In a remarkable op-ed piece for The New York Times on March 14, Greg Smith said the corporate culture of Goldman Sachs was toxic and destructive, and that under the watch of CEO Lloyd Blankfein and president Gary Cohn, the investment bank was in "moral decline."
Its corporate culture, wrote the 12-year veteran, who had resigned, "was the secret sauce that made this place great and allowed us to earn our clients' trust for 143 years … but it makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets,' sometimes over internal e-mail."
"Why I am leaving Goldman Sachs," for those who missed it, got a lot of attention in the Times and other media, and excerpts were published all over the world. It forced Goldman Sachs – and, one would expect, a plethora of spin doctors and crisis managers – to go into "damage control overdrive," denying Mr. Smith's allegations and stating "in our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."
Goldman's clients provided letters in support of the company, and New York Mayor Michael Bloomberg visited its offices the next day to lend it some moral support. Mr. Bloomberg's spokesperson stated: "The mayor stopped by to make clear that the company is a vital part of the city's economy, and the kind of unfair attacks that we're seeing can eventually hurt all New Yorkers."
Anyone involved with the "Occupy Wall Street" movement who read the piece would agree it was not only a scathing indictment of Goldman Sachs but of modern capitalism as well. And anyone who falls under the tag of "the 1 per cent," or anyone who owns a business and hires employees, would have said: "how do we prevent our disgruntled employees from publicly going rogue on us, whether it's on Facebook, in a blog or in The Globe and Mail?"
The easiest answer is to develop a healthy corporate culture with integrity, where all employees are happily fulfilled, where they never want to say anything bad about you, and they never want to leave. But not all of us live and work in Disneyland.
If you're in business, is there anything you can do to prevent employees from exercising their right of free speech and telling the world your well-known company with an established brand is immoral, has a toxic corporate culture, and rips off its clients? Depending on the circumstances, a rogue employee with an axe to grind can damage your company's reputation, perhaps irreparably.
The time to start thinking about these sorts of issues is when you're hiring the employee, not when you are retaining the spin doctors to deny everything and asking the mayor to drop by and lend support.
First, always have a written employment agreement with the employee – or a person on a consulting or analogous contract – that lays out the essential terms of the relationship, and his or her duties, functions and compensation. Some of that compensation might be shares in the company, or options.
All written employment agreements should contain provisions on grounds for immediate termination – termination for "cause," such as stealing. It might also specify the "notice period" that the employee is entitled to receive if termination is not for cause. Whether the notice period is three months, eight months or two years, the employee would either work through the notice period, or be paid salary and benefits equivalent to the notice period set out in the contract.
Depending on the province, if there is no notice period specified in the contract and the employee is in a managerial or other significant position, then the notice will be somewhere between a statutory period set by the employment standards acts (the very low end) and something akin to a month's notice for every year of employment. This could be quite high for long-term employees.
So it's a good idea to determine at the start of the relationship what the notice period is, so the employee knows what to expect on termination. Employment lawyers draft these agreements all the time and they would be able to draft a standard templated version.
The agreement should contain covenants of confidentiality and trade secrecy, so that the information learned by the employee while working for Employer A – such as new product plans, and customer lists – won't be shared with Employer B if and when the employee moves on.
The problems with Goldman Sachs and Mr. Smith were threefold:
- The payment of severance wasn’t an issue with Mr. Smith. He quit. There was no “package” that Goldman Sachs could either threaten not to pay him, or that the company could withhold, and fight about, as a result of the piece.
- Telling the world your employer was “in moral decline” and that managers at Goldman Sachs “put their own interests ahead of their Muppets” sounds less like a breach of confidentiality and more like an unflattering opinion of Wall Street culture in general. It’s not something judges are going to get involved in.
- It’s hard to accuse Mr. Smith of defamation without laughing, in light of Goldman Sachs’ ethical conduct over the past few years. The bank was charged with securities fraud by the U.S. Securities and Exchange Commission (SEC) and paid $550-million to settle the fraud claim. In such circumstances, a defamation claim, if it were successful against Mr. Smith, might actually win the damages awarded in Leon Uris’ book QB VII: a half penny.
Is there anything that could have made Mr. Smith reconsider his missive, or tone down his rhetoric? Maybe not. He's rumoured to be in negotiations with a book publisher, and assuming the book sells well, I'm sure he'll be a TV business commentator until 2025. His editorial may have been a good career move.
But what can you do when an employee of your business goes rogue? One thing finding its way into more employment contracts these days – whether directly within the contract itself, or as part of an office policy that all employees must abide by – are non-disparagement covenants that deal with use of social media by employees.
It's important to have social media policies in place so that employees are aware of what the company expects from them at a time when everyone can be a writer, a publisher and a movie maker at the same time.
A non-disparagement clause would outline that an employee agree not to comment negatively about the company or otherwise disparage its brand, its employees or its management. While this often means public disparagement on social media, there's no reason why it shouldn't apply to disparaging e-mails or, for that matter, editorials in The New York Times.
I'm not saying such clauses are always enforceable. There is a good public policy reason why free speech should be protected and people should be permitted to write what they want about their work experiences without the threat of libel chill from big companies that can afford expensive lawyers. But an explicit non-disparagement clause might make employees think twice before writing a "tell-all" account of their work experience.
At most, a non-disparagement clause in your employment contact might cause an employee who was considering going rogue to question whether being Woodward or Bernstein for a day was worth the threat of a massive lawsuit and no severance.
At the very least, it can't hurt.
Special to The Globe and Mail
Tony Wilson practices franchising, licensing and intellectual property law at Boughton Law Corp. in Vancouver, an adjunct professor at Simon Fraser University, and the author of two books: Manage Your Online Reputation , and Buying a Franchise in Canada . His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.
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Tony Wilson