KillHB173: So Long Professional Services

In a town full of Fortune 500 companies, I’d bet we all know someone who’s involved in professional services around these firms – lawyers, accountants, insurance brokers, marketing agencies, consulting firms, ad agencies etc. The simple fact is running a service company absolutely requires a young, vibrant, risk-taking employee base. Someone has to take that $22K entry-level position to get his or her foot in the door. And for many of these industries, changing jobs is the most effective way to get promoted. And that’s a huge issue with the Georgia Restrictive Covenant Act (HB173) in play.

These organizations are typically anchored by a core executive team that swaps out low- and mid-level players on regular basis. Now imagine that any mid-level employee who has any significant client interaction is restricted from moving to a competitor. In most cases, the relationships are entrenched at the senior-most levels so an Account Manager changing companies has nothing to do with the Agency-of-Record relationship. And when it’s the most senior-level executives changing sides, most of the rules of the road are agreed-to upfront before the move (it’s critical to maintain a good reputation in such a small pond). And some period of non-solicitation of clients and employees is understood and accepted. But existing law clearly doesn’t stop the move. HB173 would lock this down tight.

In the case of low-level employees, I’m confident firms would begin making arguments around exposure to trade secrets that have been the exclusive domain of higher-paid workers. Think about it from the employer’s perspective: why not lock-down the low to medium paid workers to improve the net margin on each hour they work? If you can bill the client $75/hour and an employee costs $36/hour fully loaded with benefits, then the company is rocking out $39/hour in pure margin – or right at 108%. This is the business model that service companies are based on.

Beyond the financial aspects of service businesses, it’s not uncommon to find hyper-competitive, hard-charging executives running them. A service business is a great example of the old adage: It’s a hard way to make an easy living. Many of the most successful people have deep six figure compensation packages, and are self-aware enough to know they’re only as good as the clients they can sell and retain. Anything that interferes with that process is usually pursued to the death by whatever means available. In today’s legal environment, they can lay some general restrictions on an employee, but they can’t go quite as far as many would prefer. (Apologies in advance to the litany of service folks who don’t run their business this way, but it’s important to recognize that some do.) And these firms are exactly the ones that will have a revised employment agreement ready on November 3 should this bill pass. They have both internal and external counsel working RIGHT NOW to define their ‘Restrictive Covenants’ strategy. They also have massive profit motivation and the resources to play serious hardball.

But most importantly, the real issue is the quality of the service provided. Every one of those $22K entry-level people has the opportunity to rise to mid-level management by killing it day-in and day-out. And the pace and expectations of most professional services firms require massive dedication to move ahead quickly. Inevitably, an employee will find the virtual ceiling within a company – when you’ve been promoted quickly, but now find yourself staring at a non-movable incumbent. It’s that moment when the best and brightest move laterally (or ideally up) to another firm. This allows them to continue their great work in an environment where they can thrive – and continue to be reward by promotion. That’s exactly how the next generation of great SVPs or Partners is created. Professional service firms are probably the closest things you’ll find to a true meritocracy. And they absolutely depend on an ever-rising generation of ‘young guns’ to drive the business. The smartest executives at these firms recognize this fact, and manage their entire staff toward that end. And the clients are the beneficiaries given they get the best and brightest talent at rates set by the market.

So if recruiting additional Fortune 500 companies to relocate their headquarters to Atlanta were a stated reason for passing HB173, why would you want to lobotomize the professional services industries that directly support these firms? Seems like yet another contradiction of logic…



0 # Lance Weatherby 2010-09-20 15:11
There was a nice article in the AJC around this subject yesterday.

Money quote from Charles A. Hawkins, a labor lawyer and partner at Troutman Sanders. "It basically prohibits them from making a living in their chosen profession."
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0 # GFRRTDEFF 2010-09-20 20:02
Yeah, that was a decent piece although I'm still astounded how unclear some writers can make this story. The two positions seem relatively clear – and distinctly different. The research the writer points to is interesting as well:
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