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When Bosses Collude Against Their Talent

Back in the 1980s, Major League Baseball owners were unhappy about having to match other teams’ lucrative offers to free-agent stars. They made what they thought was a gentleman’s agreement to shut down the talent market.

It worked, though only for awhile. There were 62 free agents after the 1985 season. Only four changed teams. There was a similarly peculiar lack of demand for top-tier players following the 1986 and 1987 seasons. The sharp rise in player salaries stalled; owners’ profits soared.

But the owners’ obvious collusion violated baseball’s collective bargaining agreement, and players did not take the violation lying down. They filed grievances after each of those three seasons. Some players were given another shot at free agency. The owners also were obliged to pay cash compensation, which reached $280 million after a fed-up arbitrator’s ruling in 1989.

There are very few places where world-class ballplayers can sell their services. They can’t go into business for themselves; players’ careers are too short and the economic barriers to entry are too high. Yet, even in pro sports, bosses have relatively little leverage over talent. One would think executives in other industries would not bother even trying to collude.

But – surprise! – bosses everywhere are tempted to try to build their businesses via back-room deals that seek to hold compensation down and keep talent locked up.

I finished my M.B.A. in 1986, just as the baseball owners were shafting their players. I received job offers from three of what were then the Big Eight accounting firms. When one firm, Arthur Andersen, raised its starting offer – twice – a managing partner at Coopers & Lybrand could not hide his annoyance. He grumbled something about calling his counterpart at Andersen to complain about driving up salaries for everyone.

Just last month, the Justice Department filed a civil antitrust complaint against six prominent companies in Silicon Valley, alleging that they had agreed not to cold-call one another’s workers for recruiting purposes. The six firms — Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar — settled the allegations, promising not to keep or make any new agreements to limit competition for employees. The firms were not fined and did not admit any liability.

In fact, Intuit and Google have maintained that they did not do anything wrong. In a blog post, Amy Lambert, associate general counsel for Google, explained that the agreements were made at a time when Google was hiring aggressively while also “building partnerships with other technology companies to help improve our products and services.” The implication is that, without agreements like the ones that were struck down, other companies would have refused to collaborate with Google for fear that Google would steal away their best employees.

There is one problem with this argument: Nobody told the employees about these hands-off deals. Employees would have seen such arrangements as benefiting their employers at the expense of the workers’ personal opportunities, and they would have been correct.

A lot of employers in talent-based businesses try to keep their key workers out of sight. This does not usually work very well. Every industry has its talent recruiters, and every “headhunter” worth his or her salt knows how to track down names and phone numbers. Keeping good people under wraps has been a losing proposition for quite a while. In the LinkedIn world, it just strikes me as a silly waste of time.

I take the opposite approach, giving everyone at my firm, especially the more senior people, as much visibility as possible. Professionals at Palisades Hudson are regularly quoted as experts in the media. They routinely write articles for our newsletter, Sentinel. They take leadership roles in professional organizations and have high-level contacts at many firms that do some of the same things we do.

I want our clients and potential clients, along with journalists, the public and our friends and families, to see how capable every member of our staff is. All of our employees are skilled and respected professionals, and they deserve the opportunity to demonstrate their knowledge and intelligence.

The best way to keep talented workers is to make it worth their while to stay. It is pointless to try to keep them from looking at other options. To hold onto the people who make our firm successful, I have to pay them what they are worth today and provide a path for them to build their careers and find professional satisfaction in the future. I also find that it helps to be the kind of boss they can trust not to victimize them with secret deals.

One of my friends runs a business very similar to mine. We both provide financial advice and investment planning to high-net-worth families, and her office is just a few miles from our headquarters in Scarsdale, N.Y. All of the senior people at Palisades Hudson know her, and we have gotten to know several of her key employees over the years. On occasion, we have even worked together to share information or investment opportunities that can benefit both sets of clients.

Unlike the high-tech companies named in the recent antitrust complaint, my friend and I have never felt the need to discuss the recruitment of one another’s employees. Even if we did agree not to call one another’s employees, I doubt that would stop anyone from pursuing jobs at the other company. My managers already know my friend. If they are interested in working for her, they know where to find her; they don’t have to wait around for the phone to ring.

In the end, the only thing the “do not call” agreements accomplished for those tech companies was to make their employees feel their bosses were scheming against them.

That’s no way to hold onto talent.
 

For more articles on financial, business, and other topics, view the Palisades Hudson newsletter, Sentinel, or subscribe to my daily opinion column, Current Commentary.

 



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