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The Often-Thin Line Between Cheating and Competing

Gathering 'competitive intelligence' on your rivals is fine, experts agree, as long as you follow the law. Just watch out for those gray areas.

November 03, 1997|NANCY RIVERA BROOKS | TIMES STAFF WRITER

Balboa Capital, an aggressive, fast-growing, Los Angeles-based equipment-leasing firm, suddenly lost five key salesmen who opened a competing company only a few blocks away.

Balboa sued the new competitor for theft of trade secrets, accusing the former employees of taking company documents and using that information to lure away other employees and customers. What's more, the employees-turned-rivals were said to have signed agreements when they were working for Balboa, vowing not to divulge company secrets.

But the case took an interesting turn several weeks later when Balboa's then-president was caught rooting through a dumpster behind the competitor's office. When confronted, the man leaped from the bin and proceeded to wipe his dirty hands across the front of his former top salesman's white dress shirt.

This real-life civil lawsuit from a few years ago, which was settled without a trial, raises a host of ethical questions.

Bath Iron Works faced a quite different ethical dilemma in 1991 when confidential information on a competitor unexpectedly materialized in a conference room at the shipbuilder's Bath, Maine, headquarters.

A Navy consultant had left a routine meeting with the defense contractor but had forgotten to take a document marked "Business sensitive" that detailed the profitability and performance of Bath Iron Works and the only other U.S. company qualified to compete for a contract for a high-tech warship.

Instead of immediately returning the file, Bath Iron Works Chief Executive William Haggett briefly examined the document and ordered it photocopied so he could rush off to deliver a luncheon speech. By the time Haggett came back from lunch, the company's president had learned of the problem and ordered the copy shredded--but not before some top executives had studied and begun working with the information.

Recognizing the breach of procurement regulations, Haggett personally returned the document to the Navy. Still, the scandal cost him and two other executives their jobs and imperiled the future of Maine's largest employer as the Navy considered, and later rejected, the option of barring Bath Iron Works from bidding on future government contracts.

In business, keeping track of what the competition is doing is a smart and accepted practice. But where does "smart" end and "unethical' begin? Tripping over that sometimes blurry line can produce serious consequences for all involved.

Taking computer records of clients' names from a competitor's office is wrong, but what about going through a competitor's garbage?

It clearly is bad to bribe employees of another company to learn their secret formula. But what about buying the product and then paying to have it analyzed?

Is it unethical to pretend to be a grad student doing research or a potential customer looking for a bargain while you secretly probe a competitor's employees for information? Is it wrong to examine a rival's top-secret new machine through high-powered binoculars as it travels down a public highway on the back of a truck, or to peer through an open window into a competitor's factory?

These are the sorts of questions that confront companies every day. In fact, the practice of gathering information on rivals and markets has become so widespread that it is now considered an industry unto itself with a name--"competitive intelligence"; a professional association--the Society of Competitive Intelligence Professionals, with nearly 6,000 members; and a code of ethics.

SCIP defines competitive intelligence as the "legal collection and analysis of information regarding the capabilities, vulnerabilities and intentions of business competitors."

The organization's code of ethics includes requirements to comply with all applicable laws, to honor requests for confidentiality and to accurately disclose all relevant information, including who you are and who you work for.

For the most part, competitive intelligence means gathering and analyzing information that is in the public arena, such as newspaper stories, publicly disclosed financial records and documents filed with governmental agencies. Intelligence-gathering might mean interviews with current and former employees of the competition, market analysts and key customers.

"You can be very ethical and still be very clever" in gathering information to help make business decisions, said Seena Sharp, owner of Sharp Information Research in Hermosa Beach.

Lying, stealing and bribing to gather information or to gain a competitive edge fall far outside the boundaries of acceptable behavior, intelligence professionals and ethicists agree.

But in between right and wrong lies a troublesome gray area that has led many well-meaning companies into trouble.

"I have three tests: the newspaper test, the child test and the skunk test," said W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Mass., and a consultant to companies seeking ethical guidance.

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