CONDÉ NAST PORTFOLIO EXPOSES EX-SPIES PUSHING
CORPORATE ESPIONAGE TO OMINOUS EXTREMES
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PLUS: BONO AND THE ROCK STARS OF TECH; WILL FERRELL REWRITES THE RULES OF THE
ENTERTAINMENT BUSINESS; CHINA’S NEXT REVOLUTION
 

New York—In the January 2008 issue of Condé Nast Portfolio, senior writer Douglas Frantz reports how former C.I.A. and K.G.B. agents are pouring into the private sector and pushing corporate espionage to ominous new extremes (“Spy vs. Spy,” page 98). “Instead of probing for state secrets or recruiting government ministers as double agents, these latter-day George Smileys are selling their old skills and contacts to multinationals, hedge funds, and oligarchs,” Frantz writes. “They’re digging up dirt on competitors, ferreting out internal corruption, and uncovering secrets buried in the pasts of job applicants, boardroom rivals, and investment targets.” He reports that several hundred former intelligence agents, drawn to high-paying private-sector salaries, are now working in corporate espionage, including Robert Grenier, the Central Intelligence Agency’s former head of counterterrorism, who is at investigation behemoth Kroll. “Old-timers, good guys who love the place, are leaving because the culture is broken,” says Robert Baer, a former undercover operative, about the C.I.A. “The place is total frustration, and there is the question of money.” Frantz examines how some firms, like Wal-Mart and Hewlett-Packard, have used questionable, though legal, investigative tactics such as dumpster diving and pretexting (obtaining information by pretending to be somebody else), while other companies are allegedly using illegal approaches such as wiretapping and data haunts (extreme methods of electronic monitoring). At Diligence, a New York private-investigation firm founded by former C.I.A. and British agents, Frantz reports, ex-intelligence officers have taught newcomers how to construct false identities by using fake business cards, creating phony websites, and directing incoming calls to cell phones reserved for each separate identity. “You are establishing a cover, like in the C.I.A.,” says a former Diligence employee. And in the constant search for the slightest edge, some hedge funds and investment companies have turned to a handful of private-investigation firms to employ tactical behavior assessment, which relies on dozens of verbal and nonverbal cues to determine whether someone is lying. At the Boston research-and-analysis firm Business Intelligence Advisors, ex-C.I.A. agents have turned the human-lie-detector technique into a business tool. Frantz goes inside recent incidents at major corporations that have implemented these spylike approaches.

Also in the January issue:

“Rock Stars of Tech” (page 108). Anyone who knows anything about private equity knows that U2 lead singer Bono is a co-founder of Elevation Partners, the Silicon Valley fund with $1.9 billion in its war chest. What is less commonly known is that Bono isn’t Elevation’s only rocker. Senior writer Amy Wallace profiles Elevation co-founder Roger McNamee, the fund’s chief visionary, head recruiter, and all-around spiritual leader, who is currently trying to get his own rock band, Moonalice, off the ground. By day, McNamee implements Elevation’s strategy ( “the T.L.C. of venture capital” to mature companies facing technology-related challenges). By night, this 52-year-old long-haired tech geek straps on his Martin guitar and morphs into his alter ego: a singer-sage he calls Chubby Wombat. McNamee says the band is a reaction, in part, to his surprise encounter with his own mortality: In 2001, he had two strokes and underwent open-heart surgery. But after following Moonalice across the country and gaining precious access to McNamee, Wallace discovers that, for McNamee, the band and the private equity firm are intricately intertwined. McNamee has long been a sounding board for the tech industry’s greatest minds. Wallace reports that Bill Gates had McNamee read drafts of his first book and that Facebook founder Mark Zuckerberg regards McNamee as a “coach” (especially after McNamee, presciently, was “emphatic” that Facebook not be sold in 2006). For his part, Bono says he and McNamee agree on Elevation’s goals. “So many great painters, great musicians, great geniuses, ended up with nothing,” Bono says. “I want to see artists sitting at the table that decides the outcome of their lives…. Roger believes, like I believe, that brilliance brings a better bottom line. Always.” Still, McNamee is not without his detractors. Wallace reports for the first time that McNamee was ousted in 2003 from Silver Lake Partners, the renowned investment group he’d founded only four years earlier with three others. “I’m an acquired taste and high maintenance, and culturally speaking, they liked it better without me,” McNamee says about the rift. Though it’s too early to assess Elevation’s performance, two of its most recent investments (Forbes Media and Palm) have “caused some head-scratching among industry observers,” Wallace writes, noting that Elevation plans to make between two and four more investments over the next three years with the estimated $850 million that remains in its coffers. Sources confirm to Wallace that Elevation stepped away from a potential deal with Take Two Interactive, the videogame developer behind the controversial (and lucrative) Grand Theft Auto franchise, deeming the price too high. McNamee says, “Not everybody likes my act. There are plenty of people who think I’m a windbag, and they may be right.... I’m not afraid to look like a fool. I assert ideas energetically. Then people shred them. That’s how I learn.”

“Will Ferrell and the End of Media as We Know It” (page 92). Contributing editor Franz Lidz reports on how Hollywood’s screwball king and the venture capital firm Sequoia Capital are rewriting the rules of the entertainment business with their new video-sharing website Funny or Die. The site’s hit video “The Landlord,” starring Pearl McKay, the two-year-old daughter of Anchorman director and writer Adam McKay, as a boozy, tyrannical landlord, and Will Ferrell as a delinquent tenant, garnered 50 million hits for the website. Ferrell and Adam McKay are partners in Funny or Die, and the site’s financial backer, Sequoia Capital, envisions it as the flagship of an internet armada capable of sinking old media, Lidz writes. “Talent now has the opportunity to go directly to fans, at little or no cost to them,” says Mark Kvamme, a Sequoia general partner and one of the founders of Funny or Die. Faced with mounting costs and eroding profits, Hollywood is having a collective panic attack over who gets to deliver—and make money from—online entertainment, which is the same anxiety that is fueling the writers strike, Lidz reports. Sequoia is banking on advertising dollars as well as potential future product placement to make Funny or Die financially viable. But the runaway success of “The Landlord” has raised expectations that were impossible to meet, Lidz writes. More than 16,000 videos have subsequently been posted on Funny or Die, and none has come near “The Landlord,” with its 50 million hits. “We’re a hit-driven society, and Funny or Die has had one big hit,” says Michael Pond, a media analyst for Nielsen Online. By August, the monthly unique visitors had plummeted 73 percent, from 2,896,000 to 775,000. “The challenge for Funny or Die is to keep putting up content that creates the same buzz as ‘The Landlord,’ ” Pond says. “In other words,” Lidz writes, “if surfers aren’t consistently amused by Funny or Die, its very name will become its epitaph.”

“China’s Next Revolution” (page 124). With the Beijing Olympics only months away, Joshua Kurlantzick investigates a massive wave of protests that is sweeping China over landgrabs—and unlike past movements, many of the demonstrators are urban professionals. As real estate values skyrocket in China, officials are seizing the homes of urban residents, sparking a wave of protests. Earlier in the summer, about 20,000 protesters rioted in the town of Shengzhou after security forces tried to compel families to leave their land, according to the Information Center for Human Rights and Democracy. China has been shaken by several waves of demonstrations, but Kurlantzick asserts that the land protests have the potential to be the most transformative—in part because of the demographics of the demonstrators. “This is not just an uprising of peasants or the downtrodden workers,” Kurlantzick says. “Many of the foot soldiers are urban professionals—lawyers, business owners, and managers who have gained confidence and wealth during China’s economic boom.” Very few of the evictions in China would qualify as legal in other countries, and even in China, the legality is murky, Kurlantzick writes. In 2007, China’s Ministry of Land and Resources admitted that local officials were involved in roughly 80 percent of illegal landgrabs, and the government acknowledged that there were 131,000 cases of illegal land seizures in 2006, nearly 20 percent more than in 2005. As the middle-class revolutionaries fight for property rights, some experts believe their struggle may spill over into other, more controversial areas. “They are asking for more rights for their property, and they’ll wind up asking for democratic management,” predicts Qiu Feng, a researcher at the Cathay Institute of Public Affairs in Beijing. With the Olympics only months away, Kurlantzick reports, many activists plan to go underground before the Games so that they can launch protests when the Olympics begin, forcing the police to arrest them in front of the world media.

Plus:

“The Coming Oil Crash” (page 51). Contributing editor John Cassidy explains why oil prices will plunge. “The experts who are predicting the worst, based on geology and geopolitics, are missing the crucial role that economic incentives play in determining the price of crude,” Cassidy writes, noting that the tripling of oil prices since the summer of 2003 has unleashed forces that, within the next two or three years, will bring oil prices tumbling back down to below $50 a barrel. These forces include the advent of new technology, a global downturn in demand, and the rise of gas alternatives. Cassidy predicts that prices could easily fall to $30 a barrel or even lower in the future.

“Wall Street’s Next Crisis” (page 56). Senior writer Jesse Eisinger explores how, now that the subprime shakeout is nearly over, another real estate mess looms, this time in commercial property. “Judging by the aspects of the credit crisis we’ve already seen, commercial-real-estate trouble will probably emerge sooner than people expect—and will be worse than they anticipate,” Eisinger writes. “The perennial lesson to be drawn from the coming slump: You can’t protect greedy and myopic people from themselves.”

“Wall Street Family Values” (page 72). Contributing editor Duff McDonald takes a look at the top 50 Wall Street family foundations and who doles out the most to charity. Wall Street family giving begins at home—in this case, at the homes of the biggest names in finance. In the top five are the family foundations of Robert Wilson, John Templeton, Jim Simons, Julian Robertson, and Sandy Weill.

“No Obligations” (page 39). In this month’s Viewpoint, University of California at Berkeley professor and former secretary of Labor Robert B. Reich argues that companies should forget social responsibility—and explains why the public should let them. Having previously maintained that corporate social responsibility helps the bottom line, Reich reverses his position, stating that he has never been able to prove it or even find a study to back him up. Instead of putting the onus on the company to execute socially responsible programs, Reich believes it’s the job of representatives in Washington and state capitals to tackle public-policy issues. He argues that “the answer isn’t to push companies to be more socially responsible; it’s to get corporate money out of politics so we as citizens can decide what the rules of the game should be.”

Also on Portfolio.com:
This month’s issue, plus additional features, including a year-end summary of the biggest business news of 2007, including “The 10 Smartest C.E.O. Moves of 2007,” “The 10 Dumbest C.E.O. Moves of 2007,” and “The 10 Biggest Business News Stories of 2008.” 

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