Noncompetes Are A Distraction From Media’s Real Issues

Mary Collins

In mid-April I participated in a volunteer summit at the college where I earned my undergraduate degree. One of the first events was a conversation between the college president and Rob Karofsky, president of UBS Investment Bank, himself an alumnus of the college.

The discussion covered a variety of topics including Karofsky’s part in UBS’ rapid acquisition of Credit Suisse in March 2023. What stuck out for me though, was Karofsky’s remarks about how the bank treats its employees. He talked about the importance of investing in the team saying, “our talent is our business.” It reminded me of that old saying about media: our greatest assets walk out the door each night.

I thought about that conversation when I read the recent pieces warning that the FTC’s noncompete ban will hurt media businesses. Hank Price said Killing Noncompetes Could Deliver A Body Blow To Broadcasters. Pillsbury attorney Scott R. Flick warned Heard About the FTC’s Ban on Non-Competes? The Truth Is Worse. Both argued that such agreements are essential to protecting stations’ investment in talent.

I disagree. Noncompete agreements are, at best, a blunt weapon. They are a cheap and sloppy way to compensate for bad management. They are also a distraction. Yes, there is a need to protect a company’s investment in training and in senior leadership and high-profile talent; there are other ways to do that.

The FTC estimates that as much as 20% of the U.S. workforce is subject to a noncompete clause as a condition of employment. Anecdotal evidence from media indicates that some companies are requiring even some lower-level staff to make such a commitment. This seems to be an admission that the employer is difficult and reasonable employees will soon be looking for other opportunities. That’s hardly the way to ensure that the best candidate takes the offer.

There is some evidence that noncompetes benefit employers by encouraging specific employee behaviors. A University of Kansas professor co-authored a study to determine whether such agreements resulted in employees working harder because they would have difficulty finding another job, or if they demotivated employees because their options were limited.

Using 1992 to 2004 performance data for mutual fund manages in three different states, with varying enforcement of noncompete clauses, the authors were able to isolate performance responses. What they determined was that the enforcement of such clauses correlated with what the researchers identified as better performance. The study authors also noted that the managers in the better-performing group took fewer risks.

One takeaway from this study is that enforceability of noncompete language varies by state. Illinois, where I live, outlawed noncompetes for lower-income jobs. California has outlawed them altogether. Many other states have passed laws that restrict them. In fact, only 12 states do not currently have laws governing noncompete agreements. Enforcement must be uneven at best.

It’s important to note that it is only noncompete arrangements that are in the FTC’s crosshairs. Trade or company secrets can still be secured with nondisclosure and other language. Companies will still be able to protect their confidential information.

Even if they could be enforced uniformly, noncompete pacts are more stick than carrot. They do not replace good management and/or carefully crafted incentives.

The media industry is in the midst of unprecedented change, and this focus on noncompetes is pulling attention from solving more pressing problems. Creative, intelligent and motivated employees are needed to figure out what’s next. People who are afraid to take risks won’t be part of the solution. Remember: Media companies’ most-valuable assets walk out the door each night. Companies need to be thinking about developing and retaining those assets if they are to survive and thrive.

Much has been written about why companies should be investing in employee education. As a refresher, I recommend an article from Forbes: Why Businesses Should Invest In Employee Learning Opportunities. The five good reasons cited by the author are:

• Helps attract top talent – employees want an opportunity to reach their potential.
• Increases employee retention – losing employees also means loss of institutional knowledge and affects employee morale. (I would add that replacing employees is expensive – estimates range from four to nine months of the position’s compensation.)
• Satisfied and engages staffs produce greater quality work, have greater output, make fewer mistakes and better understand their jobs.
• Allows company to identify and mold future leaders; promoting from within is a great investment.
• Keeps the entire organization focused on the future by exposing employees to new people, new ideas and creative ways of approaching work.

When it comes to the most senior management and popular talent, media companies may want to consider additional inducements to ensure continued loyalty. These could include deferred compensation plans, which will be forfeited if the employee fails to meet certain criteria. Another option is contingent compensation arrangements. Good employment attorneys can offer a host of options that will provide the right incentives to keep these employes engaged.

While the FTC intends its new noncompete ruling to become effective 120 days after it is published in the Federal Register, the number of legal challenges piling up could mean significant delays.

FTC regulations notwithstanding, the barbarians are at the gate. With assaults coming from all sides, the industry cannot afford to be distracted by the question of noncompete agreements or other, similar, issues. Instead, it must focus on attracting and encouraging the next generation of problem-solvers. Current staff must be up-to-speed, so they are ready to plan and execute when opportunities present themselves.

Rather than seeking to tie employees to the business with heavy-handed restrictions like noncompete clauses, media employers need to encourage their teams to see and seize opportunities. UBS completed the Credit Suisse acquisition in five days. Is your team ready to tackle a similar challenge?

Former president and CEO of the Media Financial Management Association and its BCCA subsidiary, Mary M. Collins is a change agent, entrepreneur and senior management executive. She can be reached at [email protected].