This article was first published in the May 2011 UK edition of Accounting and Business magazine.
Kevin is the chief executive of Farma, an industrial consultancy, where he has been promoted from the role of FD. Farma has hired a new finance director from the specialised industry group of Bravo, a global firm of consultants, acknowledged as being the leader in its field.
The role of finance director is a key appointment in Kevin’s strategy to grow Farma and the appointment of Stephan to the position is paying dividends. Stephan oversees the tender for a key piece of business and impresses Kevin with his proposals, which are well structured and detailed, including supporting material to justify his recommendations. Accordingly, when Farma is awarded the contract in the face of stiff competition, including from Bravo, Kevin feels vindicated in his choice of Stephan, who was not universally welcomed.
Kevin’s expansion strategy needs a continuous flow of new business and Stephan’s role is key in ensuring Farma’s bids are competitive on price and structure. Stephan’s approach continues to pay off and Farma’s success rate in its bids for new business improves from 40% to 75%, which Kevin ascribes largely to Stephan’s approach. Consequently Stephan is asked to institute a training programme for other members of the firm to make use of his skills.
Following the training, Kevin’s PA says how impressed he was, saying jokingly, that the vital ingredient seems to be knowing your competitors’ plans. Kevin agrees with this sentiment and says that clearly everyone would like that but Farma has to rely on more conventional methods.
After a successful 12 months, Stephan asks Kevin for special leave saying that his brother is very ill and he wishes to help his sister-in-law, who is finding life difficult. Kevin agrees that Stephan may take extended leave and arranges to oversee his team for the month that he will be away.
After a week, Stephan’s assistant Laura, who is overseeing Farma’s latest bid, says that she needs access to Stephan’s papers from Farma’s previous bids, which he uses as the basis for his new tenders. Laura says that she phoned Stephan but could only leave a message.
Later that day, Laura discovers some of Stephan’s papers in his desk. His desk was locked but she had found a key. She says that these will be useful but is surprised that they include PowerPoint slides with the Bravo logo on them. Kevin is concerned at the possible implications and asks to see the papers. However, he is relieved to see that they do not relate to any specific activity and are the sort of material which people often keep when they move firm.
When Stephan calls back, Kevin tells him that Laura opened his desk, but his working papers appeared to be elsewhere and that all she found were some Bravo slides. Hearing this, Stephan becomes agitated, saying that his desk contained only private papers. He said the Farma documents were at home and that he would bring them into the office the next day.
Stephan comes in as arranged the following day with two briefcases of files and apologises profusely for keeping them at home, and his reaction to the opening of his desk. Kevin thanks him for bringing back the files and, after discussing Stephan’s brother’s worsening condition, passes the files to Laura.
The following day Laura comes to see Kevin saying that she has reviewed the files, which are very helpful, and contain a number of references to Bravo’s figures and plans, which had enabled Farma to structure its proposals in a way that enabled the firm to win a number of contracts.
Alarmed at the implications, Kevin decides that he must speak to Stephan. But he can only contact Stephan’s wife, who says that Stephan’s brother has died and Stephan is not available. Kevin leaves a message asking Stephan to call him urgently. Two days later Stephan telephones and Kevin asks to see him as there are important issues which must be discussed face to face.
Meanwhile, Kevin considers the implications of what Farma has in its files. Whatever the explanation, Farma appears to have proprietary information belonging to a competitor and it looks as though the company has used it for its own benefit. When Stephan returns to the office he immediately asks to see Kevin saying: ‘Clearly I owe you an explanation.’
How would you react?
The first point is how the information came to be in Farma’s files and Kevin asks Stephan for an explanation.
Stephan tells Kevin that before joining Farma, both he and his brother worked for Bravo and when he left the firm he had no intention of taking anything beyond the experience that he had gained. Clearly there were things that he would remember, but he made no conscious decision to take information.
However, one weekend Stephan visited his brother, who was working on a Bravo bid, and as Stephan was leaving, his brother gave him some papers saying, ‘you might like to have a look at these!’ Stephan felt this was not something that he should be doing, but convinced himself that he would just have a quick look at the papers and then shred them. Unfortunately the proposals were quite complicated and to understand them fully, Stephan had to spend some time studying the papers which he then kept at home.
After Farma won the bid, his brother continued to send him information from Bravo and Stephan told himself that as he had received the information he might as well use it to the benefit of Farma and, indirectly, to himself. Since his brother had died, Stephan’s source was no longer available, so this would not happen again. Stephan said that he recognised what he had done was wrong and apologised for putting Kevin in this position.
The optimum solution
Kevin may consider that since this situation appears to have come to a natural conclusion, he will accept the obvious temptation and say: ‘Resign and we shall forget about it.’ The question is whether that is adequate, and, if not, what he might do, and what the impact might be on Farma.
An initial thought might be that Farma should own up to Bravo, in the expectation that, as ‘the mole’ has died, its rival would respond in a restrained way and take the view that it is ‘water under the bridge’.
But there is a danger that Bravo, having lost a number of contracts to Farma, apparently as a direct result of the ‘theft’ of information, may feel that it should take legal action, requiring Farma to disgorge the profits from these contracts, and possibly also seeking damages. Such action might be the end of Farma and even if the outcome of the litigation does not result in irreparable financial damage to Farma, the reputational damage may prove terminal.
Nevertheless, the ethical course of action must be to open a dialogue with Bravo. Clearly Farma needs to establish that it won the contracts as a result of its own work, but accept that may be strongly disputed and a compromise may be required if litigation is to be avoided.
How should Kevin deal with Stephan? Obviously he cannot stay, but should Kevin accept a resignation or sack him? As he has been with Farma for a relatively short time, Farma’s financial obligations may be limited although Stephan may lose his reputation if he is sacked. This may be academic if Bravo takes action against Farma, as Stephan’s part will come out and become public knowledge. Consequently, allowing him to resign may prove pointless and a necessarily stronger message will be made by sacking him.
Andrew Hall is head of professional standards at the Chartered Institute for Securities Investment (CISI) www.cisi.org