Staff transferring knowledge to competition

Theft of intellectual property, such as technological inventions, creative expressions, brands or corporate identity can be as damaging as physical theft.

Risk type: Practice

Risk driver: Internal

DESCRIPTION

For almost every successful SME, its competitiveness is tied to one or more types of intellectual property, whether as technological inventions, creative expressions, corporate identity and brand recognition, proprietary know-how, or some other form.

Theft of confidential information and trade secrets by staff and their transfer to the competition can be just as damaging to a business as embezzlement or other employee fraud.^1,2 Staff might expect to gain personal gain from the transfer of knowledge, e.g. monetary gain, a position in a competing organization, a project owner organization or a supplier organization, or development of a side business.

Examples of intellectual property at risk of being transferred or sold to the competition include trademarks, brands, customer data, agreements, contracts, product pricing models, industrial designs, patents, know-how, trade secrets, business processes, permits, mineral rights, licences, and environmental studies.

RED FLAGS

• (Informal) meetings of staff with members of competing companies
• Competing companies releasing similar products/services after company staff left the SME and started to work for the competition
• Lack of non-compete clauses in employment contracts
• Staff engaged in side business similar to the SME (e.g. consultancy)

KEY GUIDING DOCUMENTS

SME Toolkit Zambia, no year, Guarding Your Intellectual Property, adapted from content excerpted from the American Express®, SME Toolkit Zambia, OPEN Small Business Network, http://zamcom.smetoolkit.org/zambia/en/content/en/755/Guarding-Your-Intellectual-Property, accessed 19.10.2015

Pazzaglia, F., Sonpar, K., Martin de Holan, P. and Flynn, S., 2013, The Dangers of Disgruntled Ex-Employees, MIT Sloan Management Review, http://sloanreview.mit.edu/article/the-dangers-of-disgruntled-ex-employees/, accessed 19.10.2015

GENERAL EXAMPLES

Risks of disgruntled former employees³

Location: USA

Disgruntled former employees can hurt their former employers in many ways […]. The business world is full of tales of ex-employees going off to found new companies: Intel Corporation and SAP AG, for example, were founded by former employees of Fairchild Semiconductor and IBM, respectively.

FULL REFERENCES

1. IFC, no year, IFC, Zambia
2. SME Toolkit Zambia, no year, Guarding Your Intellectual Property, adapted from content excerpted from the American Express®, SME Toolkit Zambia, OPEN Small Business Network, http://zamcom.smetoolkit.org/zambia/en/content/en/755/Guarding-Your-Intellectual-Property, accessed 19.10.2015
3. Pazzaglia, F., Sonpar, K., Martin de Holan, P. and Flynn, S., 2013, The Dangers of Disgruntled Ex-Employees, MIT Sloan Management Review, http://sloanreview.mit.edu/article/the-dangers-of-disgruntled-ex-employees/, accessed 19.10.2015