BusinessWeek's April 21, 2008 Issue: The New E-spionage Threat

NEW YORK, April 11 /PRNewswire/ -- THIS WEEK: * Cover Story: The New E-spionage Threat * The Spending Mirage * Bailing Out of Bear * You've Been Pre-Rejected For these stories and more, visit www.BusinessWeek.com (Photo: http://www.newscom.com/cgi-bin/prnh/20080411/NYF011 ) COVER STORY: THE NEW E-SPIONAGE THREAT By Brian Grow, Keith Epstein, and Chi-Chu Tschang

The U.S. government, and its sprawl of defense contractors, have been the victims of an unprecedented rash of cyber attacks over the last two years, say current and former U.S. government officials. "It's espionage on a massive scale," says Paul B. Kurtz , a former high-ranking national security official. Government agencies reported 12,986 cyber security incidents to the U.S. Homeland Security Dept. last fiscal year, triple the number from two years earlier. Incursions on the military's networks were up 55% last year, says Lieutenant General Charles E. Croom , head of the Pentagon's Joint Task Force for Global Network Operations. When the deluge began in 2006, officials scurried to come up with software "patches," "wraps," and other bits of triage. The effort got serious last summer when top military brass discreetly summoned the chief executives or their representatives from the 20 largest U.S. defense contractors to the Pentagon for a "threat briefing." BusinessWeek has learned the U.S. government has launched a classified operation called Byzantine Foothold to detect, track, and disarm intrusions on the government's most critical networks. And President George W. Bush on Jan. 8 quietly signed an order known as the Cyber Initiative to overhaul U.S. cyber defenses, at an eventual cost in the tens of billions of dollars, and establishing 12 distinct goals, according to people briefed on its contents. http://www.businessweek.com/magazine/content/08_16/b4080031217154.htm?campaign _id=pr_newswire

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THE SPENDING MIRAGE

By Michael Mandel

If you are an investor, this is the moment in the business cycle when fortunes can be won or lost. The U.S. economy is in recession, for the fourth time in the past quarter century. Will the stock market soon take off with a whoosh, as it did during the downturns of 1981-82 and 1990-91? Or will stocks continue to slump, like they did during the 2001 recession and beyond? Forecasting the stock market is a fool's game -- but there are grounds to believe there's another drop in the market yet to come. The reason: a broad decline in consumer spending, which so far has been masked by a quirk in the government's statistics. Combine that with a rapidly unraveling job market, high energy prices, and the continuing credit crunch, and you have the recipe for a drop in consumer stocks. A big decline there could take the rest of the market down with it. http://www.businessweek.com/magazine/content/08_16/b4080000602263.htm?campaign _id=pr_newswire

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BAILING OUT OF BEAR

By Michael Orey

As chaos rocked Bear Stearns during the weekend of Mar. 15-16 , one of the investment bank's star brokers prepared to bolt from its Boston office. The Federal Reserve and JPMorgan Chase were rushing to rescue Bear. But Douglas A. Sharon didn't wait around to see how it all came out. Surveillance cameras captured the 50-year-old veteran and an assistant toting two boxes out of Bear's downtown building. Earlier, Sharon had frantically called dozens of skittish clients and tried to sort through the mess with other executives at the branch. The company alleged in a lawsuit that amid the mayhem, Sharon committed an unlawful act of disloyalty, stealing copies of confidential account documents and, more important, the lucrative clients who went with that paperwork. Sharon denied any wrongdoing, countering that his actions amounted to client triage, not treachery. A judge found no merit to Bear's claims. The two sides continue to duke it out in arbitration, but the blow to Bear has already been dealt. With Bear and JPMorgan trying to prevent a mass client exodus, almost all of Sharon's 90 or so customers -- and their roughly $1 billion -- have moved to his new employer, Morgan Stanley. Documents and testimony from the legal scuffle offer a rare behind-the-scenes look at Bear's final days, as employees and clients alike scrambled to get out with as much of their money as they could. http://www.businessweek.com/magazine/content/08_16/b4080043257581.htm?campaign _id=pr_newswire

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YOU'VE BEEN PRE-REJECTED

By Aili McConnon

Two courtside tickets to an NBA game: $600. Five-course dinner with your client afterward: $300. E-mail from your boss at 8:15 a.m. the next day asking what company business took you to a champagne bar at 2 a.m. : priceless. This scenario could become a reality at offices around the world, courtesy of MasterCard. In partnership with Royal Bank of Scotland , the credit-card giant is launching a corporate card that allows companies to set strict parameters on which restaurants, bars, and hotels their employees can patronize. The introduction of MasterCard's inControl credit card couldn't be better timed. As the economy falters, many companies are scrambling to trim travel and expense budgets, bumping workers from business class to economy and cutting back per diem food allowances for road warriors. Next up, MasterCard is looking to pitch a version of the card to parents who want to keep closer tabs on their offspring's spending habits. http://www.businessweek.com/magazine/content/08_16/b4080031217154.htm?campaign _id=pr_newswire

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A SPINMEISTER IN NEED OF SPIN

By Burt Helm , with David Kiley and Steve Hamm

From the start, some of Mark J. Penn's colleagues had qualms about his dual roles as CEO of Burson-Marsteller, the public-relations giant, and chief strategist for the Presidential campaign of New York Senator Hillary Clinton . Maybe they shouldn't have. On Apr. 6 , Penn gave up his role as strategic chief with the campaign, though he continues to advise the candidate. The move followed revelations, first reported in The Wall Street Journal, that Penn met in late March with officials of the Colombian government, which had hired Burson to help pass a proposed free-trade pact with the U.S. that Clinton happens to oppose. L'Affaire Penn was yet another blow to the Clinton campaign. But it was also embarrassing for Burson, which is supposed to get good headlines for its clients, not bad ones for itself. As BusinessWeek went to press, Penn's job seemed secure, and none of the firm's clients, which include BP, Accenture, SAP, and Intel, had yanked their business (apart from the Colombian government, which fired the firm). Still, Penn & Co. are in full damage control mode. Penn plans to visit regional offices in the coming days and confer with his executives. "I'll be talking one-on-one," Penn told BusinessWeek, "and making sure that this is resolved, behind us, and the company moves on." http://www.businessweek.com/magazine/content/08_16/b4080000363255.htm?campaign _id=pr_newswire

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AMAZON TAKES ON IBM, ORACLE, AND HP

By Peter Burrows

Jeff Bezos made a fortune building Amazon.com into one of the top players in online retailing. Now he's looking for new ways to cash in on the company's capabilities. One of the most intriguing, he thinks, is to move into the $1.7 billion corporate computing market, where the Web's biggest bookstore aims to compete with IBM, Hewlett-Packard, Oracle, and Microsoft. "That's exactly what we're doing," says Bezos. "And it's working." His approach is as unconventional as his strategy was when he started Amazon in 1995. The company won't be making computers or selling software to corporations. Instead it's offering companies the ability to tap into the vast computing capabilities of Amazon's own data centers, in a manner almost as easy as buying the latest best-seller. Companies pay only for the computing they need, avoiding the cost of buying and operating their own gear. Amazon began the effort six years ago with startups and individual programmers, and more than 300,000 clients have signed on. http://www.businessweek.com/magazine/content/08_16/b4080000729196.htm?campaign _id=pr_newswire

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FLYING IN FOR A TUNE-UP OVERSEAS

By Geri Smith and Justin Bachman

Hangar No.1 at San Salvador's airport is hopping. Technicians employed by jet maintenance contractor Aeroman swarm over Airbus planes belonging to JetBlue, US Airways, and Ukraine's Donbassaero, checking electrical systems, replacing carpets, and examining engines and flaps for corrosion or defects. Outside, jets from US Airways and Air Tanzania wait their turn. Why the rush to this tiny Central American country? Starting pay at Aeroman in El Salvador is around $4,500 a year, while veterans take home perhaps $15,000. In the U.S., airplane mechanics earn an average of $52,000 annually. These days, Aeroman and companies like it have plenty of customers. As airlines scramble to cut costs, outsourced repair shops -- both in the U.S. and abroad -- now handle two-thirds of all maintenance for American carriers, the U.S. Transportation Dept. says, up from 30% in 1997. Airline maintenance has become a $42 billion-a-year business, with countries such as Singapore , China , Korea, and Dubai making enormous investments to attract such work. While there's some concern about the 4,181 maintenance operations in the U.S., the bigger worry is over the 700-plus foreign shops overseen by the Federal Aviation Administration. http://www.businessweek.com/bwdaily/dnflash/content/apr2008/db2008049_205948.h tm?campaign_id=pr_newswire

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