Open a newspaper or magazine -- inside will be an article on a business in crisis. It would be exciting for any entrepreneur to be featured in Fortune Magazine, wouldn't it? For George Kurtz, recently named a finalist for Ernst & Young's Entrepreneur of the Year Award, it must have been anything but flattering to be featured in a searing exposé. Though his $20-million-a-year computer-security company, Foundstone, was providing software and services to the likes of the Federal Reserve, Army, National Security Agency, Motorola, FAA and Bank of America, it wasn't accolades that filled the pages of the article. Sadly, Mr. Kurtz has fallen victim to a disgruntled former employee and perhaps to his own poor corporate governance practices.

The sad saga began when a key employee left Foundstone to pursue his own entrepreneurial interests. Foundstone executives discovered the former employee, J. D. Glaser, had opened a competing business, NT Objectives, and was about to launch a new software application a lot like Foundstone's product. In fact, quite a few of Foundstone's employees left the organization and went to work for NT Objectives. A "trade secret" tug of war began and arbitration continues still, though this particular issue wasn't in headlines.

What else happened is that a "confidential source" alleged to the Software & Information Industry Association (SIIA) that Foundstone's executive officers regularly distributed unlicensed software to its employees. The SIIA is a watchdog group that conducts investigations and audits to ferret out unlicensed software and, if found within an organization, imposes hefty fines on the offenders (on behalf of its member software publishers).

The SIIA currently offers a reward of up to $50,000 for whistle-blowers. That amount of money would get the attention of any disgruntled employee or former employee's in a heartbeat!

Enter investigative reporter for Fortune Magazine, Richard Behar. His June 2003 article, "The Two Faces of Foundstone -- A leading computer-security company is accused of software piracy," details the miserable saga. Although the alleged software piracy does seem to be substantiated by a number of former employees, the evidence appears to come primarily from Mr. Glaser, the same employee who is involved in trade secret arbitration with Foundstone. Kurtz strongly denies the company is involved in software piracy and that internal and external audits validate a high level of compliance. The damage is done; the SIIA will likely have its money in short order. Foundstone has reportedly lost its largest client, Microsoft, which accounted for about a quarter of the company's revenue and may have already lost consumer confidence and may potentially lose other clients.

Foundstone is just one of many companies that will likely make the headlines for all the wrong reasons. Good corporate governance and strong, well-disseminated policies and procedures may have kept this organization in the press for some of its more important accomplishments, such as winning Network Computing Magazine's Editor's Software Choice, being named one of Fast Company Magazine's 50 Champions of Innovation, or even perhaps being the award winner for the upcoming Entrepreneur of the Year.