Executive defection: causes and organizational impacts

Defection of an Executive

In this study, the CEO of Kinsington Textiles (KTI) company is surprised and chagrined that one of his top executives has decided to quit and go to work for another company. The CEO is Paul Simmonds, who is caught totally unprepared for the defection of Ned Carpenter, a high-energy, highly talented, highly motivated vice president of operations. It seems that when Carpenter arrived at KTI the operations department was in terrible shape, but Carpenter's energy and experience changed all that, according to Sharma and Kesner writing in the Harvard Business Review on Crisis Management.

The background into this scenario (albeit a fictitious scenario) adds drama and intrigue to the plot. The KTI company is located in a city where textile / carpet manufacturing is king. There are more than 250 plants located in this community and some are quite big, including KTI, a company with over 2,000 workers. The other big companies in town are linked to "diversified conglomerates with deep pockets," as Sharma et al. point out (p. 35). But KTI is independent and does not have a huge deep-pocketed corporation backing it up fiscally, so losing a key executive to a tough rival is painful and potentially harmful in terms of profit and public image. Ironically the company had hired Carpenter away from his previous position -- Carpenter had been VP of operations at a chemical company nearby -- and Simmonds' reputation and ability to produce profits had been greatly aided by the hiring of Carpenter. However, three years into a five-year program of change management, that Carpenter had spearheaded, Carpenter decided to defect to a competitor that happened to be a main rival, Daltex, presumably for a better compensation package and new opportunities. So the question is, how did this happen and what should Simmonds and his colleagues do now? One answer to the question of how this happened is that Simmonds and company failed to have Carpenter sign an employment contract that contains a clause preventing Carpenter from abandoning KTI and going to another company that is considered a competitor. In that contract, Simmonds and his company should have included a noncompetitive clause which would bar "…the executive from disclosing confidential information… for an indefinite period" (Ellig, 2007, 234).

Explore the Key Issues -- What are the best available resolutions?

The immediate issue that Simmonds and his top staff face is whether to go into the residential markets or the commercial markets with the innovative new coating process for carpets that Carpenter had developed. It is explained in the chapter that in fact Simmonds and Carpenter had some "heated conversations" about whether the new coating process that Carpenter helped innovate should be launched commercially or in the residential market. It appears that Carpenter was discouraged by the fact that Simmonds had the final say-so on any campaign or marketing decision -- albeit, Carpenter couldn't complain about his compensation since only Simmonds had a higher salary in the company.

The worry for Simmonds and his top staff -- in the aftermath of Carpenter's decision -- is that Carpenter was "privy to strategic information" and the KTI executives could not be sure as to whether Carpenter would take that strategic information with him and basically erode KTI's position in the market. This is pointed out in the chapter without any mention of the failure of Simmonds and other top executives and HR managers to get Carpenter's signature on an employment contract. This whole panic crisis would not have had to happen if Simmonds had insisted on a contract, which is not uncommon in situations like this. The security that could have come from KTI getting Carpenter to agree to the company's terms was not there, hence the frenzy to deal with the situation. As to resolutions, Kenneth Coleman's advice on pages 41-49 is very practical. Why not talk to Carpenter? It is possible that Carpenter's decision to leave is not written in stone. It's possible (as mentioned earlier) that Carpenter just wants to be assured that Simmonds will take his recommendations seriously, and not just listen to Carpenter but actually make decisions that are based on Carpenter's research and intuitive sense of the situation.

Moreover, Coleman is right in suggesting that a better compensation package could be offered in an attempt to retain Carpenter.

How could the crisis have been avoided?

For one, at the time of hiring Carpenter, I would have insisted on the company's in-house developmental data and operations information remaining confidential after Carpenter moves on to another firm. Even if Carpenter had refused to sign a contract that would prevent him from leaving and signing on to another company, the contract could have included a confidential information clause, preventing him from sharing company (trade) secrets with future employers. Steven Emanuel and Lazar Emanuel explain in their book Corporations that any of the following acts can be considered "wrongful taking of trade secrets": a) soliciting a "large number of the former employer's customers"; b) soliciting of the former company's employees; and c) use of the former employer's "secret processes" or other strategies of doing business (Emanuel, 2009).

Prepare to manage the crisis, resolve the crisis, and profit from the crisis.

First of all it seems obvious that the channels of communication in this company are not open as they should be. A thorough review -- top to bottom -- of the mechanism for people in the company to make their voices heard should be conducted at some time in the near future, whether Carpenter is really gone or not. And also, suing Carpenter is not an option. The negative publicity resulting from that confrontation could put KTI on the defensive.

Secondly, if Carpenter is indeed out the door, Simmonds first contact Daltex and set up a meeting to make the point that if Carpenter attempts to steal secrets or employees, there will be litigation -- and potentially a restraining order issued by the appropriate judge. Regarding Carpenter's replacement, Simmonds absolutely must tap into the opinions of the employees -- through HR -- as to their preference for a talent to replace Carpenter. Is it Brady? Why? If there is not sufficient enthusiasm for Brady -- and from the information presented, it doesn't sound like Brady is potentially a top-flight executive -- then a talent search should be conducted for a suitable replacement for Carpenter. The new hire should be asked to sign confidentiality agreements that are worked up by the legal staff of KTI, based on federal labor laws and based also on employee contracts that other corporations are using with success.