Do not poach agreements in the tech sector

January 11, 2011

Imagine you are the CEOs/Co-CEOs and/or founders of Research in Motion (RIM) and OpenText, the two behemoths in Waterloo’s growing tech sector. You support many of the same local charities and see each other regularly at industry events. Your businesses even use each other’s products and at least one local startup has technology built on the technologies of one and a founder of the other. Oh, and did I mention that Waterloo is a small town and cordial relationships are preferred to the alternative… Anyways, one day, while side-by-side on one of the countless panels discussing the future of the Kitchener/Waterloo tech sector, one head honcho leans over to the other and says, “I have been thinking lately that it is really disruptive, expensive and unnecessary for us to raid each other’s talent to sustain our respective growth. Why don’t we put our heads together to find a better way to get the talent we both need into the region without ravaging each other’s talent pool”? The two executives agree to launch discussions on a broad international recruiting initiative that promotes the KW area as well as the two companies in the process. In addition, henceforth they ‘informally’ refrain from proactively recruiting each other’s talent. The ‘word’ pertaining to this understanding is passed down to the respective human resources departments who work out the logistics and details including an agreement to provide each other with a ‘heads-up’ of the impending defection of anyone who has approached the other firm on their own initiative.

Now, imagine this same phenomenon occurring in Silicon Valley between companies such as Google, Apple, Intel, Adobe, Intuit, and others. The U.S. Justice Department did more than just imagine such a possibility. They investigated it and were not amused by what they found. Turns out that Google had an agreement with Apple to refrain from ‘cold-calling’ each other’s employees. Google CEO Eric Schmidt happened to be on both boards when the agreement was put together. A similar agreement also was in place between Apple and Adobe, Google and Intel as well as Google and Intuit. And lo and behold Pixar and Apple had a ‘do not call’ agreement which likely, at some level, involved Steve Jobs agreeing with Steve Jobs not to recruit from Steve Jobs . The Justice Department launched civil litigations targeting a number of these firms for entering into “understandings” they termed “anti-competitive and which limit employee hiring and retention”. A few weeks ago, Lucasfilm and Pixar joined a group of other firms that have paid undisclosed fines and changed their policies. According to the Justice department, the two firms had an “agreement to resist poaching each other’s animation workers” which had the effect of “limiting competition for high demand digital animators thus depriving them of better opportunities and potentially higher salaries”. The Wall Street Journal reported that other settlements are said to be in the offing.

As a headhunter, I cannot count the number of times clients have asked me to refrain from recruiting in certain organizations due to formal or informal agreements between their firms. They may describe a supplier/customer relationship; a potential or actual alliance partnership; common investors, owners or board members among the firms; personal relationships between the CEOs; or fear of retribution should one firm be upset by the actions of the other. And while many of these agreements may have been conceived with the most honorable of fair play intentions it is undeniable that they have an effect on both the free flow of talent and on the free-market pricing of that talent. And while such practices characterize many tight labor markets (think oil patch in Alberta, or financial services in Toronto), I have never heard or read of U.S. Justice Department-styled investigations in Canada’s tech sector, or in any sector for that matter. Lack of means, lack of will, lack of interest…..who knows?

On a final note, officials at the US Justice Department likely smiled when Google recently announced that it would raise the salaries of all employees by 10% beginning in 2011. Though the move was touted in magnanimous terms by Google, the press has described as a defensive attempt to stem the tide of employee defections to Facebook and other firms now deemed ‘hotter’ than yesterday’s market darling. Presumably this is closer to how the jungle should work.

About the author

Robert Hebert is the founder and Managing Partner of StoneWood Group Inc., a leading executive search firm in Canada. Since 1981, he has helped firms across a wide range of sectors address their senior recruiting, assessment and leadership development requirements. Contact Robert by email at rhebert@stonewoodgroup.com or call (1) 416-365-9494 EXT 777.