An exodus of staff to a rival firm is a nightmare for directors, and a test of management resolve. Defections can result in financial harm, loss of confidential information and key clients, and significant damage to reputation, morale and even the survival of an enterprise.

The risk of defection is greater with the approach of Christmas and Chinese New Year, times at which staff may opt to pocket bonuses and depart for other opportunities; and times are especially fraught this year, as some families reconsider their options in the light of COVID-related restrictions.

In this context, companies could easily find themselves facing a significant staff defection in the coming months. Directors should take account of the threat and not leave this responsibility completely in the control of line management or HR Departments.

The Risks

Any, and all, companies are at risk, including those in financial services, insurance, corporate services, banks, and legal and professional services businesses.

Of course, the circumstances relating to staff defections vary, but they often include certain factors – middle-ranking employees feeling vulnerable, the emergence of a cash-rich player, or a perception of lay-offs to come, amongst other concerns.

The growth in number of companies offering remote working opportunities has only widened the scope for such defections. Staff may seek employment at firms newly within (digital) reach, even as greater movement in the labour market is encouraging competition among firms to secure access to talent.

Similarly, limitations on international travel are putting intense pressure on expatriate workers, in Hong Kong, Singapore and Mainland China who have hitherto operated on the assumption that travel to home states was a given. Now, staff may opt to return home, but ensure that they depart with key client lists, or legal precedents (in the case of law firms), so as to facilitate a “soft landing” at the other end.

A relocation of operations, as has become common in the context of growing regulatory challenges across Asia, could be another trigger for defections. One recent example concerned a technology start-up in Hong Kong that was in the late stages of a planned staff relocation, when a rival platform stepped in to recruit key software developers unwilling to move to a new city.

Of course, movement of staff is normal, and it is the right of any employee to work elsewhere, but departures accompanied by unethical, or even illegal, activity can threaten a business. In that context, SVA has identified a recent upsurge in unethical activity, theft of corporate data and the deliberate soliciting of staff by parties who are still directors of some victimised companies.

Warning Signs

SVA are specialists in helping counter such threats, and spotting the danger is possible. A small clique resigning together, unusual late night or weekend work patterns, aggressive behaviour by a competitor, strange requests for access to client databases – all, and any, of these activities may foreshadow serious trouble.

Companies which operate a “matrix management system” only augment the risk, as multiple reporting lines and confusion over accountability can mean that few executives see the whole picture or are willing to take action. The risk is particularly acute if those involved operate across several jurisdictions or have dotted line reporting responsibilities.

What to do?

A common reaction is panic and paralysis, not least as the core defectors and their backers may launch hostile action when defences are down – over a long holiday, say, or during an annual management meeting. Decision makers may struggle to respond or be blindsided.

Worse, legal advisors or external counsel sometimes hesitate to act until “hard” evidence of malfeasance emerges. Some may opine that such behavior is only the “industry norm”, or that “nothing can be done”. Taking no action is a decision in itself, though, and amounts to a tacit admission of defeat and the destruction of corporate value.

SVA recommend that the management team should quickly assess damage and formulate a rapid response, thinking clearly and acting swiftly. The goal must be to anticipate and counter hostile initiatives – and thereby protect company interests. This is where SVA can step in and support Boards of Directors and help prop-up the remaining loyal management team by combatting hostile actions of unethical parties.

The SVA Crisis Containment Team

SVA recommend that a crucial step is to establish a crisis containment team, comprising senior executives, external counsel, and other advisors, to handle day-to-day crisis issues, and to coordinate any response. Such cases are not purely legal matters and thus a coordinated and robust response is necessary.

Existing management require careful vetting, to ensure the remaining do not collude with defectors. SVA consultants can help hold together disparate departments, and organise progress meetings, thereby freeing up management time to focus on the company’s core business activity throughout the crisis.

Staff Interviews and Intelligence Gathering

A concurrent step is ethically investigating the conspiracy by interviewing staff members, so as to identify those “friendly” to the company, and those not. Interviews are crucial, as in some cases, a “second wave” of employees is preparing to depart, and may continue to feed information to an external rival. Moreover, interviews can identify operational intelligence, such as letters of employment and details of cash advances, and, if carefully planned, can deter some wavering staff from leaving. Many staff caught in the middle of such unsettling events will welcome the knowledge that the company intends to defend its interests and frequently will decide to remain with the firm.

Electronic Evidence & Drawing Up a Timeline for Evidential Purposes

A concurrent step is to collect electronic information. Defections take time and resources to organise, and often leave traces of abuse on computer systems. Defectors may copy confidential information, or delete files. In particular, any unusual use of external storage devices, such as “thumb drives” always leaves a trace. Accordingly, SVA data forensic analysts can collect associated electronic evidence of the theft of intellectual property, or breaches of fiduciary duty by existing directors or regulated persons.

A timeline can help extend observers understand the genesis and development of a defection conspiracy, assist in planning counter-measures, and comprise a key piece of evidence in subsequent legal action, civil or criminal.

‘Tis the Season…

Christmas and Chinese New Year are traditional times when people seek new roles.

Even so, bringing across valuable and confidential information and soliciting colleagues is unethical, and can threaten a business. Sometimes colleagues will stand by in the face of such activity and do nothing if a strong lead is not shown by the company.

Firms can mitigate the impact of any exodus, implement counter-measures, and develop contingency plans to reduce exposure, though. SVA has both the experience and the operational capacity to assist with key staff defections, efficiently, legally, and ethically.

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SVA (www.stevevickersassociates.com) is a specialist risk mitigation, corporate intelligence and risk consulting company. The firm serves financial institutions, private equity funds, corporations, high net-worth individuals and insurance companies and underwriters around the world.