Carl Bates | Founder and Chief Executive | Sirdar | mail me |
With only a few weeks till the Brexit transition and having initiated discussions years ago, UK ministers are considering formally doing away with non-compete clauses sooner rather than later.
Essentially, removing non-compete clauses allows employees to start their own businesses without having to sit out a waiting period. This has been successfully done in Silicon Valley where leaving a business to innovate the next best thing by building on what you have learnt tends to be your ticket to success.
At first glance, it seems like the ideal model to stimulate business growth and to drive job creation – both of which South Africa desperately needs. This begs the question: How would such a decision being made domestically impact South Africa?
We believe that removing non-competes is not the best route to this potential (and necessary) growth within our borders.
The risk: unprotected entrepreneurs
The Doing Business 2020 study indicates that the ease of doing business in developing economies such as South Africa is still not as straightforward as it is in more developed economies.
In fact, entrepreneurs in South Africa typically spend around 50 percent of the country’s per-capita income to launch a company (as opposed to 4.2 percent for the UK, which bodes well for their entrepreneurs).
If local entrepreneurs were not protected by non-compete clauses, they might very well make a massive personal financial investment just to find themselves left in the lurch by someone who they trusted enough to build a business with and who is now building one of their own – but with shared (read stolen) IP.
Furthermore, entrepreneurs would feel less enthused to invest in people for fear of them moving on with what they have learnt and using it for their own gains.
Entrepreneurship is a huge source of lifeblood locally (whether referring to SMMEs or cooperatives), and if these business owners were too nervous to appoint someone based on fear of treachery, we might see very little growth in job opportunities.
The higher the level of trust and employee retention, the higher the level of output and subsequent job creation – in fact, the more likely we would see truly scaling businesses.
The local challenge: ease of doing business
The World Bank annually evaluates every country and every region and allocates each a score based on component indicators such as policy, ease of business registration, paying taxes and getting credit, to gauge ease of doing business (DB).
In the previously-mentioned survey, Sub-Saharan Africa achieved an average DB score of 51,8 percent. More specifically, South Africa has a DB score of 67 percent (we are ranked 84 out of 190 countries). This means that we are at a huge disadvantage locally when it comes to entrepreneurship.
The focus, for businesses and for government domestically, should be firmly on the relook or even the removal of some of the many laws and regulations which are business barriers, rather than a shake-up of non-compete laws.
Through effective opportunities for collaboration with the State, entrepreneurs will be able to shift the needle on growth with resultant economic development and increased employment opportunities.
The solution: boardroom involvement
The challenges associated with doing away with non-compete clauses can be largely circumnavigated by directors and boards. Essentially, it comes down to three things: ethics, values alignment and shared purpose.
Someone who would leave you in the lurch clearly doesn’t have ethics and integrity high on their agenda or on their spectrum of personal values.
It is up to directors and boards to set the example of integrity by creating an ethical business culture – after all, if directors do not work in an ethical manner or if they neglect their duties, they could very well be charged with delinquency and could even face jailtime.
It is also up to them to ensure that anyone who is displaying behaviour contrary to expectations be dealt with immediately and appropriately to protect the business and themselves.
While having clearly ethical processes and guidelines in place is pivotal, we believe that board transparency is key.
Building a culture that demonstrates notable transparency builds trust – top-down and bottom-up. If your employees can see that nothing is glossed over, and how you are tracking towards achieving the company’s purpose, trust is the consequence. And with trust comes exceptional delivery.
Furthermore, cascading the purpose throughout the company and ensuring that all are completely aligned to achieving it, will go a long way to minimise egos getting in the way and employees pursuing self-interest competitively.
The onus sits on boards to ensure that the businesses that they govern have effective performance enhancement strategies in place, including regular reviews and positive employment engagement activities.
Ensure that new appointments are made with the company’s values in mind and not simply on functional ability. Potential candidates must have a good track record and should be encouraged to provide examples of where they have displayed these values in their career and explore the impact of not doing so.
Personal assessments play a very important role here – irrespective of whether at director level or entry level.
With everyone being aligned on purpose and values, entrepreneurs will gladly invest in their people to develop them and to ultimately grow the business – which of course means more new jobs.
Directors have a responsibility to protect the interests of the company and this includes what information is shared with which employees and how those employees are developed.
If non-competes are removed, directors would have to factor this risk into their decision-making regarding investing in employee development as well.
To compete or to non-compete?
We could think of a non-compete clause as somewhat of a patent: protecting the growing business from the risk posed when its best thinkers and doers leave to start their own (competing) business.
Or perhaps it is a safeguard against having their idea copied by others. And which innovator is not in favour of safeguards and patents?
We believe that until we get the basics right in South Africa, it is not wise to complicate the environment by doing away with labour law measures that were put in place as a buffer to risk.
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