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 / Spring 2004 / Issue 34(originally published by Booz & Company)


Privacy in the Age of Transparency

A tough customer ethic demands corporate openness and integrity.


Photograph by Opto Design
It’s not often that a blue-chip CEO publicly lectures another CEO from a brand-name company about how he should manage his organization. Then again, it’s not often that the practices of one company upset employees of another one so strongly.

The incident occurred in 1999 when introduced purchase circles, an online marketing tool that, supposedly for the customer’s benefit, revealed what books Amazon’s customers from some well-known corporations were buying. For example, customers from Microsoft, it appeared, liked to read The Microsoft File: The Secret Case Against Bill Gates, by Wendy Goldman Rohm, a book that was critical of top management at the software giant. A book about operating system upstart Linux was a hit at Intel.

IBM favorites were also exposed on the Amazon site. As a group, IBM employees weren’t reading anything particularly heretical, but Big Blue’s then–chief executive Louis V. Gerstner Jr. didn’t like the voyeuristic aspects of the purchase circles, and polled IBM’s workers for their reactions to Amazon’s new program. Mr. Gerstner was inundated with 5,000 e-mails within hours; more than 90 percent expressed displeasure about having their corporate book-buying behavior displayed online. Mr. Gerstner passed this finding along to Amazon, and IBM was removed from the purchase circles.

As an embarrassing coda, an excerpt from a letter Mr. Gerstner sent to Amazon CEO Jeff Bezos was leaked to the New York Times. In it, Mr. Gerstner cautioned: “I’m certainly not going to tell you how to run your business, but I do urge you to view this as an enormously important issue.”

That anecdote, related by Don Tapscott and David Ticoll in their new book, The Naked Corporation: How the Age of Transparency Will Revolutionize Business, illustrates well the delicate balancing act companies face in satisfying the imperative to provide an increasingly personalized and streamlined relationship with customers, suppliers, and other business partners, and simultaneously keeping the data they’ve collected about them confidential. (See “A New Window onto CRM Success.")

Companies are entering an era of information transparency — a result, Mr. Tapscott and Mr. Ticoll say, of increasingly activist stakeholders, the growing influence of global markets, the spread of communications technology, and a new customer ethic demanding openness, honesty, and integrity from companies. Consequently, risks to privacy are greater, and safeguarding sensitive information has become more significant, and more difficult to do. Among the companies given high marks by privacy advocates for making data protection a priority are Dell, IBM, Intel, Microsoft, Procter & Gamble, Time Warner, and Verizon. Some of these companies — such as Microsoft, which has in the past been plagued by security leaks in its operating system and e-commerce programs — have embraced hard-line privacy stances only after experiencing first-hand the potential damage to their businesses that privacy breaches can inflict.

Business-to-consumer companies that fail to protect customer data can lose the trust and loyalty of customers, and drive them to other companies with which they feel more comfortable sharing personal information. That, in turn, has the somewhat ironic effect of providing privacy-friendly companies with the greatest aggregate database of valuable demographic, purchasing, and financial information about customers. This sensitive data can be a goldmine for cross-selling additional products and targeting direct mailings on the basis of customer preferences — as long as these sales campaigns are handled gingerly so that consumers feel that their privacy is respected.

There’s persuasive evidence that consumers are becoming even more protective of their personal information with the increased prevalence of Internet shopping and the aggressive data collection about shoppers by consumer product companies. The most thought-provoking statistics have been published by Privacy and American Business (P&AB), a monthly newsletter cofounded by Alan F. Westin, the well-known information privacy expert and professor emeritus of public law and government at Columbia University. P&AB is published by the Center for Social & Legal Research, a data protection think tank. According to the research in P&AB’s September 2003 issue, 36 percent of the American public, some 75 million adults, call themselves “Privacy Fundamentalists.” These are people who are passionate about threats to their privacy by businesses and favor government regulation of corporate information practices. That’s a huge leap from 2000, when only 25 percent of respondents to a similar survey fit this category. Moreover, in 2003, P&AB found that 53 percent of Americans (10 percent fewer than in 2000) could currently be categorized as “Privacy Pragmatists,” that is, people who will freely exchange personal information if the benefits they receive are perceived as greater than the privacy risks they’re taking.

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Privacy Resources:
Works mentioned in this review.

  1. Ann Cavoukian and Tyler J. Hamilton, The Privacy Payoff: How Successful Businesses Build Consumer Trust (McGraw-Hill, 2002), 288 pages, $24.95.
  2. Michael Erbschloe and John Vacca, Net Privacy: A Guide to Developing and Implementing an Ironclad E-Business Privacy Plan (McGraw-Hill, 2001), 318 pages, $24.95.
  3. Simson Garfinkel, Database Nation: The Death of Privacy in the 21st Century (O’Reilley & Associates, 2001), 336 pages, $16.95.
  4. Albert J. Marcella Jr. and Carol Stucki, Privacy Handbook: Guidelines, Exposures, Policy Implementation, and International Issues (John Wiley & Sons, 2003), 384 pages, $80.
  5. Don Tapscott and David Ticoll, The Naked Corporation: How the Age of Transparency Will Revolutionize Business (Free Press, 2003), 368 pages, $28.
  6. Guide to Consumer Privacy in Japan and the New Japanese Personal Information Protection Law, by Alan F. Westin and Vivian van Gelder (Privacy & American Business, 2003). For a free copy, e-mail Irene Oujo at [email protected]
  7. Privacy & American Business newsletter: Click here.
  8. Privacy Diagnostic Tool Workbook: Click here.
  9. U.S. Department of Commerce Safe Harbor site: Click here.
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