No clear direction from tech community on noncompetes

May 29, 2014Boston Globe, Council in the News

By Shirley Leung
Boston Globe

Fighting a $500 million tax on software services singularly united the tech community a year ago.

Supporting the governor’s proposal to eliminate noncompete agreements is an issue that divides it like no other.

There’s so much rancor in the ranks that the two major tech industry groups — Massachusetts Technology Leadership Council and the Massachusetts High Technology Council — are staying neutral on the issue as it makes it way through the Legislature.

And that in itself is making some in the tech sector angry because that’s the point of having such associations — to take a stand on important topics.

A prominent Cambridge venture capitalist who sits on the MassTLC board lashed out at the group’s president, Tom Hopcroft, in a recent e-mail. MassTLC needs “to take more of a true leadership position,” he wrote, and if it “remains passive with regard to its position then I will probably choose to distance myself from the organization.”

Obviously, this VC bigshot does not mince words. His position on noncompetes is blunt: get rid of them now. The agreements prevent entrepreneurs from starting their own companies and keep employee wages down because they can’t jump from firm to firm.

Others, however, don’t believe they are evil. They say noncompete clauses protect intellectual property and prevent companies from raiding each other’s workforce. Most states, California being a big exception, enforce noncompetes.

For his part, Hopcroft said there is good reason why his group, which represents 550 companies of all sizes and stages, has not formulated a position. There’s no consensus.

“It’s a very important issue to a lot of people,” said Hopcroft. “Unfortunately they don’t have the same opinion on it.”

Hopcroft surveyed his members to try to develop a stance and found a house divided. And it wasn’t just big companies against small ones. He’s got established firms, which typically champion noncompetes, that want them to go away. He’s got startups, which typically loathe noncompetes, backing them.

Instead of taking sides, MassTLC is conducting private conversations with members and legislators to educate them on the pro’s and con’s of noncompetes.

Does Hopcroft want to stake out a position?

“If we can reach a strong consensus one way or the other,” he said, “we will act accordingly.”

Chris Anderson, head of the Mass High Tech Council, said if the issue is still around next legislative session, his group may weigh in. But for now, he says there are more pressing problems such as cutting unemployment insurance taxes and modernizing the state’s research and development tax credit system.

“It’s a question of where it arises in the priority chain,” said Anderson. “It’s nice the administration has raised the issue.”

There is one tech group that has been vocal about eliminating noncompetes – the New England Venture Capital Association. Members were out in force Thursday at a Beacon Hill hearing on the governor’s economic development bill, which includes a ban on noncompetes.

The association even has convinced three dozen CEOs, reflecting the best and brightest of our new economy, to sign a letter that went out to legislators. Signatories included Vertex Pharmaceuticals founder Josh Boger, Kayak.com co-founder Paul English, and The Grommet co-founder Jules Pieri.

The venture capitalists more than make up for the lack of opinion from other techies. Just listen to Jeff Bussgang, a general partner at Flybridge Capital Partners, who has the ear of Deval Patrick when it comes to our innovation economy.

“We want to make it clear to young people around the world — and entrepreneurs — that this is the best place to come,” Bussgang told me. “We are not the old land of DEC, and Wang and Prime Computer. We are the new Boston, an open and more dynamic environment.”

So what’s going to happen? Unfortunately, nothing.

Here’s why: the 800-pound gorilla business groups — Greater Boston Chamber of Commerce, Associated Industries of Massachusetts, and Massachusetts Business Roundtable have all come out against the governor’s proposal.

Short of a compromise everyone can rally around, the noncompetes stay. Plus, it’s a complicated subject lawmakers won’t be able to wrap their brains around without clear direction from the industry that stands to be most affected.

Too bad. The clauses, studies have shown, have a chilling effect on innovation. In the global war for talent and business, we need every tool in our toolbox.

Leaders of Massachusetts’ Innovation Economy

Leaders of Massachusetts’ innovation economy have much to accomplish in the next few years.

The Council distinguishes itself by specializing in complex, multi-year public policy strategies in support of conditions that protect and enhance the resiliency and long-term strength of the Massachusetts economy.

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