Tuesday, December 3, 2013

Talent Wants to be Free: Why We Should Learn to Love Leaks, Raids, and Free-Riding by Orly Lobel

Orly Lobel is not writing about love in Talent Wants to be Free, but she’s not terribly far off topic, for she writes about the suffocating attachments firms can form with their employees. The heart-sickened are told to let go -- and perhaps their beloveds will come back to them. This may be the better course, but it isn’t easy and it certainly isn’t what most of us do (with our insecurities and covetousness). Firms are jealously possessive of their key employees; this is a social fact. Lobel challenges these firms (and the responding legislatures) to consider whether they are indeed pursuing their own best interests by clinging.

Lobel usefully gathers a variety of legal doctrines and instruments into a basket she calls “human capital controls” -- and for this alone her book should be read. Human capital controls include IP and quasi-IP (trade secrets and know-how) rights, as well as a host of contractual features: non-competes, non-disclosure agreements, compensation arrangements (option grants and forfeitures) and post-termination obligations. Together, these elements bind the talented employee to her employer. The orthodox justification for these controls is that they promote firm investment in innovation, including investment in human capital -- that is, in forming the movable productivity of the employee herself. It is the workplace, and not the university, where most valuable human capital is created.

Lobel directly investigates the logic of control -- which is easily conflated with ownership. By controlling human capital, firms capture some of its produce. Creative workers create. In addition, firms withhold these assets from their competitors. According to the received view, employees are rivalrous goods. Lobel challenges this notion (though perhaps not explicitly) -- while we are not public goods, our creations often are.

Lobel does run into an empirical wall: if she’s right (and if California is right in its policies) that less control yields greater innovation, why is this view not more widely embraced? She mumbles something about the Prisoner’s Dilemma preventing cooperation, but that is no explanation. Why do more states not follow California’s lead? Why does Michigan backslide? It may be that Lobel’s prescription are sound for certain sectors (e.g. Silicon Valley-stuff), but are inapt for others -- and firms can detect their true interests. Lobel is not an absolutist; she does not argue that all human capital controls be abolished. She merely suggests that jurisdictions (like California) which facilitate employee movement find themselves closer to the sweet spot than those which enable oppressive lock-ins by employers.

Here’s a personal quibble: I am tired of books that introduce (yet again) the Prisoner’s Dilemma, the Market for Lemons and the Tragedy of the Commons. These are all great ideas (you can find them buried in my academic writings), but these ideas are so well covered, even in popular books, that they do not need more pages of unoriginal explication. And if resort to these models helpfully illuminates a particular context, then let’s do with a simple assertion and move on.

There’s much I like in Lobel’s book. Engineers in California speak of ‘working for the Valley’ -- suggesting that their true loyalty rests with the broader innovation community of which their momentary employer is a mere part. Folks in Hollywood (at least the creative ones) have a similar attitude (I like to tell my deans that I “work for the academy” -- they are not, however, amused.). Lobel questions the proper focus of loyalty -- a notion that broadly underlies what we today call principal-agent law.

I continue to resist the argument that California’s limits on non-competition agreements account for Silicon Valley’s outperforming Massachusetts’ Route 128. I prefer the “it’s-the-sunshine” account for California’s prosperity (Lobel scoffs at this). That Lobel believes that law matters in the geography of innovation is heartening. Place certainly does matter; the concentration of talent into a space enhances everyone involved.

Back to love. Lobel makes the counter-intuitive suggestion that firms that let their employees go -- firms that use a light hand in their ‘human capital control’ policies -- end up being better off. First, departing employees (if they’re happy) remain a valuable resource for the abandoned firm, feeding back information and solidifying network links. Moreover, lightly-bound employees are more creative; their periods of employment may indeed be shorter, but their productivity is greater. Talent Wants to be Free does not quite follow the love returned story in a business context -- ‘boomerang employees’ are few. But the freedom firms afford their employees (including the freedom to move on) can translate to more valuable innovation that will stick around.

No comments:

Post a Comment