History, Theory and Legality - Why Lying Doesn't Make Sense

One of the things I have learned about blogging is that it is not a place for long tirades. People get bored and don’t want to spend their time reading you work out your issues in the digital domain. I know first hand, because I have rambled about stuff that gets the universal “what the hell are you talking about?” response. My readership numbers directly correlate to these posts. Talk a little, and they go up. Talk a lot, and they go down. So this little number should send the numbers right through the floor.

Everyone is blogging and talking about the Adler and Sumser conflict. I think that’s a good thing. But the debate seems mostly uninformed by corporate history, sound business theory or any basic understanding of the legal issues involved. So I thought I would reflect a little bit on these topics.

First, the entire discussion starts on the premise of the permanence of the labor contract. All arguments that have been posted start with an assumption about the level of hold an employer has on their employees. Many have related this to slavery: you haven’t been able to “own” a person since the emancipation proclamation (or Lee’s surrender at Appomattox), and so every employee is a free agent, completely free of the bonds of corporate servitude. Then there are those that say that approaching an employee of another company is like “stealing” – the person is (supposedly) happily employed and you go in there and try to poach / steal / take them out of that environment, which has does material harm to the company being alleviated of their employee.

Corporate History

In pre-industrial society (after feudalism but before mass production) you started as an apprentice. Fathers sold their sons into the employ of an artisan or craftsman so that the boy could learn their trade, eventually graduating out of apprenticeship to full artisan or craftsman status. It was against the law to try to “poach” someone out of this situation. (Many people still are stuck with this notion – that while you are getting your bread and education from someone else you are “owned” by them and that it would be bad practice to try to lure them away from a situation to which they are ethically and legally committed.)

Two things happened to change this: the civil war and the development of the steam engine. Steam power moved industrial production from craftsmanship to mass production, so people became employed by a large enterprise, not by an individual. Most people understand that. But what they don’t understand is that the very nature of the industrial enterprise was changed by the civil war. Companies no longer had to get congressional approval for incorporation. Lincoln needed more corporations to supply his troops, so congress changed the rules to make it easier to set up (and disband) a corporation. In other words, when the corporation became impermanent (since the barrier to entry and penalty for exit were both reduced), so did the employment contract.

This (and not the Japanese miracle of the 70’s) was the start of  our “free agent” work place. Over time the contractual obligation  between the employer and employee has gotten weaker and weaker. You knew that “ownership” of an employee was dead as a concept when IBM had its first layoffs in the 80’s. But this doesn’t mean that an employee has no obligation to the employer. Quite the contrary. In fact, the obligation of an employee to hold a employer’s information as valuable and proprietary information is at the heart of the rest of our analysis.

But overall the basic premise that recruiters “steal” employees is fundamentally bankrupt, not because slavery is dead, but because free market economics has successfully killed off every form of employee indenture, starting with feudalism, working through apprenticeship, and ending with life-long employment contracts. Employees are free agents in as much as they can freely change employment at will. And while the fluidity of the employment contract may cause real harm to employers as an employee who is critical to some part of the business is able to leave freely and without bondage, the value to individual to freely pursue their interests (perhaps this is the real “pursuit of happiness” of which Jefferson spoke?) outweighs the potential damage to the corporation.

Therefore it is not stealing or poaching (or whatever derogatory name you want to hang on the practice) when you attempt to recruit someone from another company, even if they are a competitor and by virtue of your act of recruiting you are impairing the competitor’s ability to compete in the marketplace.

So if engaging in the act of recruiting from another company is both legal and ethical (as defined by a civilly and legally defensible act that does not markedly decrease the value of your brand in the marketplace), then you have not crossed the line into hell whereby all actions are justified because you have already decided to do bad things (the old “if you are going to hold up a liquor store you might as well murder the clerk” argument of ethics, which is one of two roots of all evil, but I digress).

Business Theory and Practice

Sound business theory says that your objective is to create value for your investors. You must provide a greater rate of return than they would get for a similar amount of risk out of another enterprise. Therefore there are some enterprises which may provide a lot of return to investors, but with a high degree of risk, and others that the opposite (low return, low risk).

Engaging in risky business practice may be justified by the return. Many (most) businesses engage in behavior that according to a personal code of ethics would be abhorrent but which in a business are expected (“vapor ware” in the software industry is a great example).

Business seeks to return value to shareholders within a very constrained value system: “value for value” and “reward exceeds risk.” Over time government (as an agency of the people) has constrained business behavior: what is good for GM is not always good for America. They do this by proscribing criminal controls (fraud is a criminal activity for instance) and civil law controls (failing to file you annual corporate meetings minutes for instance) as a consequence for behavior that is seen an antithetical to the good of the society as a whole.

These consequences are risks, and therefore must be taken into account in the “reward exceeds risk” calculation. After all, if your company is going to get fined for undertaking a certain activity then that is a risk that may outweigh the value of the anticipated reward for executing that activity.

Again, businesses are not operating in the ethical constraints that an individual is. The corporation does not seek to get into heaven, and doesn’t have to look itself in the mirror in the morning. (I personally disagree with the basic corporate structure – it was wrong for the East India Company and its wrong today, but that is another question for another day.) But businesses do have to assess whether their activities create risks for their shareholders that outweigh the probability of return from pulling it off.

Legal Issues

So rather than focusing on the ethical questions of this debate, focus on the business issues. And the business issues are pretty significant. If you, as an individual or agent of a company, intentionally use deception as a method of business, you are more than likely liable for a civil action. Your risk equation has to include the probability that you will be caught and the probability that you will be sued. In the past, in the “wink-and-a-nod” underworld of recruiting, these probabilities were calculated to be low, so lying and deception were common practice. As the risk of these activities increases we will seeing a corresponding decrease in their use.

However, if you use deception as a method of getting an individual to break their contractual obligation to another person, thereby exposing the person who is deceived to civil action themselves, you are more than likely guilty of fraud. That is a criminal activity. As an example, if you employ the tactic of rusing someone into giving a name, and the person you ruse is under a standard employment contract, then you have encouraged them to break their contractual agreement with their employer that they will hold such information in confidence. If that person gets fired for such an activity, it is clear they have a civil action available to them (they can sue you), and it may be that the enterprise can report you to the DA for your activity.

Again, there is no need to view this from an ethical framework. This is just risk / reward analysis. The risk is real. How likely are you to be caught, and if caught sued and / or prosecuted? Only you can evaluate that. But given the fact that most recruiters are not trained in business theory and risk calculations, it is likely that their calculations are wrong. In other words, you are probably taking on a lot more risk than you think you are.

But what is the reward? If the reward for success is greater than the penalty for failure then it may be worth doing (assuming you have evaluated the probabilities of both occurrences correctly). It may be possible that the big score is worth the possible suit, or even going to jail. But only if the probability of getting the big score is substantially increased by the behavior in question.

And in this case, the answer is clearly “no.” A person who lies and engages in subterfuge in order to obtain the names of candidates is not significantly more successful in their efforts than a person who does not engage in such behavior. They may be marginally more successful, but the reward is clearly not worth the extra risk, even if you assume that the risk is negligible (and I can claim with certainty that the risk is both significant and growing by virtue of this debate coming to light).

I think Heather Hamilton’s article got to the basis of this, as has much good commentary. I do applaud ERE for publishing both sides of this debate, and for bringing it to forefront. In fact, from the “sound business theory” perspective, ERE has reduced the risk of my company by showing me the people who would in fact increase my risk of doing business by employing lying and subterfuge as business methods. This has been a real value to the larger (and therefore more exposed) companies that read the ERE articles and watch the dialogue on the boards.

Comments

[Heather]

You're the man, Jeff! Once again, you said something that I wish I said (but wouldn't be able to if I sat in front a stack of industrial theory and history books for a few years).