When the COVID-19 virus spread worldwide and normal life ground to a halt last year, we thought voluntary employee turnover would drop as well. But the opposite happened in one area: Lift outs—a group of workers who defect together—increased, with more teams moving than we’ve seen in decades.
The pandemic has motivated and facilitated lift outs in two key ways:
Market volatility has motivated searches. Market agitation at any level, from firm to industry to global, can motivate people to browse job ads and take or make that first recruiter call. The 2020 market, agitation-wise, was an industrial washer in the spin cycle, putting entire industries (arts and entertainment, tourism, food and hospitality) at risk even as others (real estate, construction, and home services) experienced record demand. In the United States, unemployment and hunger hit new levels in late 2020 even as the Dow Jones Industrial Average soared amid a “bonkers” real estate market. Professionals have been looking around, and recruiters have data and stories to grab even the most contented employee’s attention.
"You could have a two-hour meeting in the middle of the day with the C-suite of your firm’s biggest competitor without anyone being the wiser.
Working from home has facilitated searches. Employees didn’t have to close the door and hold hushed phone conversations with recruiters (not that such efforts ever fooled anyone). At home and unsupervised, employees have had considerable latitude to talk to recruiters, interview with companies, and have private conversations with clients and team members (more on that later). Companies monitor productivity and goals, but in a world where COVID-19 has turned many companies into “federations of remote workplaces,” the wealth of informal, social information provided by office culture is gone.
You could wear your best suit and have a two-hour meeting in the middle of the day with the C-suite of your firm’s biggest competitor without anyone being the wiser. Pause for a moment and think about this radical shift. The current circumstances are temporary, but it’s reasonable to assume that many companies and individuals will continue with full or hybrid remote work arrangements for months to come.
Who’s moving and how?
Lift outs help companies add talent without the logistical and psychological stressors of acquisitions or organic recruiting. The rise in lift outs makes perfect sense when we recognize the most-promising candidates for group defection: High-functioning employees who have worked together and can hit the ground running. Teams are common in professional-service industries, such as law, consulting, and finance, which have survived or expanded during the pandemic.
Not surprisingly, these are also the people most likely to work from home. More than 61 percent of those among the top-quarter of earners can do their jobs from home, compared with 9.2 percent in lowest quarter, according to the US Labor Department.
And just like everyone else, these people have been reflecting on their lives and options. As the Wall Street Journal put it: “A small but substantial sliver of America, however, is doing better than ever … using this pause in the typical 24/7 busyness of professional-class social life to take a breath and to reassess and rejigger their lives.”
How the pandemic has changed lift outs
Team moves usually take place in four stages: a pre-hire “courtship” stage and three post-hire phases of integration—leadership, operational, and “full cultural integration.” The move to remote work has made the courtship stage easier, and reduced the influence of the integration stages.
The courtship stage isn’t necessarily taking up more time during the pandemic—in fact, it may take less since recruits’ schedules are more flexible and there’s less expectation of travel. During this stage, a company’s representative and the leader of the targeted team devise plans, define goals, and discuss strategies. This is an important but risky stage, and the freedom of remote work is a mixed blessing. Due diligence is vital and too often neglected, but the absence of oversight can give rise to improper and even illegal behavior.
"The biggest transition? Establishing a new Zoom account."
Leadership integration—ensuring a fit between the acquiring firm’s top management and the team leader—has become part of the courtship phase. And remote work has radically simplified operational integration, maintaining continuity for a team that will likely work with the same or similar clients, vendors, and industry standards. The biggest transition? Establishing a new Zoom account.
Cultural integration probably hasn’t happened for many 2020 lift outs, whose teams likely received only basic training in software and systems. However, there’s no pressing need for introductions; since these groups are usually siloed revenue producers.
Competition with other departments, the need for subject-matter expertise—these are the circumstances that typically create leadership and integration challenges, and these issues will largely be absent in the “2020-2021 Class of Lift Outs.” The lack of cultural integration may even be a short-term plus, freeing new recruits to devote their energies entirely to the tasks at hand, without the cognitive burden and social stress of learning new names or navigating the corporate lunchroom.
Strategic gain with considerable pain
A crucial point to reinforce is that the vast majority of lift outs involve a team moving from one company (OldCo) to its direct competitor (NewCo). Occasionally, a firm goes out of business and teams move to other companies intact. Some teams leave to start ventures that might eventually compete with OldCo, or launch complementary enterprises, such as software engineers who help organizations implement OldCo’s programs, for example.
When the move is to a direct competitor, however, both the lifted-out team and NewCo must recognize the inherently adversarial, zero-sum dynamic at play. This is true even—especially—if all relationships had been collegial and warm. Some of the worst legal mistakes are made out of a desire to be open and aboveboard, or from the simple habits of friendship. It can be counterintuitive! Keep reading.
Moving is inherently risky for all parties on all levels—financial, reputational, legal, strategic. We can gauge the quantity of lift outs so far, but not their quality. What will determine their success? The ability of NewCo and lifted-out teams to manage two legal and managerial tensions:
Pre-hire: NewCo wants a particular recruit because they believe that person can bring clients or a functional team along. However, the conversations necessary to ascertain the recruit’s ability to do that can’t legally happen until they’re a NewCo employee.
Post-hire: The very things that set up a lift out for immediate success—operational continuity, functional autonomy from the rest of the organization—also increase medium- to longer-term risk factors, particularly for defection.
Advice for OldCo: Companies seeking to retain
Non-compete agreements and other legal contracts can help OldCo retain talent, but these are blunt instruments intended for worst-case scenarios. If you’re an OldCo leader looking to proactively manage defection risk, you should:
Stay close to your teams. Pre-pandemic, office culture functioned as a kind of surveillance by virtue of pattern recognition. People are naturally tied into the rhythm of each other’s behavior. Closed doors that are usually open, whispers where voices usually ring out, Louboutins instead of Danskos on a Friday, diplomas taken off the office wall—these deviations from the norm used to register. In the absence of these signals, bosses need to connect with employees in other ways:
- Make sure that subordinates of star team leaders are integrated. Use split-level meetings, virtual lunches, or whatever works to get facetime with people below the managers.
- Have short-term, objective criteria to help you notice changes in work habits (e.g., missed meetings, drops in productivity, increased response time).
- Don’t let more than two or three days go without interacting with your direct reports. A regional supervisor who holds office-wide meetings every two or three months should increase the frequency to monthly or even weekly.
These actions should not happen in a “Big Brother” or punitive style—micromanagement often drives people out of their jobs. Rather, they should be part of an overall higher-touch, more open managerial style suited to the stresses and constraints of the pandemic era.
Assigning shorter deadlines and smaller, more “chunked” deliverables keeps distracted, overburdened workers on track and maintains nimbleness during a time of rapid change. Frequent check-ins are useful for everything from employee mental wellness to market research.
"Good managers improve their team members’ engagement, retention, and performance; bad ones have a correspondingly negative effect."
Align employees with company goals. Anecdote and data alike confirm the adage that “People don’t leave jobs, they leave managers.” For most employees, their direct manager is the face of the organization. Good managers improve their team members’ job satisfaction, engagement, retention, and performance; bad ones have a correspondingly negative effect. Good management is about a specific set of behaviors that hold constant across industries, functions, and national cultures—specifically, these, from Google’s Project Oxygen:
- Be a good coach.
- Empower your team and don’t micromanage.
- Create an inclusive environment and express interest in team members’ success and personal well-being.
- Be productive and results-oriented.
- Be a good communicator and listen to your team.
- Help your employees with career development and discuss performance.
- Have a clear vision and strategy for the team.
- Have key technical skills so you can advise the team.
- Collaborate across the company.
- And finally, be a strong decision maker.
Plant the greener pastures. Ensure that high-revenue employees have options within the company for “intrapreneurial” activities, downshifting for family or health reasons, or sabbaticals to work on other projects. They shouldn’t have to change companies to meet their needs.
Cross-sell to clients. Clients are less likely to follow, say, a financial adviser to NewCo if they already have mortgages, trusts, and credit cards with OldCo. A client who is connected to the company at multiple points is less likely to leave. Make sure your client reps know that.
Emphasize the gravity of defection—not as a threat, but as a reality. When it comes to leaving for a competitor, make standards of behavior crystal clear. No one should be able to say they didn’t know what “pre-soliciting clients” meant, for example. Do the same when you’re in the role of NewCo. Taking great care in hiring teams and individuals shows people thinking about leaving how seriously you view defections.
Discourage lift outs through incentives and advocacy. Increase the opportunity costs for workers who leave for competitors, and ensure that they are aware of these costs. The goal isn’t 100 percent retention, but avoiding the worst-case scenario of talented people joining the competition, taking clients with them.
Advice for NewCo: Companies seeking to hire
The two tensions mentioned above are fundamentally NewCo’s to manage, because the hiring company has the means, motive, and opportunity to make sure the move is handled correctly. If you’re a NewCo leader, the 2019 book I Hereby Resign offers detailed advice for creating a team to manage this process. In the meantime, remember that:
It’s not a fire sale. Don’t let impulsiveness or exuberance get the best of you. We’ve witnessed unwise behavior, from both a legal and strategic perspective, when a NewCo becomes too eager to bring on a hot-ticket team.
Let us be clear: A potential new hire cannot solicit either clients or colleagues to move with them to NewCo. Until they are employed by you, they have a duty of loyalty to OldCo. You can—and should—introduce them to senior management, analyze the market, assess your goals, and prepare them as much as possible. This is the difference, legally, between “preparing to compete” and engaging in competitive actions (refer to I Hereby Resign for helpful guidance).
Policy is culture. The only aspects of corporate culture that will survive extended remote work are those embedded in policy and practice. Implicit rules of behavior or unwritten customs (“On Wednesdays, we wear pink!”) will be spottily observed. Even in pre-pandemic times, acculturating teams required strongly operationalized cultures.
"Like an adorable puppy in a stocking on Christmas morning, a lifted-out team can become an awkward and unmanageable beast."
Consider a major law firm in Philadelphia, which has employed team acquisition as a successful growth strategy for many years. The Quaker-founded firm’s compensation policies, strategic planning, consensus-based decision making, and even office décor reflect its culture. This firm knows its culture, backs it up with specific behavioral practices, and can explain it clearly to potential new teams, making it easy for team leaders to understand the environment they will enter.
Think about the future. Like an adorable puppy in a stocking on Christmas morning, a lifted-out team can become an awkward and unmanageable beast before you realize it. Make sure you’ve thought through how to manage four interrelated challenges in the medium term:
- Logistics and operations: Will you have room for them when staff return to the office? Have you hired anyone who will need moving assistance?
- Culture and integration: Will this team eventually fit into the larger culture? A new team may be able to hit the ground running today, but if everyone is working from home, how will casual information exchange, cross-functional collaboration, and synthesis happen?
- Future planning and instability: Culture and integration matter because the current conditions will not last. The economic and social fallout from the COVID-19 pandemic will extend for years. The “K-shaped” recovery in the US has insulated professional classes but created financial insecurity on the lower rungs that could hurt spending and, ultimately, the long-term economy. Times might get rougher or just wildly different. Is this team really an investment? How could you redeploy them if circumstances change?
- Retention: Congratulations, you’re OldCo now! You will face all the challenges of retaining a team that knows it can move successfully, plus additional reputational factors. If a team leaves after short period, the company will lose the investment required to integrate the team. If the lift out was praised as a strategic triumph, public humiliation might follow a defection, especially if the departure comes with reputation-tarnishing missteps.
For both teams and hiring companies, lift outs represent a gamble on credibility, portability of performance, and human capital. Such moves may destroy relationships—with former colleagues, clients, and vendors—and impair the employees’ effectiveness for years to come.
Finally, advice for recruits and teams
The privacy of working remotely, and the psychological ownership of having all your work materials at home, have led recruits to behave in some very risky fashions. We’ve seen some alarmingly aggressive and improper pre-departure behaviors in 2020 and 2021 around communication with clients and subordinates, and use and access of information.
It’s not as if people were terribly cautious in pre-pandemic days. Many people have mistakenly assumed that they could freely engage with competitors as long as they weren’t bound by non-compete agreements—and then got served with a lawsuit. Litigation isn’t the only thing to fear—loss of reputation and relationships can be just as damaging.
To prospective recruits, we recommend that you:
Do your homework. You can research NewCo all you want, and you should. High-level job changers who skip due diligence often have unrealistic expectations for their search. They might not understand a potential employer’s financial stability or market position. They might lack a clear picture of an organization’s culture or a role’s true imperatives, positioning a team to fail after they’re hired.
Mind legality or get a lawyer to mind it for you. Questions around leaving for the competition—confidentiality, non-compete agreements, intellectual property, and the like—are complicated and vary by country and industry. The number one thing to keep in mind, however, is that until you resign from OldCo, your duty is to OldCo. This means you can’t speak to your clients or OldCo subordinates about the move until that resignation, nor can you take stuff from OldCo, nor can you lie.
This is trickier and, in some cases, more counterintuitive than it seems. “Taking stuff” is not a legally precise term—again, consult a lawyer about what “take” and “stuff” mean in your particular case. Breaking into your office after hours might clearly feel wrong. However, transferring a file from one folder to another might not set the cricket in your conscience chirping in the same way. Similarly, if a work relationship has evolved into or grown out of a friendship, it will feel disingenuous and sly to continue talking business with a client or subordinate as if everything is normal, when you’re actually planning to leave.
"Don’t use your resignation as a moment for vengeance, a fantasy of 'speaking truth to power,' or to seek forgiveness about leaving."
Mind humanity. You have done what’s right for your career, but understand that in doing so you have damaged OldCo’s interests (in a way that retiring, going back to school, changing industries, or quitting to raise goats wouldn’t). Your resignation is about establishing legal separation from OldCo, not about emotional closure. Don’t use your resignation as a moment for vengeance, a fantasy of “speaking truth to power,” or to seek forgiveness or reassurance about leaving.
Resign at the right time (Friday afternoon so everyone can take a breath and regroup for Monday) to the right person (your immediate supervisor), providing a dated letter that establishes the exact date of your departure from OldCo for legal reasons. Here’s an example from I Hereby Resign:
Dear [Supervisor]:
I hereby resign. I am joining [Next Company]. My new contact information is [ ]. If anyone asks for me, please give them this information. I will make the following arrangements to pick up possessions still at the office …
Say as little as possible, good or bad; this is how to keep your professional reputation intact and preserve your relationships. Rehearse this! It can be difficult.
People are highly sensitive right now. They are going to remember how you resigned. Industries in flux mean that you may run into someone again in who knows what role, and people working from home with unlimited access to communication technology means that stories will spread like, well, viruses.
About the Authors
Robin Abrahams is a research associate at HBS. Boris Groysberg is the Richard P. Chapman Professor of Business Administration at Harvard Business School. Steven L. Manchel is a Boston-area attorney and author of I Hereby Resign.
[Image: iStockphoto/chaiyon021]
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