Hiring From Your Competitor: The $44 Million Mistake
Hiring experienced people from direct competitors is normal in specialist fintech recruitment.
In niche markets, it is often unavoidable. The strongest candidates are frequently working for businesses selling similar products, targeting the same institutions and dealing with the same buyers.
Their sector expertise, market knowledge and relationships are exactly what make them valuable.
But there is an important line between hiring a competitor’s talent and acquiring a competitor’s confidential information.
A 2019 US trade-secrets case involving SS&C Technologies and Clearwater Analytics provides a striking example of what can happen when that line is crossed.
The jury award was $44 million.
What happened?
SS&C and Clearwater were (and still are) competitors.
Former SS&C sales executive Bradley Rossa joined Clearwater. SS&C alleged that confidential commercial information moved with him, including client lists, sales reports, proposals, marketing material and information relating to customer contracts.
The key issue was not simply that Rossa knew who SS&C’s customers were.
The allegation was that detailed, non-public commercial intelligence had been taken and used by a competitor.
In April 2019, a Cook County, Illinois jury found Clearwater liable for misappropriating SS&C’s trade secrets and awarded:
$16 million in compensatory damages $28 million in punitive damages $44 million in total
One detail is particularly interesting from a recruitment perspective.
Rossa himself was reportedly found liable for breach of contract, but damages against him were just $1.
In simplified terms:
Employee: $1
Hiring company: $44 million
That is a powerful reminder that competitor-hiring risk does not necessarily sit mainly with the individual who changes jobs.
Hiring from competitors is not the problem
The wrong conclusion would be:
“Don’t hire people from competitors.”
That would be commercially unrealistic.
Companies are entitled to recruit experienced people because of their:
market expertise;
product knowledge;
sales ability;
professional reputation;
relationships;
industry experience.
A salesperson who has spent 15 years selling market data does not suddenly lose that experience when they change employer.
Likewise, professional relationships do not disappear simply because somebody resigns.
The issue is distinguishing between the employee’s accumulated professional capability and information belonging to the former employer.
Knowing the customer is not the same as taking the CRM
Consider the difference between:
“I know the Head of Operations at ABC Asset Management and have dealt with her for ten years.”
and:
“I know their current contract value, renewal date, pricing, decision-makers and why they are unhappy with their existing supplier.”
Those are very different propositions.
The first describes a professional relationship.
The second may describe highly valuable confidential commercial intelligence.
For a competitor, knowing that a company uses another provider is useful.
Knowing when the contract expires, what the customer pays and what problems they are experiencing can provide an enormous competitive advantage.
That is why CRM data, account plans, pricing information and renewal schedules are often treated as confidential.
The hiring company can become the real defendant
One of the biggest lessons from SS&C v. Clearwater is that companies should not think:
“If the employee took something, that is their problem.”
Imagine a new salesperson arrives with a spreadsheet exported from their previous employer’s CRM.
It contains customer names, decision-makers, contract values, renewal dates and pricing.
If the new employer stops the employee using it and takes legal advice, that creates one factual scenario.
If management circulates the spreadsheet, loads it into its own CRM and starts targeting customers around their renewal dates, that creates a very different one.
The allegation can quickly move from:
“An employee took confidential information.”
to:
“A competitor knowingly used confidential information for commercial advantage.”
That is where the corporate risk becomes serious.
Interviews can create problems too
Hiring managers should also think carefully about what they ask candidates.
There is nothing unusual about asking:
“Which parts of the market have you successfully sold into?”
But asking:
“Tell us the renewal dates and pricing of your ten biggest customers.”
is very different.
Likewise:
“What seniority of buyer do you know?”
is legitimate.
“Which customers are unhappy and most likely to move?”
starts moving into much more dangerous territory.
Companies should test the candidate’s capability and credibility, not use the interview process as an informal competitive-intelligence exercise.
Candidates should be careful before resigning
The period immediately before leaving an employer can be particularly sensitive.
Candidates should not assume that because they personally worked on something, they are entitled to take it.
That can include:
CRM exports;
client lists;
pricing spreadsheets;
pipeline reports;
proposals;
RFP responses;
contracts;
product roadmaps;
internal presentations;
emails.
Downloading large quantities of material immediately before joining a competitor can also create an uncomfortable evidential trail.
Consider how this chronology might look later:
Competitor interview → job offer → mass download → resignation → competitor starts approaching the same customers.
Even innocent activity can look suspicious when viewed in that sequence.
“Bring your book” needs careful interpretation
This is especially relevant in sales recruitment.
Clients often say they want someone who can “bring a book of business.”
Usually what they mean is legitimate: somebody with strong relationships, market credibility and the ability to generate revenue quickly.
But a relationship is not the same thing as a CRM record.
A professional network is not the same thing as a customer database.
And commercial experience is not the same thing as confidential intelligence.
Recruiters and hiring managers should keep those distinctions clear.
Five questions companies should ask
For sensitive competitor hires, I would suggest a simple risk check:
1. What contractual restrictions does the candidate have? Confidentiality, non-compete, non-solicitation or other post-termination obligations may matter.
2. What sensitive information have they had access to? Pricing, contracts, pipelines, customer plans and renewal dates can all be commercially sensitive.
3. How directly competitive is the new role? The closer the old and new roles, the greater the potential risk.
4. Will they immediately target the same customers? That may be legitimate, but it increases the importance of using independently obtained information.
5. Has the candidate taken anything? If there is any doubt, the answer should not be “use it”. It should be “stop and establish what this is”.
The real lesson
SS&C v. Clearwater is usually described as a trade-secrets case.
For recruiters and hiring managers, it is equally useful as a competitor-hiring case study.
Hiring talented people from competitors is entirely normal and often commercially essential.
But companies need to understand what exactly they are hiring.
The objective should be to acquire the person’s:
talent, experience, relationships, reputation and market knowledge.
Not their previous employer’s files, customer data or trade secrets.
The distinction is simple:
Take the talent. Take the experience. Take the relationships. Take the market knowledge.
Don’t take the files. Don’t take the data. Don’t take the trade secrets.
In a niche fintech market, hiring your competitor’s best people can create significant competitive advantage.
Handled badly, it can also create very significant legal and financial risk.
This article discusses recruitment and commercial risk in general terms and is not legal advice.
Hiring from a competitor?
Many of the strongest candidates are often working for your closest competitors, but attracting the right person is only part of the challenge.
With the market knowledge to understand both the opportunity and the sensitivities around competitor hiring, Excelsior Search helps capital markets & investment technology companies identify and approach the right high-calibre talent.
If you are considering a strategic hire from a competitor, get in touch with me to discuss the market, the available talent and the best way to approach the search.