It was, according to the federal complaint, the chummiest of secret clubs among Silicon Valley’s corporate elite. The membership rules were simple: Don’t cold-call any of our employees with job offers and we won’t cold-call any of yours.
The members, according to documents released Friday by the Department of Justice, included the cream of the crop: Apple, Adobe Systems, Google, Intel, Intuit and Pixar.
Alleging that secret agreements between the high-tech giants stymied competition, constituted collusion to keep salaries in check and ultimately hurt employees who never got the chance to answer that cold-call, the Justice Department filed an antitrust complaint that blistered some of the valley’s most prominent players. With the complaint came a settlement: The companies admit the collusion, none is fined, none admits wrongdoing, and all agree to resist entering into no-solicitation agreements, except in a few rare situations.
A Justice Department official, speaking on condition of anonymity, called the complaint “a real shot across the bow for other folks who might have those arrangements,” and said it was “important for us to send a signal that we care about competition across the board.”
While a Justice Department spokesman called the charges serious, some Silicon Valley veterans weren’t surprised by the secret agreements.
“It happens all the time,” said Valerie Frederickson, a Menlo Park-based human resources consultant. “The ‘do-not-call’ list scandal will be like the stock options backdating scandal of the ’90s: Everybody did it. It was standard operating procedure.”
Frederickson said deals are sometimes made at the highest reaches of companies; other times, the anti-poaching edict is more subtle. One company that has a supplier relationship with another, for example, might not want to anger that partner and risk losing business by luring away quality workers.
“It’s like price-fixing the cost of your raw materials, but for these companies, their most valuable resource is intellectual property — their employees,” antitrust attorney Melissa Maxman said. “So by manipulating the work force, they’re going to set the price of the raw material for their businesses, thereby affecting the ultimate price to consumers.”
An executive at one of the companies cited in the complaint, who spoke on condition he not be identified, said “You can steal someone else’s employees through LinkedIn or personal references, but it was like, ‘If you’re going to steal my guys, just don’t do it under my nose by cold-calling them at work.’ ”
But, as Frederickson points out, “The problem is, there is also a victim.” While these practices may be good for the bottom line, they are blatantly unfair to the rank-and-file, she said, adding, “You take some engineer who is in some real niche (area) and if he can’t go to work for four out of five companies, he is basically stuck at his current employer and he’s missing out on more money.”
Google critic John M. Simpson, director of Consumer Watchdog’s Inside Google project, praised the crackdown, saying, “There is entirely too much of a clubby mind-set among a number of Silicon Valley companies.”
And that raises other questions, he said: “If you cut deals around how you hire people, you might also cut deals on what prices you charge, or maybe you’ll divvy the market up inappropriately.”
The six companies acknowledged that, starting in 2005, they agreed to not “cold-call” employees at selected competitors, a web of deals that eliminated a significant form of competition among the companies and violated federal antitrust law, the Justice Department said.
However, the companies did not admit to violating the law. Under the agreement, which must be approved by a federal court and which would run for five years, they will be required to stop the practice, and file compliance plans with the government.
The danger of broader collusion is increased by the cozy relationships among the valley’s executive elite, experts say.
For example, Google CEO Eric Schmidt served on Apple’s board until he resigned last year amid scrutiny from the Federal Trade Commission; Intuit board Chairman Bill Campbell serves on Apple’s board, and has been a close adviser to Google co-founders Sergey Brin and Larry Page. And Apple CEO Steve Jobs is on the board of the Walt Disney Co., which owns Pixar.
Chuck Mulloy, spokesman for Intel, whose president and CEO, Paul Otellini, sits on Google’s board, said “We’ve agreed not to enter into agreements with companies that prohibit the use of so-called cold-calling and other recruiting methods except in certain circumstances. Intel does not believe its actions violated the law, nor does the company agree with the allegations.”
Google said in a statement Friday that it suspended its no-solicitation deals with Apple, Intuit and Intel in late 2009 as the Justice Department raised concerns. But the company said there was “no evidence” its practice hindered hiring or affected wages.
“Our policy only impacted cold-calling, and we continued to recruit from these companies through LinkedIn, job fairs, employee referrals or when candidates approached Google directly,” the statement from Amy Lambert, Google’s associate general counsel for employment, said. “In fact, we hired hundreds of employees from the companies involved during this time period.
Contact Patrick May at 408-920-5689.
What Happened:
The secret arrangement: Starting in 2005, six prominent Silicon Valley companies agreed to not “cold-call” each other’s employees to recruit them.
The crackdown: The Justice Department filed an antitrust complaint in court and announced a settlement Friday in which the companies would refrain from such blanket deals for five years.
The significance: Critics said the no-solicitation deals indicated employees were hurt because they couldn’t compete for other jobs, and suggest Silicon Valley’s execs are too chummy.
