Business

06.09.13

Edward Snowden’s Employer, Booz Allen Hamilton, Has a Huge PR Problem

The NSA leaker might have been a rogue Booz Allen Hamilton employee. But he made the company’s biggest client, the U.S. government, look terrible—and that can’t be good for business, says Daniel Gross.

Booz Allen Hamilton is a publicly traded company with a market capitalization of $2.5 billion, about 24,500 employees, headquarters in McLean, Va., and, as of Sunday, a huge public-relations problem.

On Sunday, The Guardian reported that Edward Snowden, a Booz Allen Hamilton employee who previously worked for the CIA and NSA, was the individual who leaked information about the government’s extensive surveillance of digital communications. Now holed up in Hong Kong, Snowden claimed he had the ability to access the email and communications of pretty much anyone, even the president.

Focus now will undoubtedly shift as well to Booz Allen, which has been a huge beneficiary of the boom in defense and national security contracting. The company is one of the many firms that hangs around the Beltway and hoovers up jobs large and small from government agencies. A for-profit company, it gets virtually all its revenue from the federal government. (It should not be confused with Booz & Co., the management consulting firm that was spun off as a separate entity in 2008.) Booz Allen Hamilton’s major clients include, according to the company, “the Department of Defense, all branches of the U.S. military, the U.S. Intelligence Community, and civil agencies such as the Department of Homeland Security, the Department of Energy, the Department of Health and Human Services, the Department of the Treasury, and the Environmental Protection Agency.” Among the things it helps these agencies do is “addressing complex and pressing challenges such as combating global terrorism, improving cyber capabilities, transforming the healthcare system, improving efficiency and managing change within the government, and protecting the environment.”

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. In its most recently concluded fiscal year, it collected $5.76 billion in revenue and reported a healthy operating profit of $446 million. After paying $149 million in income taxes, it was left with net income of $219 million.

Essentially, Booz Allen is a conduit for taxpayer money to contractors, shareholders, and employees, many of whom, like Snowden, are highly paid. The Guardian pegged his salary at $200,000. According to the company’s proxy filing, CEO Ralph Shrader earned a $1,162,500 salary last year, plus nearly $2 million in stock awards and other compensation.

To a large degree, Booz Allen Hamilton is a low-risk, high-reward type of business. It doesn’t assume all that much financial risk. And it doesn’t have to worry too much about collecting its bills. Its main client, the government, isn’t in danger of going bankrupt.

If you’re in the consulting business, it’s never good when one of your highly paid employees makes your largest and most lucrative client look really bad in the public eye.
Video screenshot

Edward Snowden explains why he leaked top secret information.

On the other hand, there is some risk. Essentially, it has one large client—the government. And when government spending falls off because of austerity, the sequester, or a decline in the defense budget, its revenue falls off too. Revenue and profit were both down in the company’s recently concluded fiscal year, and the company expects “a low single digit decline in revenue” for the current fiscal year, thanks in part to sequestration.

There are other risks, which the company duly notes in the “risk factor” section of its 10-K annual report filing. “We depend on contracts with U.S. government agencies for substantially all of our revenue. If our relationships with such agencies are harmed, our future revenue and operating profits would decline.” Another risk factor notes that the company must comply with all federal laws and regulations, includes those relating tolaws, regulations, and executive orders restricting the use and dissemination of information classified for national security purposes.” And should the company or its employees fail to comply fully, “that could result in our inability to continue to work on or receive U.S. government contracts.” Another risk factor notes: “Our professional reputation is critical to our business, and any harm to our reputation could decrease the amount of business the U.S. government does with us, which could have a material adverse effect on our future revenue and growth prospects.”

Booz Allen Hamilton released a statement on its website Sunday addressing Snowden: “Booz Allen can confirm that Edward Snowden, 29, has been an employee of our firm for less than 3 months, assigned to a team 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. We will work closely with our clients and authorities in their investigation of this matter.”

The company’s stock won’t start trading again until Monday morning, and there’s nothing to suggest that Snowden was anything but a rogue employee. But if you’re in the consulting business, it’s never good when one of your highly paid employees makes your largest and most lucrative client look really bad in the public eye.