Corporate espionage is probably not what you think of when you hear the word spy. It's not Sean Connery with his debonair manner, nor is it Tom Cruise hanging from suspension cable; sometimes it's as simple as a man in a bathrobe sitting in front of a computer with a touchtone phone beside it. Google found out that espionage can "allegedly" be a sovereign state seeking to quash dissidents. We'll look at both the fact and fiction surrounding the world of the corporate spy. (From godfathers to perps, familiarize yourself with the "criminal elements" creeping around Wall Street, in Handcuffs And Smoking Guns: The Criminal Elements Of Wall Street.)
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Caught Napping
Why aren't we rounding up corporate spies and applying the thumbscrews? Putting aside the music and film pirates who are prosecuted by the MPAA sporadically, there is nothing blatantly illegal about this profession. The freedom of information act can, with some imagination, be stretched to protect the collection of any kind of information as long as:

  1. You have not signed a non-disclosure agreement and
  2. You do not use fraud or break any laws while gathering information

When corporate spies are caught, they are charged for breaking rule two. (Ponzi schemes are just one example of this type of scam; learn how to avoid becoming a victim in Affinity Fraud: No Safety In Numbers.)

There are several reasons that we don't hear about corporate espionage too often. If a corporation admits that it has been the victim of cloak and dagger activities, it appears vulnerable. This could potentially attract more freelance espionage on the basis of the company being an "easy target." It also shakes shareholder confidence. Corporate espionage is a much more compelling headline than an earnings report, so the news of a breach would almost certainly receive publicity that would cause the company's stock price to drop.

Uncertain Payoff
The main reason that corporate spying isn't in the news everyday is, disappointingly, because it simple doesn't work. In 1993, Volkswagen swiped a bunch of General Motors plans (God knows why) and ended up paying $100 million when they were caught.

In 2001, Proctor & Gamble was caught dumpster diving at Unilever's Chicago offices in hopes of nabbing shampoo formulas. This was part of a corporate espionage initiative at the company that spiraled out of control, costing the company $10 million in damages paid to Unilever. In recent years, companies have even been caught spying on themselves, as HP was in 2006. (Scandals and fraud have given financial professionals a black eye. Learn some typical ethical dilemmas and how to stay clean, in Standards And Ethics For Financial Professionals.)

Spy 101
Most companies that find themselves suffering intelligence leaks probably punched those holes in their security through their own negligence. Admitted corporate spies are by no means the James Bond, jack-of-all-trades, master of 30 languages, high-tech spies.

Corporate spies begin by gathering all the information they can on a targeted firm by requisitioning documents via the Freedom of Information Act and using the Internet. If a company listed the bowling scores of the previous office outing on a webpage – voila, the spy has a list of management and personnel to research. A little more digging will reveal how much they make, any shifts in position that may have left a disgruntled employee ready to dish the dirt, and so on. Facebook and Twitter have eroded the idea of personal privacy to the point where people rarely give a thought to their professional confidentiality.

If the internet fails, corporate spies may pose as journalists for some unknown local paper wanting to write a company profile or a story about the management team – and why not? It's free advertising. Corporate vanity and the vastness of the internet are not, however, a company's weakest link – the people within are. (Follow the simple rules in Eight Ethics Guidelines For Brokers to ensure you're treating your clients fairly.)

Power to the People
Most companies are fairly paranoid about what they allow to flow into the 'net, but they are not so diligent with who they allow to flow into their systems. Corporate spies have entered company computers simply by calling up the systems administrator claiming to be an employee who has lost his or her ID and password. A little more complicated, but still common, a corporate spy will walk into a company and use an empty terminal if they know an employee is away. Memos on vacations - and even bid prices - are often discarded in the trash bins.

Once inside, infiltrators have as much access as their computer savvy allows. This type of invasion can sink research and development (R&D) companies because their profits depend on their data being exclusive. (Investors take note: companies that cut research and development are in danger of saving today but losing big tomorrow. Find out more in Buying Into Corporate Research & Development (R&D).)

The Business of Corporate Spying
Corporate spies can run legitimate offices and are usually hired by firms to spy on other firms. If business is slow, a corporate spy may pick a company without being hired and then collect information to sell to interested bidders. Some corporate spies do employ hackers to do the high-tech nab and grab, but most companies have very well paid system administrators that can track the digital spies (some of them are ex-hackers). High-tech espionage is much easier to track than someone stealing the garbage or calling the company with flattering questions.

The world of corporate espionage is very real and very different from what one would expect. It is far from glamorous, lacking both gunfights and fast women, but it is a concern to companies. Knowing a competitors next product line, bid price or any other sensitive data can give a rival company a competitive advantage – provided they don't get caught. The temptation is strong, so corporate espionage will continue - whether we hear about it or not.

Still feeling uninformed? Check out last week's Water Cooler Finance to see what's been happening in financial news.

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