Chinese whispers embarrass Renault

Renault’s wrongful dismissal of three executives highlights the pitfalls of whistleblower investigations, according to Kroll’s Hong Kong head.
Tadashi Kageyama, Kroll
Tadashi Kageyama, Kroll

Renault will hold an extraordinary general meeting today to discuss the botched industrial espionage investigation that led it to wrongfully dismiss three executives in January.

Investigators said last week they could find no evidence for the allegation that a senior executive at the French carmaker, along with two of his deputies, had accepted bribes in return for sensitive information relating to Renault’s electric-car business and hidden the cash in bank accounts in Switzerland and Liechtenstein.

At the time, a lawyer for one of the executives, Mathieu Tenenbaum, recounted how Renault threw his client out of the building “in a matter of minutes, with no justification apart from a laconic and enigmatic ‘we know what you have done, you should admit it’.”

The case is certainly embarrassing for Renault, which is 15% owned by the French government, and particularly for its celebrated chief executive Carlos Ghosn, who is credited with saving Nissan from bankruptcy after the two companies merged in 1999. To add to his misery, his government bosses have been savagely critical, with a spokesman accusing Renault of “unbelievable amateurism”. Ghosn has given up his $2.2 million bonus for 2010 as a result of the affair.

The reaction from the Elysee is understandable given its own embarrassment. When the scandal broke in January, French government sources told reporters that its secret service was investigating a Chinese link and spoke of the “threat” posed by China to French industry, even before the start of a formal inquiry. It later toned down the rhetoric in official statements, but the damage had been done.

It now seems that Renault might have been tricked by the company’s own security chief. French newspapers have quoted sources in the investigation as saying that Dominique Gevrey, a former French spy, is suspected of inventing the whistleblower to defraud Renault of the $433,000 used to fund the investigation.

Prosecutors in Paris say they found some of the money in accounts in Dubai and Spain, and arrested Gevrey 10 days ago.

Tadashi Kageyama, Kroll’s senior managing director in Hong Kong and an 11-year veteran of investigating such cases throughout Asia, said the case seemed unusual from the start. “My impression was that Renault had rock-solid evidence, but at the same time I was also quite surprised to hear how the Chinese company was alleged to have stolen the information,” he said.

The strangest part of the accusation was the supposed target of the theft: information relating to “our economic model”, according to Ghosn, rather than technology. While it is certainly true that a profitable electric car would be like a goose that lays golden eggs for carmakers, it is more common in China to target technology — doing things cheaper than global rivals is hardly something the Chinese struggle at.

The story of a single anonymous whistleblower approached by men offering cash for trade secrets also seemed too good to be true. “It all seemed so black-and-white, and almost clichéd. You don’t really see that when there’s a large organisation or even a government involved.”

Renault has not yet released much information about its investigation into the allegation, but, based on the case’s collapse, Kageyama said it was likely insufficient. “They probably should have done more.”

At a minimum, Renault should have hired someone independent from outside the organisation to run the investigation. This should be standard practice, said Kageyama, because allegations from within a company always run the risk of being politically motivated, particularly after recent regulatory changes that offer financial reward to whistleblowers in many jurisdictions.

Even so, Renault was certainly right to take the allegations seriously. Industrial espionage is a real threat for companies that compete in highly competitive global markets, but Kageyama stressed the importance of putting the right controls in place to protect trade secrets and other intellectual property.

“This is not done in many companies,” he said. “They don’t know what their trade secrets are, the threats or what the company’s crown jewels are, and they don’t know the techniques competitors, employees or customers might use to get this information or technology. It’s shocking but we have seen cases where employees were able to download product schematics on to a USB device and simply walk out, or documents showing machine configurations left on the photocopier of a biotech plant that a customer picked up. Protecting trade secrets or information must emcompass IT, operational and physical security."

Classic counter-intelligence measures are certainly useful in some circumstances, such as when engineers involved in key development projects are travelling abroad. It is not quite James Bond, but staff should be equipped with and know how to use secure devices such as smartphones and laptops, and should be aware of their surroundings when making sensitive phone calls.

“Before that, good counter-intelligence starts from organisations assessing the risk they’re facing and identifying the valuable information or intellectual property they need to protect,” said Kageyama. “What are the controls and measures in place? What are the loopholes? They need to look for any connection to the competition among vendors, suppliers and so on. It’s a broad-ranging practice and not just sweeping rooms for listening devices.”

Protecting such information is notoriously difficult in the financial industry, where rivals share clients and employees frequently switch jobs, but Kageyama said they could do a better job. “Historically, the financial industry has approached information security from the perspective of customer information, private data and so on, and less emphasis on trade or commercial secrets. The banks are waking up to that but it’s not simple because in many countries in Asia non-compete and non-solicitation is very hard to enforce.”

The industries most at threat from espionage are those with high research-and-development costs such as pharmaceuticals, biotechnology and robotics.

Renault’s electric-car technology is also a likely target and it is yet possible that it was the victim of a deliberate sabotage, rather than a simple fraud. It is the only carmaker in the world to have developed its own engines, batteries and charging equipment for electric cars.

Clearly, the first company to develop a practical solution will earn a huge competitive advantage. What seems more likely than sabotage is that such a golden opportunity caused Renault to act rashly in protecting its perceived lead. Pride, as they say, comes before a fall.

¬ Haymarket Media Limited. All rights reserved.
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