Jules Kroll's corner office on the seventh floor of 900 Third Avenue in Manhattan comes as a surprise if you're used to visiting investment bankers, attorneys and other corporate executives - most likely clients of his. At first, it's as if you're in some fancy parlour. There's a tufted brown-leather sofa, and a couple of high-backed chairs around the obligatory coffee table in a room full of windows through which you can almost hear the heartbeat of New York City's traffic.
What's missing, of course, is the intrusive giant desk, the usual reminder that you're in the chairman's office. Then, out of the corner of your eye, you see it: a slice of opaque glass partitioning off a far corner, a small chamber of its own, with a long desk and a telephone facing the far wall. The scene doesn't quite conjure up Sam Spade, that quintessential hard-boiled hero of American detective fiction. But it is very private - and unique.
So is licensed private investigator Jules Kroll and the corporate investigative business, Kroll Associates, that he has spent more than two decades building. After working as a state prosecutor, followed by a period running his father's printing business, Kroll finally found his calling when he started Kroll Associates in 1972. Since then, he has brought on a slew of former federal prosecutors, police officers, intelligence officers, and DEA (Drug Enforcement Agency) and FBI agents to run operations worldwide - 22 offices in almost as many countries at the last count. And with over 300 employees, Kroll has brand-name recognition unrivalled by the handful of competitors he is up against, many of whom are ex-Kroll employees.
After almost single-handedly catapulting the industry into the limelight, Kroll continues to be a trailblazer. He is now selling Kroll Associates to the insurance information services group of Equifax - a US public company best known for its credit-reporting service. The deal signals the institutionalization of the industry and its transformation into what Kroll executives prefer to call a risk-management consultancy. Kroll and Equifax did not release details when the deal was announced at the end of March. But those close to the firm estimate the value at a $70 million stock swap. This figure equals Kroll's gross revenues for 1996, its most profitable year. Kroll's revenues grew 35% during the year after a miserable 1995, when the firm was in the red.
A vision for the next decade
Timing was part of the impetus for a sale, acknowledges Kroll. But he insists the deal also came out of "our vision of what's going to be needed over the next 10 years" to hold on to Kroll's lead in the market. Other investigative firms are a competitive threat, but the intrusive big-six accounting firms are perceived by Kroll to be a far greater one. "It's going to require quite a bit of financial resources and technical abilities that Equifax has and we don't," he says. The Equifax insurance group had $587 million in revenue in 1996 and owns CDB Infotek, one of the largest private data banks in the US.
Given the sleuthing industry of which it is part, Kroll's deal and the future of the merged company promise to be a thriller. Will public ownership diminish Kroll's ability to engage in the type of romantic pursuits for which it is best known? Alternatively, could the new company, with its vast resources, investigative tricks and technological sophistication, turn into a corporate big brother with greater access to information than many governments?
Kroll's operations are somewhat mysterious and almost as secretive as the firm's client list. For example, Kroll Associates helped corporate titan ICI fend off takeovers during the 1980s and uncovered Saddam Hussein's assets for the government of Kuwait in the early 1990s. Kroll says information the firm provided led investigators to an arrest last month of a mafioso for the murder of Italian banker Roberto Calvi, found hanged under London's Blackfriars Bridge in 1982.
The globalization of finance has been particularly fruitful for Kroll recently. Its far-flung contacts in many exotic places and the lack of reliable public information often lead to work on potential joint ventures and investments for clients. Recently Kroll is believed to have been involved in exposing the huge fraud at Bre-X Minerals, working for one-time Bre-X suitor Barrick Gold.
Last autumn, Kroll exposed an $11 million embezzlement for MD Sass Investor Services, the biggest ever uncovered at a securities firm. Regulators have just hired it to look into ways of keeping the mafia out of Wall Street's over-the-counter financial market, a growing concern in New York City. As the bidding war for investment bankers heats up in London and New York, firms are turning to Kroll for employee surveillance following suspicions that confidential data are being relayed to the competitors who hire them. And the merger boom has revived an old mainstay business.
Through all of this the Kroll name has had great expectations placed upon it. "It's scary," says executive managing director Ernest Brod, involved in some of the higher-profile international cases at Kroll. Brod has also been involved in what historically was its most profitable line of business - investigations for targets of hostile takeovers. "People come at us as though there's a piece of magic out there. By invoking the Kroll name, they think anything is possible," he says.
However, during the early 1990s Kroll's reputation suffered a setback. It became embroiled in controversy surrounding the illegal or unsavoury aspects of some of the tactics employed by its subcontractors. The firm then suffered several years grappling with a shifting business climate, international expansion, increased competition and management turmoil.
Former employees and competitors say it's a tough business, and it has made Kroll weary. But even those who've left the firm, or fallen out with their former colleague, respect him. "He deserves tremendous credit for raising the profile of the industry," says former Kroll investigator Paul Bromberg, now working for a competitor in Hong Kong.
Kroll became a millionaire by selling 25% of the firm to insurance giant American International Group in 1992, say former employees. Until the upcoming sale goes through, he will still own an estimated 70%, with the other 5% spread out among senior executives. Though Kroll insists the firm had not been on the block, months of press speculation of a pending deal preceded the announcement that the firm was being sold to the Equifax unit, due to be spun off this summer to create a new company called Choicepoint. In the merged company, still awaiting anti-trust approval, Kroll will keep its name. Management has been writing reassuring letters to clients, insisting nothing will change.