Our beloved area has been an historic spy center from its beginning, thanks to George Washington’s proclivities both at Mount Vernon and in the battlefield with creating mis-information for the British and his use of disappearing ink to instruct his agents. The Civil War saw tons of Confederate-sympathizing citizens reporting on every Union movement in and around the Nation’s Capital (we were and are a southern city after all). The CIA, FBI, the Pentagon, NSA, NIC and NRO today keep the Spy Museum downtown busy with new displays. Have you enjoyed any of the spy-related tours of DC?
Now get this: the CIA allows its agents to moonlight and offer their services to the private sector, usually large corporate, financial and law firms to include hedge funds. Yes, you read correctly, to prevent the loss of talent to the private sector and give them access to extra income (that’s the weak justification), the CIA allows active-duty “moonlighting” operatives to bring their skills to willing corporate clients/employers who are looking for any advantage they can get during tough times. As in all moonlighting, this is suppose to happen nights, weekends and on furlough/vacation time. Agents are required to make detailed reports of their employment activities to the Agency. How many agents are doing so and how long this policy has been in effect are unknown at this time.
What skills seem to interest the private sector? Well “deception detection techniques” for one. Agents will watch high level corporate presentations, mostly finance related, and seek to discern the truthfulness of the facts presented. Data analysis and surveillance are both in demand also. Eamon Javers is the author of a new book Broker, Trader, Lawyer, Spy: The Secret World of Corporate Espionage that captures an intriguing glimpse of this DC phenomenon. Click here for an interview with him about the book.
Brand research and marketing surveys are an extremely expensive undertaking. Research is time consuming, requires various expertise and specialties, and does not always conform to the goals. Mountains of primary and secondary data are gathered in the research process and numerous decisions go into the building of a brand profile. At increasing issue in today’s workplace are trade secrets, including information, a process, a model, or formula that is kept secret from the general public and allows a business to gain an economic advantage. The brand development of luxury boutique hotels is just such a case: its called “Zengate.”
The success of small boutique hotels in New York City during the late eighties caught the attention of Starwood Hotels, based in White Plains, N.Y., and they studied the successful style and model approach of the boutique concept and after considerable market research and brand profiling brought it into the corporate hotel world, opening its first of more than 20 W hotels in 1998.
The W’s success helped position Starwood as one of the lodging industry’s most innovative companies. Inside the headquarters of its big competitors, such as local McLean-based Hilton and Bethesda-based Marriott International, executives tried to match Starwood’s success in the boutique space. In 2007, Marriott executives essentially gave up on in-house development and they partnered with outside expertise to develop a concept called Edition. The first hotel in that chain is scheduled to open in 2010. You will note the time lapse here.
The latest development in “Zengate” is that Starwood Hotels & Resorts Worldwide Inc. has accused Hilton Worldwide’ chief executive officer, Christopher Nassetta, of playing a role in an alleged case of corporate espionage, according to The Wall Street Journal.
Starwood filed a lawsuit last April, against Hilton, alleging that two top executives stole confidential and proprietary information used to launch Hilton into the boutique hotel market. The suit specifically claimed that Ross Klein, global head of Hilton Luxury and Lifestyle Brands, and Amar Lalvani, global head of Hilton Luxury and Lifestyle Brand Development, copied more than 100,000 electronic Starwood files (that’s a mountain when converted to hardcopy) when they were recruited away from Starwood to Hilton in June 2008.
The Journal reported that Starwood has now filed an amended complaint in U.S. District Court in White Plains, N.Y., claiming that Hilton’s misconduct reached the highest levels of the McLean-based chain’s management, including CEO Nassetta, and its head of global development, Steven Goldman. The complaint says that the alleged theft was condoned by at least five of the 10 members of Hilton’s executive committee. Where is the Chief Compliance Officer when you need him?
The original complaint alleged that Hilton pilfered confidential information on Starwood’s luxury and lifestyle brands, step-by-step details on how to convert a hotel property to a luxury lifestyle hotel and marketing and demographic studies. The case opens a window into the inner workings of the hotel business, where companies spend years studying consumers, analyzing fashion and social trends, fabrics, room lighting, building costs and food choices (see my article on ethnographic research). Then thousands of discrete decisions on these matters go into creating a “brand profile.” Such profiles, which hoteliers regard as trade secrets, are especially prized in the hospitality market for luxury hotels, the industry’s most lucrative and competitive segment.
That information was used to launch Hilton’s Denizen brand in nine months, the suit argued. Starwood took three to five years to launch its W brand. Time is money is the central focus of the rather complicated lawsuit. Among the information Starwood claims the former executives took was a concept called the “zen den” that Starwood planned to implement at W Hotels. Hilton executives have referred to the Denizen brand as a “den of zen.” Are you starting to see the oblivious thinking that must have been going on at Hilton? What ever happened to covering your tracks? Must be the rarefied air.
The two senior former-Starwood executives, who were named as defendants in the lawsuit, were president and senior vice president, respectively, of Starwood’s luxury-brand group, which includes the company’s highly successful W Hotels brand. Both men allegedly played key roles in expanding and managing the W brand’s image. It’s pretty obvious when senior executives at one company jump to a competitor and in a matter of months appear to set up the same brand concept.
The lawsuit has halted Hilton’s global ambitions for the Denizen brand, which is aimed at travelers drawn to upscale accommodations with a jazzy flair. Hilton was in talks with developers in Abu Dhabi, Istanbul, London, Mumbai, New York and Panama City.
The complaint comes amid ongoing settlement discussions between the two companies. Those negotiations are complicated by the fact that Starwood wants more than monetary damages, according to the complaint. It has asked the court to appoint a monitor to oversee Hilton’s future conduct. Further, it says it wants to impose a “penalty box” on Hilton that would prohibit it from developing its own luxury brand for a period of time, according to the complaint. These stipulations would have far reaching implications for Hilton.
The case has been an embarrassment for Hilton and its owners, New York-based private-equity investors Blackstone Group, which purchased the company in 2007 for $26 billion in its largest investment ever. The storied hotel chain, which was founded by Conrad Hilton in 1919, owns or manages 3,500 hotels with some 585,000 rooms worldwide. The case gives the hospitality industry a juicy piece of news to contemplate.
Zengate shows that it’s getting tougher to keep trade secrets and other Intellectual Property safe. Luring top executives, especially from one’s competitors, is a vital asset in acquiring industry knowledge and companies are looking for any other advantage that they can get. Consequently, it is incumbent upon companies to more tightly monitor their trade secrets, determine a plan of action in case of breach, and review their non-compete agreements to ensure that they are as air tight as possible.