Booz Allen Mounts A Defense

Edward Snowden, who has identified himself as the source of leaked information about classified U.S. government surveillance programs, was an employee of Booz Allen Hamilton for less than three months after having served as an undercover employee with the CIA and as  an employee of various outside contractors working for the National Security Agency for four years. 

A debate is raging over whether the 29-year-old infrastructure analyst’s disclosures to The Guardian and Washington Postare heroic or villainous. Meanwhile, Booz Allen’s stock and reputation took an indubitable tumble yesterday as the defense contractor scrambled to disassociate itself from his actions.



In a release Sunday, Booz Allen confirmed that Snowden had been assigned to a team based in Hawaii. “News reports that this individual has claimed to have leaked classified information are shocking, and if accurate, this action represents a grave violation of the code of conduct and core values of our firm,” the release read. “We will work closely with our clients and authorities in their investigation of this matter.”

But that preventative release didn’t stop Booz Allen’s stock from dropping 2.6% yesterday after having fallen as much as 5% in intraday trading. “About 23% of its revenue, or $1.3 billion, came from U.S. intelligence agencies last year,” reports CBS MoneyWatch. “The company has said in SEC filings that security breaches could materially hurt results.”

“Snowden’s leak puts Booz Allen’s reputation at risk, and may affect contracts in the short term if the company is found to have not protected classified information,” Nick Taborek and Danielle Ivory write in Bloomberg Businessweek. “It strikes right at the heart of credibility and security for a company like Booz Allen,” Scott Sobel, president of Media & Communications Strategies, tells them. 

“In the increasingly intimate marriage between companies and the state, Mr. Snowden is emblematic of many things: For business, he signifies the liabilities that companies doing intelligence work for the government have inherited,” the Wall Street Journal’s John Bussey writes in a column this morning. “For government, he's an example of what can happen when operations become so complex, and technical capability so constrained, that agencies must outsource key intelligence analysis to contractors.

“And for the rest of us, he raises this question: Exactly where does government end and business begin?”

It’s a question that is sure to intensify the debate over government outsourcing.

“The value proposition of Booz and others is that it is supposed to carry out many functions that governments used to -- for less money and hassle while ensuring superior performance and impeccable security,” Daniel Gross pointed out in the Daily Beast on Sunday.

“The upper ranks of executives at Booz Allen reflect the firm's close ties to government, and the revolving door between its executive offices and government,” observes CNNMoney’s Charles Riley. “James Clapper, the director of national intelligence, is a former employee of the firm. And John ‘Mike’ McConnell, vice chairman at Booz Allen, previously held the same post as Clapper and was at Booz Allen when he was named in 2007.”

Blogging in the New York Times, Michael de la Merced sets his sights on Booz Allen’s majority shareholder. 

“For years, the Carlyle Group has tried to shed its former reputation as a second home for government officials and a specialist in buying defense companies,” he writes. “But the recent fracas over the National Security Agency‘s surveillance programs highlights the private equity giant’s remaining ties to government work: its majority stake in Booz Allen Hamilton….”

Carlyle, which has three directors on the Booz Allen board, had no comment yesterday.

It’s important to note that what had been a unified Booz Allen Hamilton was split into two separate companies in 2008 reflecting diverging government and corporate consulting businesses. Booz & Company, with headquarters in Manhattan, serves commercial clients from its 58 offices around the world. The private equity firm Carlyle Group paid $2.54 billion for the government side of Booz Allen Hamilton, which retained the full name of the company founded by Edwin G. Booz in Chicago as The Business Research Service in 1914. Its headquarters are in McLean, Va.

“The split-up has its roots in the vast differences that have surfaced this decade between the two units at the firm, which is more than 90 years old,” the Washington Post’s Zachary A. Goldfarb wrote at the time. “The government unit has enjoyed rapid growth because of post-Sept. 11 spending. The commercial unit grew but did not keep pace.”

Disclosure: I did some freelance ghostwriting and research for Booz Allen Hamilton, primarily for the commercial side of the business and its magazine, strategy + business, prior to the separation of the two entities.

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