Refining Ethics For Corporate Sleuths

Recent cases draw attention to intelligence gathering in the business community

IN the fast-changing computer industry, it is common for people to jump from one company to another. Such moves are taken for granted, but many companies worry that in the process trade secrets will also jump to competitors.

In one closely watched case, International Business Machines Corporation alleges that Seagate Technology Inc. recruited an IBM engineer in order to gain technical know-how that has cost IBM $200 million. Both companies produce disk-drives, which are used to store computer data.

IBM won a court injunction to keep the engineer, Peter Bonyhard, from working in a position at Seagate that paralleled his role as a product-development manager for Big Blue. But the injunction was overturned on appeal. The case is still moving forward, and last month IBM began legal action against another former employee, Brendan Hegarty, now at Seagate.

Regardless of which side ultimately wins this case, the controversy highlights the significance of "competitive intelligence" and the ethical issues that can arise.

Keeping an eye on the competition is as old as business itself, but the tougher competition gets, "the more important it is to know what the competition is doing," says Lynn Sharp Paine of the Harvard Business School, who researches the ethics of business intelligence practices.

In the last 10 years, she says, increasing competition has pushed companies "to make information gathering ... a discrete function" with its own staff.

Computer databases are becoming increasingly sophisticated. Quest Management Systems of Troy, Mich., sells software to help corporations organize information, much of which is "soft" (not numbers, but commentary) and "fuzzy" (rumors).

Since much of the work is done internally in large corporations, the size of the industry is difficult to gauge, but Daniel Himelfarb, vice president of the Society of Competitive Intelligence Professionals, estimates business intelligence activity is growing at 10 to 20 percent a year.

Increasingly, firms are educating employees about the ethics of intelligence gathering. In 1988 "not many companies had codes" on the subject, Ms. Paine says.

John Prescott of the University of Pittsburgh says about 30 percent of the companies he recently surveyed have guidelines. The reasons include not only concern about lawsuits, Mr. Prescott says, but also a desire to heighten employee awareness: what not to talk about outside the company, for example, or the kinds of legitimately gathered information that should be passed to superiors.

Most intelligence activity involves uncontroversial tasks such as sifting news articles and gathering information about rivals from one's own sales force.

"Our strongest source of information is our employees," says Margaretta Rothenberg, manager of competitive analysis for Bell Atlantic's yellow-pages operation.

In an article in the Journal of Business Ethics last year, Paine cited several types of ethically questionable practices:

Misrepresentation. Conducting phony job interviews or posing as a potential customer to discover trade secrets.

Improper influence. Bribery or offering someone a job to obtain confidential information.

Surveillance. Eavesdropping in a restaurant or aerial photography of an unfinished manufacturing plant.

Accepting unsolicited information. When a disgruntled former employee of a competitor offers information. If a worker unintentionally gains possession of trade secrets, Prescott says ethics codes typically require that person to take the information to the corporation's lawyers, who would return it with an explanation of how it came into the company's hands.