Business Risk September 2011

Staff Jumping Ship

Mitigating the risk of defections and loss of vital information

It could be a board of directors’ worst nightmare—a mass exodus of key executives to a rival firm. Losing key people in unanticipated and dramatic circumstances creates a crisis that tests the ability and resolve of senior management and, if not handled correctly, it can threaten the future of an enterprise.

The damage which staff defections can cause is enormous and can include serious financial losses (even a plummeting stock price for listed firms), negative publicity, damaged reputation, loss of confidential client materials and core clients, as well as the evaporation of staff morale.

In today’s free and competitive markets, the movement of staff between rival firms is unavoidable. However, these movements are sometimes accompanied by unethical or even illegal behaviour—and even with the encouragement of the competitor who is doing the poaching.

Financial services players, particularly insurance firms, are especially vulnerable to these “group grabs”, as they are sometimes referred to, but headhunters, architects and real estate firms have also suffered.

Warning signs

If management knows what to look for, the warning signs can be spotted. A small clique in the same department resigning at the same time; unusual late-night or weekend staff work patterns; particularly aggressive behaviour by a competitor, and unusual requests for IT access to confidential databases and client lists are potential indications that trouble may be looming.

The modern matrix management system—which can create a culture in which no single executive can see “the big picture” because of multiple reporting lines, confusion over accountability, too many people being involved in making decisions, or because problems are simply ignored—can compound the risks. All too often, no one in authority spots the threat until it is too late.

Exodus—need for decisive action

It comes as a terrible shock to senior management and the first reaction is often panic and paralysis. Worse, the defectors and their backers often initiate their hostile action when the defences of an employer are down: for example, over a long holiday, such as Golden Week or during the annual management meeting when senior executives are off-site. This means that key decision-makers are not there to organise swift counter measures.

But doing nothing is not an option; the future of the firm could be at stake. It is also a mistake to assume the damage has been done and that it is too late to act decisively.

Corporate legal advisors may be reluctant to recommend taking decisive legal action until concrete evidence of wrongdoing is available.

If the victim firm follows a well co-ordinated course of action, it can limit the short-term damage to its finances, reputation and staff morale, and it will learn valuable lessons on how to avoid a similar situation in the future.

When we are called by a client who suspects it may be the victim of a hostile and co-ordinated mass staff defection, our team of experts takes immediate measures to assess the scale of the threat, limit the damage, and identify steps that can be taken against the individual defectors, the controlling figures and the hostile corporation involved. These steps involve establishing a crisis-containment team, conducting gentle staff interviews, gathering intelligence, recovering electronic evidence, and providing a chronological analysis of events.

Hostile mass staff defections are likely to continue for the foreseeable future. Firms must be ready to mitigate the impact of any exodus, implement effective counter measures against hostile parties, and develop contingency plans to minimise the risk of a similar problem occurring.

Case history

FTI Consulting recently helped a client in Asia contain such a crisis. The majority of the firm’s draftsmen left over a weekend to set up a competing business. Client files were removed and electronic files containing important drawings were deleted from computers. This meant that the remaining staff faced the prospect of not being able to complete contracted work on time. We took the following action:

• Forensically imaged all 45 office computers; this recorded the state in which they were found, in case allegations of tampering were later levelled.

• Recovered key deleted electronic files, enabling staff to finish work and meet contractual obligations.

• With the client’s HR department, interviewed remaining staff to gain intelligence and insight into the defection.

• Established through a time-line analysis a pattern of electronic file deletions, between 6.30pm and 3.45am, on the night of the defections.

• Obtained building security videotapes showing staff leaving the building with large bags and boxes. The tapes also showed an employee with IT responsibilities leaving five minutes after the last file deletion.

The recovery of the deleted files allowed the client to resume business and prevented potential lawsuits for breach of contract regarding unmet deadlines. The evidence collected also supported criminal and civil actions against the guilty parties. The firm survived the challenge.