On Sept. 3, Ned Brody, former chief executive of AOL Networks, officially joined Yahoo! (YHOO) as the company’s new chief of advertising in North and South America. Brody had resigned from AOL (AOL) in April, but his recruitment was delayed because of a noncompete agreement preventing him from working for a competitor for 18 months. AOL decided not to try to keep Brody, but it wasn’t willing to release him from his noncompete.
While AOL and Yahoo ultimately came to an agreement, AOL’s initial response is far from uncommon. When businesses raid competitors, the reaction is often to prevent them from joining the new ranks. Too often, competitors become locked in counterproductive battles over their best talent. What if, against every imaginable business instinct, letting a trusted employee leave is good for your business? Here are five ways you can benefit from setting your talent free.
Think of hiring as a steady state. Turnover is part of the regenerative process of companies. AOL has replaced Brody with an experienced ad exec, Bob Lord, former global CEO of Razorfish (RAZF). Recruiting new talent is how a company stays current and alive. Not-Invented-Here (NIH) syndrome and groupthink—dismissing outside ideas and the desire for consensus and conformity—happen when there is little turnover. Similarly, in research endeavors, scientists who work with too many former collaborators get stuck in familiar patterns and their scholarship declines. A constant stream of new blood helps keep companies vital and fresh.
Turn your talent loss into a gain. Think the company that hires your former employee is the only one benefiting from the move? When your inventors are recruited elsewhere you enlarge your industry footprint, increasing, for example, the possibility that your patents will be licensed. It can be useful to have former employees representing—or at least understanding—your perspective in professional associations, technical committees, or lobbying efforts. Remember also to distinguish between moves to competitors and moves to other poachers. If a talented programmer leaves you to work with a client or supplier, he or she might become a key contact in forming a new partnership.
Treat your former employees like alumni. Take pride in where your talent ends up. Brag about Google (GOOG) hiring your engineers. It will create a buzz about the talent you draw as a company and the opportunities your workers will have down the road. Many companies, such as Capital One (COF), Microsoft (MSFT), and McKinsey, realizing the opportunities hidden in amicable departures, have alumni programs. They hold cocktail receptions with hundreds of former employees and maintain alumni contact directories. Happy alumni become goodwill ambassadors for their former employer.
And do practice boomerang hiring. While some companies have policies never to hire employees who’ve left, others are realizing that they can save money when they rehire former employees already familiar with the product, technologies, customers, and the corporate culture.
Be an urban entrepreneur. In the 15th century, the powerful Medicis transformed Florence into a creative hub of artists and inventors such as Michelangelo and Da Vinci. Today, studies confirm what the Medicis intuited: Bring creative and inventive people within one space, and each will become even better. Economists call highly dense areas such as Silicon Valley agglomeration economies. Sure, in cities there is a great risk your talent will leave you for another company, but the density and movement in these regions makes for a virtuous cycle: By drawing more talent, vibrant cities gain the self-reinforcing advantage of deep labor markets.
Come to California—the weather is fine, and competition is the law. When Marisa Mayer left Google to join Yahoo!, no noncompete could stop her. Unlike most states, California courts refuse to enforce noncompete agreements and define trade secrets narrowly, voiding contracts that overly restrict the flow of knowledge. Several studies have found that states such as California that emphasize human capital flows have higher levels of patenting, draw more talent from more restrictive states, witness more entrepreneurship, and experience faster growth.
Our research, published this month in the Stanford Technology Law Review, shows that controls over talent decrease motivation and performance of employees. Instead of contractually restricting the departure of your talent, consider how you can reach the same result using stock options, bonuses, and profit-sharing programs, which induce loyalty without the negative effects of intimidation. Keep in mind that for many of your most talented workers, a promise of continuous learning and professional growth can be more important than salary structure.
As the talent wars become ever more heated, too many of us instinctively resort to the familiar: control and retaliation. We can benefit from turning the protectionist mentality on its head: Talent needs to be free and flowing for us to succeed in the ultimate race for brainpower.