Case question “Procter & Gamble Goes Dumpster Diving,” to what extent was Procte
ID: 387633 • Letter: C
Question
Case question “Procter & Gamble Goes Dumpster Diving,” to what extent was Procter & Gamble responsible for the actions of the intelligence-gathering firm it hired? Did Mr. Pepper have a moral obligation to inform Unilever of the situation, or would it have been morally acceptable to handle the matter internally, as a private matter? How could Unilever’s response be considered ethical?
According to Competitive Intelligence Magazine, John Pepper, the chairman of Procter & Gamble, told a group that competitive intelligence was “of singular importance” to a consumer products company and that P&G had shifted “from collecting, analyzing and disseminating information, to acquiring and using knowledge to create winning strategies.”41 Despite these strong words, Mr. Pepper was apparently alarmed to hear that competitive intelligence sleuths hired by P&G had obtained approximately 80 confidential documents from its European-based rival Unilever through questionable means. One or more persons had sorted through the trash bins at Unilever’s downtown Chicago office in a practice known as “dumpster diving.” After learning how P&G’s competitor intelligence had been obtained, Mr. Pepper informed Unilever of the misdeeds and personally called the Unilever chairman to settle the matter. In the highly competitive business of shampoo and other hair-care products, information about new product lines, launch dates, pricing, advertising plans, and production figures is carefully guarded. Like many companies, P&G attempts to gather all publicly available information about its competitors’ activities for what the company calls “competitive analysis.” Competitive-analysis executives at P&G had contracted with an outside firm, which in turn hired several subcontractors to investigate competitors. A budget estimated at $3 million was allotted to the competitor intelligence gathering project, which began in the fall of 2000. The operation was run out of a safe house, called “The Ranch,” located in P&G’s home town of Cincinnati, Ohio. Among the secrets gained from dumpster diving at Unilever’s Chicago office were detailed plans for a product launch in February and figures for prices and profit margins. In addition to dumpster diving, which P&G admitted, Unilever believed that some rogue operators also misrepresented themselves to competitors as market researchers and journalists in efforts to elicit information, a charge that P&G denied. Although P&G claims that nothing illegal was done—the law in such cases is quite murky—the dumpster diving violated the company’s own code of ethics and its policies for competitive intelligence contractors. The ethics code of the Society of Competitive Intelligence Professionals also prohibits dumpster diving when the bins are on private property, in which case laws against trespassing are likely to be violated. In April 2001, when the company became aware that the spying operation had spun out of control, three executives overseeing the project were fired. Mr. Pepper then contacted Unilever with full disclosure and a promise not to use any of the information gained. P&G had, in effect, blown the whistle on itself. Mr. Pepper hoped perhaps that this gesture would put the matter to rest. However, Unilever had just begun to seek a settlement. In the ensuing negotiations, Unilever proposed that P&G compensate Unilever between $10 million and $20 million for possible losses incurred from the unethical acquisition of information. In addition, Unilever wanted P&G to reassign key personnel in its hair-care division who had read the documents to other positions in which they could not utilize the information they had gained. Perhaps the most unusual remedy was that P&G allow an independent third party to investigate the company’s hair-care business for several years and to report to Unilever any situations in which improperly gained information might have been used. Unilever suggested that if a satisfactory settlement could not be reached, then the company might sue in court, with uncertain results. If John Pepper thought that notifying Unilever and firing the people involved were the right things to do, then Unilever’s proposals might seem to be an unwarranted punishment that would discourage others from being so forthright. On the other hand, aside from any monetary payment, P&G could continue to compete as vigorously as it would have had it not gained the information from dumpster diving. A settlement on Unilever’s terms might effectively restore fair competition. On August 28, 2001, Mr. Pepper flew to London for final negotiations, knowing that he would soon have to make a decision. By September 6, an agreement had been reached.
Explanation / Answer
The intelligence gathering firm was a contractor firm hired by P&G. Hence it was the case of principal-agent or agency relationship. Under the law of agency, agency is used to describe a situation in which the principal, usually the employer, authorizes the employee, called the agent, to deal with a third company on the employer’s behalf. The intelligence gathering firm was collecting competitor’s data on behalf of P&G. Hence, P&G is equally liable for the dumpster diving incident conducted by the firm.
When Mr. Pepper came to know about the dumpster diving incident, it was his moral obligation to inform Unilever about the scenario. This is considered fair play as well as is an ethical behavior. If the matter was handled internally, then also as the employees of P&G had the confidential information of Unilever, then it would be considered unethical if Unilever was not informed about the same.
Unilever tried to play the victim card and tried to capitalize on the situation to gain punitive compensation from P&G. This is also not an ethical conduct as the whole idea of fair play was given bay by Unilever. Unilever could have handled the situation more maturely as was done by Mr. Pepper.