Mission: Intelligence

By Daniel Franklin

During his two decades in international corporate security, Bill Elder designed protection strategies in some of the most dangerous parts of the world, from Iraq to Colombia to Nigeria. Operating in countries where American intelligence was often weak, Elder had to rely on his own contacts. In the mid-1990s, while overseeing construction of an oil pipeline in northern Algeria, Elder learned from local sources of a series of killings committed by the rebel Groupe Islamique Armee. This intelligence scoop--the government didn't announce the killings for several days--allowed Elder to steer employees safely away from the danger zones and keep the project on schedule. Indeed, throughout his years as a corporate security manager for BECHTEL and as a consultant to other companies, Elder, now retired, says he never once recommended canceling a project. "My role was to determine what the risk was and how to overcome that risk," he says. "As far as I was concerned, if they were willing to pay for the appropriate security, they could work in hell."

With each day's news reminding executives of how hellish the world can be, more and more of them are deciding that traditional "cops and locks" security will no longer suffice. A growing number of businesses are emulating the CIA and FBI in the inexact art of intelligence collection and analysis to try to predict terror attacks or political instability. Even for a business whose biggest worry is not rebels attacking its employees but, say, MICROSOFT attacking its market niche, corporate sleuthing has become more valuable than ever. "The most fundamental importance of intelligence is to warn--specifically, to warn against surprise attack," says consultant William DeGenaro, a veteran of government intelligence and a former director of business research and analysis at 3M. "Take the same process and substitute another threat--a blindsiding alliance, a technology shift. It's all the same."

How much a business needs to rely on intelligence analysis depends less on where it operates than how. The more capital intensive a business is, the more its executives need to know how the future is likely to take shape. Energy companies, which have to make multibillion-dollar infrastructure investments before they can draw a penny's worth of fossil fuel out of the ground, have set the standard for security and political intelligence overseas. High-tech firms, which need to determine where their competitors are headed before beginning costly research and development, have led the way in what is known as competitive intelligence.

These two sides of corporate sleuthing are largely distinct: they ask different kinds of questions and rely on different kinds of specialists. The ranks of business security intelligence departments are filled with former government agents, while competitive intelligence, with a few notable exceptions, is collected and analyzed by professional researchers who resemble librarians more than shadowy spooks.

Both occupations have boomed over the past several years. According to Brian Ruttenbur, senior vice president of MORGAN KEEGAN, an investment firm based in Memphis, spending on business intelligence and security has swelled to $7 billion annually, from $1.8 billion in 1980, and should double in the next seven years, spurred in part by the Sept. 11 attacks. While it is difficult to quantify spending on competitive intelligence because the industry is so diffuse, membership in the Society of Competitive Intelligence Professionals (SCIP) has risen to nearly 7,000, from 1,550 in 1990, and the overall market for business intelligence--excluding mundane stuff such as security guards, cameras and fences--has been reported to be $2 billion. And just as the attacks of Sept. 11 are forcing a transformation of government intelligence, so too could they make over corporate intelligence.

Security concerns aren't new, of course. Oil companies have pumped petroleum out of the Middle East for the better part of a century; they did not need to be told that the region could be dangerous. The same can be said of the insurance industry, which has been ratcheting up rates since the U.S. terror attacks, in the face of wildly higher demand for political-risk coverage. "No light bulb went off on Sept. 11," says Patricia Skold, who is head of CHUBB GROUP's political risk worldwide and has experience working for the U.S. intelligence community. "We've always been aware of the risk." But some of Chubb's new customers and those of its competitors suddenly had their awareness raised. Chubb, which has employed terrorism experts for at least seven years, has received 1,500 applications for political-risk coverage since Sept. 11--double the rate for the same period a year earlier.

Businesses with long-standing interests overseas often seem to know more about the sociopolitical texture of international hot spots than even the U.S. government. Robert Baer, author of See No Evil, which recounts his 20 years as a CIA agent, points to business's relative freedom from the legal and bureaucratic obstacles that circumscribe government intelligence as an important advantage. Since leaving the CIA, Baer has done occasional investigative work for private interests and says, "My access to information is better since I got out of the CIA."

Businesses today can turn to full-service intelligence and security companies, such as PINKERTON, KROLL or CONTROL RISKS GROUP, which can do everything from evaluating a government's general stability to investigating the background of a potential business partner to managing hostage negotiations with a terrorist group. But boutique firms, often staffed by former government-intelligence hands, have flourished by carving out specialized niches and frequently outdoing the big boys. Business executives can subscribe to the many newsletters focused on specific regions or industries, or have an intelligence firm prepare a report tailored to answer almost any question.

To be sure, the government commands resources that no business can match, from the eavesdropping technology employed by the National Security Administration to information-sharing arrangements with foreign governments. But business intelligence has several important advantages over the government's. Because a business focuses on a specific industry and specific regions, it often develops a greater depth of intelligence in its specialties than is possible for the CIA, with its worldwide responsibilities and tendency to throw resources at the biggest brush fire. Chubb, Skold says, started seeing the first signs of trouble in Argentina two years ago, thanks to the insight of an underwriter who had spent considerable time in the country developing contacts within government and business. Early last year, Chubb forecast that an economic meltdown would make currency transfers impossible. As a result, it stopped offering insurance for short-term loan agreements nearly a year before Argentina's problems hit the news.

While a CIA station officer posted overseas may require years of delicate handling to develop a source, a business can simply hire a local former law-enforcement or intelligence official and gain the benefit of his experience and sources. "If the former head of Saudi intelligence takes a consulting job with an oil company, that's not a big deal," says ex-military intelligence officer Edward Badolato, president of CONTINGENCY MANAGEMENT SERVICES, based in Washington. "But if he's discovered working for the CIA, he's liable to get hanged."

Businesses working in troubled regions often develop relationships with more elements of a country's society, including those that may be hostile to the government, than does the CIA. To stay neutral in a conflict, some businesses even risk irritating their host governments by hiring members of rebel groups. The CIA, as Badolato puts it, "doesn't stay in with the outs." A formal agreement between the U.S. and Britain prevents the two from spying in each other's country, Baer says. That means the U.S. could not have useful operatives in London mosques, and the British just did not. And some businesses make the same mistake, according to George Friedman, founder of STRATFOR, an intelligence firm in Austin, Texas. "The expat community in Iran missed the fall of the Shah. In Russia they missed the fall of communism," he says. "They tend to rely too much on their personal contacts. They think, 'If I know the Shah's brother-in-law, I'm well connected, and I know what's going on in the country.'" The story of oil development in the Caucasus, Friedman adds, "is littered with companies that thought they had relationships that would carry them over the top."

Still, the CIA regularly seeks to debrief business travelers and expatriates, especially those with access to countries such as Iraq and North Korea. During the days leading up to the Gulf War, Elder recalls, officials at the U.S. embassy in Baghdad would regularly debrief him and his colleagues in business intelligence. His security measures for Bechtel's work on the Bekhme Dam in the Kurdish region of Iraq covered every aspect of protection strategy, down to how many guards should be stationed and where. His work, he says, would have made it manageable to build the dam, had not the Gulf War intervened. The Iraqi government detained more than 100 Bechtel employees, and although it ultimately released them, the dam was never completed.

Some private security professionals, however, avoid government intelligence agents. If local sources believe that the information they provide to a business executive is going to be passed to the CIA, they may be more reluctant to help. One security-intelligence executive said, after emphasizing strongly that he did not cooperate with the CIA, "I don't want to get in the back of a cab in Bogota and have the guy in the front seat turn around and accuse me of doing something I don't do."

Competitive-intelligence work is far less dangerous but equally sophisticated. The vast majority of this work is legal and, with a few exceptions--like the private investigator working for Oracle, which in 2000 allegedly tried to pay a janitorial service for the trash of a pro-Microsoft advocacy group--completely ethical. A company's CI director is far more likely to find useful information in a competitor's SEC filing and annual report than with a spy camera.

More often than not, the trick to CI isn't in learning something new but in using the knowledge of a certain business to see the meaning in data that others can't. In the mid-'90s Amoco (now part of BP) prepared a series of personality profiles of top ENRON executives to determine how the company established its position in the natural-gas industry without any reserves. A tidbit that stood out was the number of top executives who were downhill skiers. The detail seemed to indicate that Enron execs had a greater comfort with high risk than did the golf-playing leadership of Amoco. This was not a competitor or partner, Amoco determined, on whom it could depend to play by the rules.

Businesses have been doing targeted research on competitors for decades. The international-intelligence operation John D. Rockefeller built for Standard Oil in the late 1800s penetrated competitors and governments alike and may have been rivaled only by that of the British government. "The next best thing to knowing all about your own business," Rockefeller said, "is to know all about the other fellow's business."

In the modern era, competitive intelligence got a high-profile boost in 1983, when MOTOROLA CEO Robert Galvin hired CIA veteran Jan Herring, who is now a consultant and CI trainer based in Hartford, Conn. Herring built a CI department that set a new standard in two critical ways. First, it was driven by the CEO himself. CI professionals agree that intelligence is only as good as the executives who use it. Unless the CEO understands the importance of intelligence as well as its limitations, the best efforts of an analyst will be worthless. Second, Herring focused on developing internal sources of information: Motorola employees who could accumulate critical data about competitors or the marketplace in the course of their everyday jobs. Herring taught key employees around the world how to casually elicit useful information from unwitting sources and then encouraged them to pass the information to the CI department so it could be analyzed and delivered to Motorola executives in the department's regular reports. In 1985 Motorola employees in Japan learned off-hand--over drinks--from their NEC counterparts that poor communication caused NEC to blow a potential deal for a GENERAL ELECTRIC subsidiary, according to Adam Penenberg and Marc Barry's 2001 book, Spooked.

As high-tech industries boomed, CI grew with them. Biotech and pharmaceutical companies have become especially skilled. "Because of all the patent information that's available, we know well in advance what is in someone else's pipeline," says SCIP president Mark Little. "You can see some of these things coming a long time away."

SmithKline Beecham, now part of GLAXOSMITHKLINE, anticipated BRISTOL-MYERS SQUIBB's acceleration of its anticancer drug Taxol, in part because Bristol-Myers Squibb took a curious interest in amending the Endangered Species Act to enable more harvesting of the yew tree, whose bark produces the active chemical agent in Taxol. SmithKline's suspicions were strengthened in the early '90s when it noticed an increase in the number of oncology positions listed in help-wanted ads run by its competitor in trade papers. Bristol-Myers Squibb had also told financial analysts it was investing more money in its oncology unit. In response, SmithKline sped up its own cancer research to avoid being muscled out of the market.

As sophisticated as U.S. business intelligence is, it lacks the government support that many other nations' multinationals can count on. The Chinese, French, Israeli and Japanese intelligence services are especially noted for gathering and sharing information useful to their country's firms. Last year two Chinese scientists working for LUCENT were arrested on charges of passing information to a state-run Beijing company seeking to become the CISCO of China. The scientists and a third alleged co-conspirator are still awaiting trial. U.S. intelligence has tipped off American businesses when it has learned their competitors have not been playing by the rules--for example, in cases in which bribery threatened to influence the award of a big aerospace contract in Saudi Arabia and a telecom contract in Brazil. But U.S. agencies are reluctant to go much beyond such warnings, out of concern about not favoring one firm over another.

The field of competitive intelligence, in particular, stands to change dramatically as a result of the attacks of Sept. 11. Businesses are hunkering down, focusing less on acquiring competitors' proprietary information and more on keeping their competitors out of their own. Sept. 11 may not have been a failure of corporate intelligence, but its impact has rippled throughout the business world. "People have begun to recognize that our trust needs to be balanced with some healthy paranoia. We have seen that what is possible is more horrific than we could have imagined," says Naomi Fine, president and CEO of PRO-TEC DATA, a leader in the field of information security. "We see now the potential is that everything can be lost. Literally, everything is at stake."

To some businesses whose products or proprietary information could be, in a sense, hijacked and used to commit acts of terror, the attacks on the World Trade Center and the Pentagon came as a dark revelation. "Sept. 11 got a lot of people thinking, What is our industry's version of the $300 impenetrable cockpit door that could prevent billions in liabilities?" says John Nolan III, a former SCIP president and the chairman of PHOENIX CONSULTING GROUP. Nolan points to information and technology about dangerous chemicals as a potential target for terrorists. "Liability or embarrassment--those are the forces driving people."

Before the attacks, Nolan estimates, his consulting business was split equally between training companies to collect information on competitors and preventing rivals from collecting information on them. Today, he estimates, for every company that wants help digging up proprietary information, seven come to him for assistance in protecting their data. And, notes Nolan, there's a new kind of adversary: terrorists who want to use Western technology against the West. Pharmaceutical and biotech companies in particular should raise their level of awareness, says Jan Herring. "There's a very strong business objective [in] staying on top of these terrorism threats, particularly in bioterrorism," he says. "For instance, someone could come into a company and begin buying products or technology that could be applied to the dispersal of some form of gas, like the sarin-gas attack in Japan." If CI professionals stay on their toes, Herring says, "they could serve as a trip wire for government."

Indeed, many CI professionals suggest that business intelligence can play a major role in the effort to prevent terrorist attacks, especially in tracking businesses or financial transactions that support terrorist groups. "A CI person might have the financial and analytical capabilities to say to the CIA, 'Have you thought about looking here?' or 'Are you looking at bank accounts in this way?'" says Ken Sawka, a former CIA analyst and a vice president of FULD & CO., a CI consultancy based in Cambridge, Mass. "When I was in the government, the guy sitting next to me didn't know how to do that. He knew about Soviet helicopters. I think CI has matured to the point that there are things that the government can learn from us, such as how to dissect a corporate strategy." Oddly, however, none of the CI professionals interviewed for this article have been approached by the government for help.

Even if they are not drafted into the war on terrorism, though, there stands to be more than enough uncertainty at home and abroad to boost the value that business places on intelligence. The economic landscape of the past several months has resembled nothing so much as a minefield in wintertime, when the freezing ground can compress around the mines and trigger an erratic and unpredictable pulse of explosions: the World Trade Center, Argentina, Enron. Few business leaders could be faulted for being worried that the next blast may come from directly under their feet.

--With reporting by Eric Roston/New York

With reporting by Eric Roston/New York