By Associate Dean Michael Waterstone
This book review originally appeared in the Daily Journal.
Ideas. Collaboration. Drive. In the world we live in, these intangible resources can be the most valuable assets a business has. In the two professional worlds with which I am most familiar, law practice and legal academia, this is certainly the case. Law firms routinely raid one another, both for talent and for books of business (and potential for future business). At law schools, we regularly look to other faculties to see whose talents in the classroom, as scholars, and as administrators would benefit our students, and try to recruit those faculty members to join our ranks. And we expect that other schools will do the same to us. Even more than in the legal arena, the competition between technology companies like Facebook, Google, Microsoft and Apple is even fiercer. All of these companies fight vigorously with one another for the best talent, and routinely acquire (or as it is now known, acq-hire) entire start-ups, only to discard the actual product but keep the teams, founders and engineers.
Professor Orly Lobel's important new book, Talent Wants to Be Free: Why We Should Learn to Love Leaks, Raids, and Free Riding addresses what role business and government should play in the talent wars, not just in the legal profession but across industries. Combining insights from law, economics, psychology and business, and with the benefit of experimental studies, Lobel offers a powerful critique of our dated ways of thinking about competition, which center around command and control of human capital. But she also offers a hopeful vision of how law and business can foster innovation and the competitive edge necessary for our country's success in a new and more challenging global environment.
Legal regimes can restrict the flow of talent through noncompete agreements and expensive litigation. So, for example, in 2010 the Department of Justice investigated several of these tech companies for agreeing to mutual "do not touch" arrangements, whereby companies promise not to hire away employees from each other. Apart from the legality of these agreements, Lobel questions their strategic wisdom. Her basic thesis is that attempting to control human capital is misguided and often futile, and, as a long-term proposition, we all benefit from the freedom and flow of people and ideas. A control mentality, evidenced in law by noncompete agreements (standard in many contracts), and supported by legal regimes that give effect to such arrangements, holds us back.
These agreements are a near universal feature of employment contracts, in part because companies view the loss of a valuable employee as such a double blow: The company not only loses a valuable, trusted employee, but that employee's energies and talents go directly to that company's competitor (something Lobel refers to as "corporate judo," as in using a competitor's strength against him or her). More than 90 percent of managerial and technical employees have signed noncompetes. Here California, which traditionally does not enforce noncompete agreements, offers an important case study. Lobel traces the growth and innovation in Silicon Valley, home to some of the world's most successful companies, to this feature of our legal system and suggests it has helped California compete favorably against other jurisdictions with more restrictive legal systems. It is now clear that in states where noncompetes are not enforced or weakly enforced, more venture capital results in higher levels of entrepreneurship, more patenting and better employment rates. The converse is also true: Where noncompetes are strongly enforced, start-up activity is suppressed, fewer jobs are created, and fewer patents are filed.
Apart from commenting on legal regimes, Talent Wants to Be Free also offers advice for businesses. Somewhat counterintuitively, companies should resist their natural urge to control talent, and instead develop a reputation for nonlitigiousness when people seek to move. The goal should be to create a workplace and incentive structure that naturally seeks to retain individuals, with a premium on opportunity for employee learning and growth, and performance-based rewards systems. And when people do leave (as some inevitably will), firms should treat them as goodwill ambassadors and valued alumni, rather than pariahs.
Lobel has written an important book that challenges the way policymakers and industry leaders should think about human capital. We ignore her prescriptions at our peril.