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Don’t Be Evil, Or Don’t Be Seen?

Google logo on a wall lit from below
photo by Robert Scoble

The problem with taking a “holier than thou” stance is that more often than not, it ends in a mud bath while onlookers say “not really.”

Google has, for over a decade, touted its informal motto: Don’t be evil. The company sought to set itself apart in its commitment to ethical business principles and doing right by the people it hires and the people who use its services. Yet at the same time, then-CEO Eric Schmidt was cautioning a fellow executive that a set of business deals should be done only “verbally, since I don’t want to create a paper trail over which we can be sued later.”

Better make it “Don’t be evil while anyone is watching.”

The agreements Schmidt wanted to keep under wraps were the product of collusion among top executives from some of the most prominent technology companies to refrain from recruiting one another’s employees. In a class action antitrust lawsuit, employees alleged that Google, along with Apple, Intel, and Adobe Systems Inc., conspired to keep wages down through such agreements between 2005 and 2009. Intuit and Pixar were also named in the original complaint, and had previously agreed to settle.

Google, Apple, Intel and Adobe have now agreed to settle too, though they maintain that this decision springs purely from the desire to avoid the risks and burdens of trial. Chuck Mulloy, a spokesman for Intel, said in an email to Bloomberg, “We continue to deny the allegations contained in the suit and deny we violated any laws.” A statement from Adobe also “strongly denies that it violated any laws or engaged in any wrongdoing.”

These protests ring hollow. This is not the first time Silicon Valley has had to cope with the fallout of its collusion; in 2010, the Justice Department filed a civil antitrust complaint against the six firms for the same alleged behavior. All six companies settled then, too, though that action did not result in any fines. It did, however, draw attention to the companies’ practices, which they acknowledged, though they maintained such practices were neither illegal nor wrong.

Note to executives everywhere: If you want to know whether something you are doing is questionable, ask yourself whether you would be comfortable reading about it on the front page of tomorrow’s Wall Street Journal. If your answer is “no” on any subject other than a proprietary product, strategy or acquisition that your company is developing, you have your answer.

There is a right way and a wrong way for companies to protect themselves from potential harm if employees, especially key employees, take new jobs elsewhere. The right way is through direct agreements with the employees in question: employment contracts that include noncompete provisions and other defenses for the employer’s proprietary technologies and key business relationships. To be enforceable, such agreements must be limited in scope and duration - and, of course, employees must enter into them willingly. It’s called fairness. No employer should have a problem dealing with employees this way.

When employers collude behind their employees’ backs, they throw fairness out the window, and they may be exposing themselves legally and financially. That’s why secrecy is an essential element of collusion. No matter how many times these companies claim their practices were not wrong, the secrecy attending their agreements speaks for itself. The companies were going to lose in court, and they all knew it. It was just a question of how much they were ultimately going to pay, in cash reparations and in damage to their reputations if too much of their internal communication became public.

In that respect, the settlement is still useful, since it secures some compensation for the affected employees and sends a message to employers everywhere that such behavior is out of bounds. Not that employers with any sense of fairness, let alone business or legal training, did not realize that anyway. Facebook, for example, deserves credit for refusing to join the Silicon Valley employer cartel.

It is unfortunate that the settlement will not test a theory put forth by some of the defendants that while multi-party collusion is improper, two firms can legally agree not to poach each other’s employees. That’s nonsense, too, as will be evident if the claim ever makes it to a courtroom. As a reality check, suppose the employee in question designed large passenger jets and the two employers in question were Boeing and Airbus. The courts would probably throw this claim on the trash heap, as well they should, but it will have to be another case that puts this argument to the test.

Another interesting question is why the Justice Department’s settlement terms were so lenient back in 2010. If the fact that the settlement came with no monetary strings attached doesn’t strike you as odd, contrast it with the huge fines the feds sought from financial institutions such as JPMorgan Chase. Not only did the companies not pay the Justice Department - or their employees - they did not even agree to permanently refrain from collusion. Their pledge of good behavior had a five-year expiration date.

Might there have been a connection between these easy settlement terms and President Obama’s highly visible support from many top Silicon Valley executives, including Schmidt, who was an early adviser to Obama's first campaign and backed his second? Decide for yourself.

The Silicon Valley collusion case is a clear-cut example of wrongdoing, though “evil” might be a little strong. Then again, I’m not one of those employees who was colluded against. They might feel evil is not too strong at all. Either way, it won’t become any less wrong in 2015, whatever the companies involved may try to claim. The “Wall Street Journal” test can keep a lot of corporate executives out of a lot of trouble, if they choose to use it. It’s a pretty simple rule to follow.

Easier, apparently, than “Don’t be evil.”

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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