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Business Ethics- Ethics in Marketing/ Competition in P&G

and Unilever

The case discusses the corporate espionage controversy involving two of the world's largest
consumer product companies, P&G and Unilever, in the early 21st century. It gives an overview
of the concepts of competitive intelligence and corporate espionage and examines the differences
between them. It then outlines the evolution of corporate espionage over the centuries and
examines the reasons for its increasing use. Next, the case details the covert operation conducted
by P&G to gain competitive information about Unilever's shampoo business in the US. It
examines the steps taken by P&G's top management after discovering the secret operation, to
settle the matter with Unilever. Finally, it talks about Unilever's response to the incident, its
settlement demands, and summarizes the lessons that can be learnt from this episode.

A Shocking Revelation

In August 2001, Fortune magazine reported that the leading global consumer goods giant Procter &
Gamble (P&G) had been engaged in an illegal corporate espionage program against its archrival, Unilever
(See Exhibits I and II for brief profiles of these companies).

Agents appointed by P&G were alleged to have misrepresented themselves as market analysts and used
various other methods to collect information about Unilever's hair care business. Soon after, P&G
admitted that the information collection episode had indeed taken place, but without the knowledge of the
top management. However, the company firmly refuted Fortune's claim that its agents misrepresented
themselves as market analysts to acquire information. P&G claimed that it had not indulged in any illegal
activities; it added that these activities were against its strict business policies and guidelines. P&G also
stated that this was the reason it had approached Unilever of its own accord in April 2001 with details of
the entire issue.

The two companies started negotiations to settle the issue amicably. Reportedly, Unilever stated
that if a settlement agreement was not signed by the end of August 2001, it would initiate legal
proceedings against P&G. The news of P&G's voluntary admission of indulging in corporate espionage
against Unilever took industry observers by surprise.

Many analysts felt that P&G had done the right thing. William Steele, Analyst, Banc of America
Securities felt that it was not surprising that such an incident had occurred in the intensely competitive
hair care business in the US and stated that despite being legally questionable, P&G's disclosure was
noteworthy. He said, "I think being straightforward is always the prudent thing to do. I would have
expected no less from the senior management of Procter."4 Analysts also felt that by voluntarily
admitting its mistake, the company was trying to control the damage to its public image. P&G hoped that
the honest admission would reduce the impact of Unilever's response to the incident (as compared to
Unilever discovering P&G's misdeeds by itself).
However, some analysts argued that P&G had made a mistake by voluntarily disclosing its transgression
to Unilever. Commenting on this, Leonard Fuld (Fuld), President, Fuld & Co., (a competitive intelligence
consulting firm in Cambridge) said, "P&G made a mistake. What the magnitude of the infraction might
be, we do not exactly know."

Another source, who was close to the story, expressed similar feelings, "It was like confessing to murder
and hoping to get manslaughter instead of homicide. It just does not always work out that way."6

Referred to as the darker side of competitive intelligence (CI), instances of corporate espionage have been
often reported in the global corporate world. However, the P&G and Unilever issue was arguably one of
the most high-profile incidents of corporate espionage ever reported. While P&G and Unilever were busy
negotiating their settlement terms, the debate over 'CI vs. corporate espionage' heated up like never

Competitive Intelligence vs. Corporate Espionage

Fuld described CI as a technique of applying industry/research expertise to analyze the information
available on competition from public sources and draw conclusions based on this data. A typical CI
activity involved collection, organization, analysis, and utilization of business-related data of competitors
to make informed decisions (See Exhibit III for the steps in a CI cycle).

Explaining the rationale behind CI practices, Bill Waite, Managing Director and Senior Counsel, Risk
Advisory Group, a leading CI consultancy in Europe, said, "The fundamental is that there are huge
amounts at stake when you make business decisions these days. The more you know, not only about your
own strengths but about your competitors', the more likely it is that you will reach a positive business
transaction rather than a negative one."7 Analysts felt that companies needed to be aware of their
competitor strategies and efforts to effectively counter their strategies and sustain themselves in the
market. Such companies believed that "if you are not watching your competition, you are busy creating it"

Evolution of Corporate Espionage

The history of corporate/industrial espionage probably dates back to the sixth century when Justinian, the
Byzantine emperor hired two monks to visit China.

He wanted them to gain an understanding of silk production in China and to smuggle silkworm eggs and
mulberry seeds out of that country to break its worldwide monopoly on silk production. The monks
smuggled these eggs and seeds out of China in hollow bamboo walking sticks.

Subsequently, in a few years the Byzantine empire replaced China as the largest silk producer in the
world. Over the centuries, industrial espionage practices continued to play a major part in the
development of many countries. In the 18th century, alarmed by the industrial and military supremacy of
Great Britain, France sent its spies to steal the latter's industrial secrets...
P&G and Unilever

Unilever, which entered the US in late 19th century, was one of the largest foreign multinationals in the
country. It competed directly with market leader P&G in many segments of the household and personal
care products markets.

Over the decades, the rivalry between these two companies kept on intensifying as both of them expanded
to the major markets in the world. In the early 21st century, while P&G dominated the US household and
personal care market, Unilever dominated the European household and personal care market.

In Asia, these companies had equal dominance, with both being market leaders (in household and
personal care products) in different Asian countries. They also fought fiercely for market dominance in
other parts of the world. P&G and Unilever competed in every aspect of their operations such as new
product development and launches, pricing and promotional strategies and entering new markets...

In late 2000, CI executives at P&G hired an independent contractor to spy on the company's competitors
(especially Unilever) in the hair care business. This independent contractor in turn hired many sub-
contractors to perform this secret operation. The operation was managed from a 'safe house' called 'Ranch'
in Cincinnati, P&G's hometown.

Since late 2000, the agents of these sub-contractors, which P&G later called rogue operators (espionage
agents), collected extensive information on Unilever's hair care business in the US. To gain access to such
classified information, these agents resorted to dumpster diving and also misrepresented themselves to
Unilever employees as market analysts and journalists. The operation focused on gaining access to
classified information about Unilever's best selling hair care brands such as Salon Selectives, ThermaSilk,
Finesse, and Helene Curtis. These brands competed directly with P&G's popular hair care brands such as
Pantene, Wash & Go, Head & Shoulders, Vidal Sassoon, and Pert...

Lessons to be learnt

CI experts state that 90% of the information on any company is available in the public domain, if the
investigators know what and where to look for. Given this, P&G's approach towards CI was heavily

Fuld said, "If the company had applied true CI, it would have never found its way into the press in the
first place." Interestingly, analysts even blamed Unilever for being negligent about protecting its
confidential information. They pointed out that, by failing to safeguard its information, Unilever had put
its market share, profits, and the entire business at risk. Since P&G's rogue operators obtained most of the
critical documents related to Unilever's strategies from dumpster diving, analysts criticized the latter for
not taking even the basic steps to protect its information from rivals. They said that being a leading
company in a highly competitive environment, Unilever should have at least taken routine precautionary
measures such as using shredders to destroy its documents...