COVER STORY : Corporate Spying – Is it ethical?

Much has been written over the past few years, and even more over recent months, about companies’ behaviour when protecting their interests from sabotage, subterfuge, or even just bad debt. basic rule of business is that management is there to protect and advance shareholder interests – be those people private investors, the government or the public. Why, then, does it seem so distasteful when we hear about some of the measures managers take to fulfil this duty?
Recent actions taken by Solid Energy and Mercury Energy have filled the front pages – and dominated water cooler discussions – with arguments for and against all parties involved. While there is no simple solution to the dilemmas faced by either organisation, their behaviour has heightened the country’s awareness of ethics in business.
The spotlight is turned on full when the company involved is State Owned Enterprise (SOE). While earlier examples of ethical dilemmas at SOEs (remember Timberlands’ fight with Native Forest Action?) caused public angst, we’ve recently seen double-whammy hit on the Government’s control of its own commercial activities.
Earlier this year, environmental campaigner and investigative journalist Nicky Hagar revealed that SOE Solid Energy had paid “spies” to report on the internal operations of its bane – some would even say nemesis – the Save Happy Valley Coalition.
And in May, Mercury Energy, the retail arm of SOE Mighty River Power, became embroiled in allegations surrounding the death of Folole Muliaga after the power was disconnected to her Mangere home.
In each of these cases, sides have been taken, arguments debated, and politicians have made their feelings known. Prime Minister Helen Clark called Solid Energy’s spying “unacceptable”, and State Owned Enterprises Minister Trevor Mallard called for the practice to end.
Perhaps the depth of feeling has been exacerbated because in socialist-leaning society, electricity for survival is seen as basic human right, and our perception of decent society doesn’t take away the basics to people just because they can’t afford them.
And while these most public of cases involve SOEs, the lessons for the private sector are just as compelling.
In the case of the death of Folole Muliaga, there has almost been trial by media, with unrelenting pressure on Mercury Energy to change its ways. At press time, there had been no formal outcome announced, but it is likely that these cases will bring about change in the emphasis SOEs place on making profit at the expense of the public good. Somehow the boards will need to find middle ground.
But what options were available to either Solid Energy or Mercury Energy? The Save Happy Valley Coalition has caused Solid Energy huge problems, and potentially the loss of $25 million export order through what some call illegal activities. The Coalition no doubt sees this as environmental activism to reduce coal consumption, lower greenhouse gases, and protect an area which is the home of the great spotted kiwi and the giant carnivorous snails, powelliphanta patrickensis and powelliphanta augustus. The Coalition also accuses Solid Energy of operating outside the law, operating at times without Department of Conservation permits or resource consents.
Yet Solid Energy’s job is to make profitable return to the government, and CEO Don Elder has vigorously defended the company’s actions in the face of “ongoing and increasingly illegal activities of environmental activists”, saying “Time and time again over the last two years activists have tried to damage our business. These people are not peaceful, legitimate critics or protestors. These groups include anarchists who have stated publicly that they believe they do not need to act within the laws of New Zealand. Their actions have repeatedly broken the law, and part of their purpose is to intimidate staff and others associated with our company.”
Alasdair Thompson, the Employers & Manufacturers Association (Northern) chief executive, expresses viewpoint shared by many: “All organisations have responsibility to act ethically in the same way individual people should. Otherwise our communities would become dysfunctional. But our society approves of the irresponsible actions of some of our interest groups and organisations in getting their message to the public whereas government and business must not adopt similar methods.”
Frances Mountier, spokesperson for the Save Happy Valley Coalition, replies that while spying isn’t illegal, using unregistered “private investigators” is. Neither of the students employed by Thompson & Clark, the Auckland-based private investigators, in this case, says Mountier, were registered.
Mercury Energy, as part of Mighty River Power, is required to make profit and Mercury Energy bosses have denied doing anything wrong. How can it continue to fulfil its profit-making obligations and keep supplying customers who don’t pay?
“Successive governments have pressured our energy SOEs to make big dividend payouts and they have delivered,” says Peterson. “But like TVNZ, they are conflicted with the trappings of ‘charter’ aimed at delivering social goals as well. Government can’t have it both ways. It can’t expect the SOEs to maximise profit while turning blind eye should they need to act with heightened social conscience.”
There was strong feeling expressed to Management that SOEs have superior level of responsibility to their stakeholders than private sector companies have to theirs. Mountier says “clearly we aren’t going to see Solid Energy shut up shop in the next 18 months, but there are certainly things that could have been done, and ways they could be conducting themselves in the debate that would be much more accountable to the public as their shareholders. State Owned Enterprise has higher obligation. SOEs ought to be reflecting the stated policies of government.”
Trevor Mallard agrees. When asked if the public perception that SOEs should have superior standard of behaviour than private companies is warranted, he says, “Yes, in the sense that SOEs are owned by the Crown on behalf of all New Zealanders. Also, given that the definition of what constitutes successful SOE is to be socially responsible, as well as being as profitable and efficient as comparable private sector companies, and good employer – each of the three criteria has equal weighting.”
While SOEs’ actions are controlled by the State Owned Enterprises Act, and monitored by government regulators such as the Crown Company Monitoring Advisory Unit (CCMAU), the question for every other New Zealand company is “how far can, and should, company go to protect its operations?”
If change is coming for SOEs (as Mallard and Clark’s comments would indicate), the proverbial goalposts will move, and change will be expected to filter through the wider commercial world.
Fortunately for most companies, the decision to drop customer or seek competitor insight doesn’t have such far-reaching implications as it has done for Solid Energy and Mercury Energy.
As you would expect, everyone Management magazine spoke to agrees that everything must be done within the law. After that, opinions diverged.
In Elder’s defence of his actions, he states: “None of this should come as any surprise. It’s what businesses do. Those who claim otherwise are simply trying to mask their own true objectives, which are to maximise the damage to our business.”
Trevor Morley, detective with the New Zealand Police for 17 years, and now president of the New Zealand Institute of Professional Investigators, has been private investigator for 30 years. He points out that collecting competitor intelligence isn’t illegal and “spying” has been going on around us for many years. “The police have, in the past, infiltrated many, many organisations. No doubt the Security Intelligence Service is doing it, making sure our free and democratic society isn’t overthrown by some subversive organisation.
“I fo