Gov. Deval Patrick’s initiative to ban non-compete contracts in Massachusetts, which seeks to widen STEM and other work opportunities, represents a mirror-image proposal to the emotional post-Belmont Stakes comments of racehorse owner Steve Coburn. Coburn went viral after his partnership’s only horse, California Chrome, lost that race to a contender that hadn’t run in the other two races of the Triple Crown. If you think of innovation as a horse race, and non-competes as the issue, the comparison doesn’t get better than this.
Let’s look at the field lineup. Forty-six states have already banned non-compete employment agreements, which, signed upon employment, restrict departing employees from working for competitors or setting up competing firms for a specific period of time. Among the 46 states with bans is California, the home of Facebook (which began its life in Cambridge; its departure must be a thorn in the Patrick Administration’s side).
So 46 horses have better gate posts than Massachusetts in the race for tech talent, though their actual performances will vary once the gates open. That variable is what draws gamblers: venture capital investors.
Today, non-compete agreements in Massachusetts are regarded as a hindrance to the free flow of intellectual capital. Important note: Intellectual property is a different issue: Patrick’s proposal would toughen the protections for IP.
Big firms and tech industry advocacy groups say non-competes preserve investor value. On the flip side, small-business opponents say athe same thing – that dropping them would increase the field of investable companies. The established companies have already created their intellectual property, while startups seek to develop theirs. Which is where we get back to horse racing.
After the highly-charged aftermath of the Belmont Stakes, in which 9-1 contender Tonalist handily beat California Chrome, the 3-5 favorite, Coburn exhorted that the Triple Crown ensemble should be a three-races-or-none enterprise in which only the 20 entrants of the Kentucky Derby should qualify for the second two races, the Preakness and the Belmont Stakes. But that’s not the way horse racing works. The bigger the field, the broader the wagering pool and the better the chance for ROI (or payouts).
The race strategy: Democratize the field. Bring in a bunch of outside contenders, many of which have performed well in other materially important but less high-profile races. The horses’ owners decide to enter them in the Preakness and/or the Belmont, both races sufficiently materially important that winning one of them enhances a horse’s record.
That’s the situation we’re facing with the debate over scratching non-compete agreements from the industry race. It’s embarrassing that Massachusetts is so far back in the pack of non-compete-ban adopters, considering its place in the country’s technology-innovation economic theater. One commenter on a newspaper online forum suggests that the retention of non-competes “reinforces the sense that we have an old-tech culture,” implying that non-competes are the equivalent of trade-protection tariffs that don’t create wealth.
We’re not denying the incidences of race-rigging subterfuges that pose a real and/or potential threat to the viability of big firms. But it’s of critical importance to keep the economic possibilities open for smaller companies in order to keep the state’s STEM community vital, and keep as many bettable horses in the race as possible.
