


The CHIP model applied to the question of misrepresentation by omission

  • Harm

Very difficult to assess the potential harm resulting from misrepresentation by omission

  • Individual as end

An act of omission appears unethical: the individual rationality is not respected

  • Personal virtues

Honestly is considered as a noble virtue by many. Thus, misrepresentation by omission should be regarded as unethical.

  • Community virtues

If the community at large is considered, wealth creation cannot be seen as the end of business activities. It is also regarded as a means of “building community and promoting self-development”. Honesty will also considered as a virtue. Consequently, misrepresentation by omission is unethical.

The use of the CHIP framework leads us to conclude that CI professionals should not misrepresent themselves, even by omission, since this practice is considered as unethical by more than one theory.


These different sources of guidance can provide good indications to CI practitioners that their activities are ethical or unethical. However, using several sources could lead to conflict. To protect themselves, CI professionals should always consider the more stringent standard should prevail, be it dictated by the CHIP model or a corporate policy.


Cases of Organizations accused of Unethical CI Practices

The paradox of competitive intelligence is that people tend to hear about it only when operatives decide to play secret agent. Cases of organizations sued for corporate espionage are numerous.


Oracle

The most extreme example probably dates from 2000, when Oracle wanted to investigate two research groups that supported Microsoft during the antitrust trial. The detective agency hired by Oracle attempted to buy garbage. Oracle discovered that the two organizations were misrepresenting themselves as independent advocacy groups when they were in fact funded by Microsoft. Larry Ellison, Oracle chairman, seemed to think that the end justifies the means, as he declared: “I feel very good about what we did. […] Maybe our investigation organization may have done things unsavoury, but it's not illegal. We got the truth out.[10]


WestJet

A Canadian example of unethical CI practice is WestJet.[11] In April 2004, Air Canada filed a $5-million lawsuit against rival WestJet, claiming that some WestJet’s officials logged on to Air Canada’s internal employee-only website 243,630 times over a 10-month period, and used that information to make decisions on flight load schedules. Based on this confidential information, WestJet decided to drastically slash service out of the Hamilton airport and move it to Toronto. It also adjusted other routes, including some to the US. WestJet later settled with Air Canada, issuing an apology to its rival and paying the airline $5.5 million in legal fees and donating $10 million to charity. Further to the lawsuit, Hill, one of the founders of WestJet, resigned from his position as vice-president of strategic planning in July 2004.[12]


SAP

A very recent example is Oracle filing new charges against SAP in June 2007 in the corporate espionage case between the rival enterprise software vendors, which started in March 2007.[13] Oracle claims that SAP’s TomorrowNow subsidiary had downloaded large amounts of support material and software from an Oracle website intended only for paying customers, and that SAP has distributed one of Oracle’s patches as its own.


Hewlett-Packard

One of the scandals that have received the greatest media coverage in recent years is the HP lawsuit, which is still unfolding. In 2005, Hewlett-Packard sued his former VP, Karl Kamb, for $100 million. HP claimed that Kamb had betrayed the company and appropriated its trade secrets to launch his own TV company. Kamb filed a countersuit in January 2007. He not only denied stealing trade secrets but also claimed that he was asked by HP to gather “confidential information” on Dell, whose entry into printers had threatened HP’s most lucrative line of business. In 2002, the CI unit hired Katsumi Iizuka, who was a president of Dell Japan until 1995, and still had a lot of relationships inside Dell. Iizuka allegedly sold HP information on Dell’s plans to enter the printer business. The CI unit was able to get information about printer models, specifications and prices, several months before their launch. Kamb also accused HP of using pretexting, the practice of obtaining information by masquerading as someone else, to get his private phone records.[14]


Common Misconceptions about CI revealed by these Cases

The HP story highlights a number of misconceptions about competitive intelligence, that generally relate to the myth that competitive intelligence is about spying.[15]

  • “Distrust your employees first”

“Wherever money is exchanged, so is information”. Whenever a business transaction takes place, information is made available to competitors. Employees can give out information, but it is very likely that it is already available anyway.

  • “Everyone needs a ‘deep throat’”

You don’t need to have a deep throat informing you on competitors. There is enough information publicly available. CI is about putting together and analyzing fragments of information.

  • “Dumpster dive first, think second”

Even if rifling through a competitor’s garbage might be legal (provided it is on public property), it is not the right place to find good information. Legal and ethical ways, such as attending trade shows and conferences, are likely to be far more informative

  • “Intelligence at arm’s length is good for business”

The CI department should report directly to the decision-maker. If requests from the Board or CEO are filtered through many hierarchical levels, the message is likely to be distorted and misunderstood. In HP’s case, it seems that the message that was conveyed was that the ends justify the means.

  • “Cowboys, cowboys everywhere!”

Companies need to establish guidelines for their employees. They have to communicate these guidelines through a comprehensive training and make sure the limits are understood.


Conclusion

CI has yet to establish clear-cut ethical guidelines for ambiguous situations. This is a challenge for CI practitioners, companies, and governing CI bodies like SCIP to try to resolve. It is up to them to work together to reach agreements on how to handle and manage misrepresentation, client conflict, and an organization’s ethical culture to help improve the state of ethics in CI. It is an important issue to collectively work towards to clear any ethical ambiguities and to avoid negative publicities that can damage the image of CI. In the meantime, ethical issues can be confronted using such methods as the CHIP model.

The argument has been made that companies that employ unethical practices will have a competitive advantage over those who limit themselves to ethical activities. However, the competitive advantage of CI does not consist in the information collected and the way it is collected, but in the synthesis and analysis of the collected information. Consequently, and as shown from the cases presented above, unethical CI practices are not worth the risk.


References

  1. 1.0 1.1 1.2 1.3 Trevino, Linda; Weaver, Gary: Ethical Issues in Competitive Intelligence Practice: Consensus, Conflicts, and Challenges; Competitive Intelligence Review, Vol. 8, No. 1, Spring 1997
  2. 2.0 2.1 2.2 2.3 Fraser, Nathalie: Canadian law on industrial espionage needed; Law Times, 6 March 2006, http://www.lawtimesnews.com/index.php?option=com_content&task=view&id=431&Itemid=82
  3. SCIP, http://www.scip.org/2_code.php
  4. 4.0 4.1 4.2 4.3 Charters, Darren: The Challenge of Completely Ethical CI and the CHIP Model; Competitive Intelligence Review, Vol. 12, No. 3, 3rd quarter 2001
  5. 5.0 5.1 Fuld, Leonard: The New Competitor Intelligence, Chapter 1: Understanding Intelligence http://www.fuld.com/Tindex/CIbook/chap01.html
  6. http://twoscenarios.typepad.com/maneuver_marketing_commun/2006/03/dr_worth_wade_l.html
  7. Egideria, http://www.egideria.com/ethique.html
  8. Fuld & Company: http://www.fuld.com/Company/ethicalpolicies.html
  9. Smith, Sasha: Spying: How far is too far?; Fortune Small Business, Vol. 11, Issue 5, June 2001
  10. Wong, Wylie: Oracle chief defends Microsoft snooping; CNET News.com, 28 June 2000
  11. Morrison, Jennifer; Perkins, Tara: Espionage in business causes public to lose trust; The Hamilton Spectator, 10 April 2004
  12. Teel, Gina: Founding member to depart from WestJet; Executive VP retiring after 12 years; Calgary Herald, 31 May 2007
  13. Sanders, Tom: Oracle extends SAP espionage charges; VNUNet UK, 4 June 2007
  14. Varchaver, Nicholas: The Trail of HP, A Pretext For Revenge; Fortune, Vol. 155, Issue 11, 11 June 2007
  15. Fuld & Company: http://www.fuld.com/News/HP_CI_Limits_Sept-06.html#5


Authors

  • Maz Barbir
  • Jay Concepcion
  • Cécile Lecoq