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Listen, Do You Want to Know a Secret?

Matt Palmquist

Matt Palmquist is a freelance business journalist based in Oakland, Calif.

 

Bottom Line: Creating a company-wide culture that prizes sensitive brand, process, innovation, and database information is the key to extracting value from proprietary jewels without giving them away.

Coca-Cola’s recipe. KFC’s batter. In an innovative, forward-looking economy, the value of trade secrets can’t be discounted. Whether it’s a special sauce, a unique manufacturing process, a closely guarded customer database, or a groundbreaking technological advance, the inside information that companies possess represents a powerful competitive advantage — provided they keep it to themselves. But that’s easier said than done. As one Apple worker involved in the rollout of the iPad said to reporters, “I wasn’t allowed to tell anybody anything about what we were doing. I couldn’t even tell my wife.”

The inside information that companies possess represents a powerful competitive advantage — provided they keep it to themselves.

But how many employees can actually be trusted to live up to a rule like that? And which companies are not threatened these days by hackers or corporate espionage agents who would like nothing better than to expose proprietary information? Further, is there really any protection in a nondisclosure agreement when an employee is hired by the competition?

The troubling answers to these questions can be found in a statistic that drives home the scale of the problem: A 2014 report (pdf) by PricewaterhouseCoopers and the Center for Responsible Enterprise and Trade estimated that the loss of trade secrets drains between 1 and 3 percent from U.S. GDP every year, a number that is all the more vexing because trade secrets are legally protected only until they become public. Moreover, in a 2010 review (pdf) of almost 400 lawsuits involving the misappropriation of trade secrets that progressed through U.S. federal courts, legal scholars found that the wrongdoer in more than 85 percent of the cases was a business partner or an employee of the affected firm.

Indeed, trade secrets represent something of a double-edged sword. To take advantage of inside information, firms have to share it with key employees. But to the extent that trade secrets become known within a company, they can also be easily divulged or leaked to competitors, lessening or negating their value.

In fact, according to a quote cited in a new study, “There is no silver bullet for trade secret protection, no hardware widget or software program or canned process that you can buy to make you safe.” Instead, companies must purposefully labor to convince employees that protecting trade secrets is a fundamental part of the company’s values and organizational culture and an inherent component of everyone’s jobs, the authors write.

In short, managers should frame the concept of secrecy the same way they position other pillars of their organizational climate. Merely having rules in place that limit employee access to sensitive data and forcing workers to sign nondisclosure agreements intended to prohibit them from disseminating inside information isn’t enough, the authors note. Employees tend to view these so-called trade secret protection procedures (TSPPs) as confusing, invasive, or heavy-handed legal restrictions. Instead, the authors argue, supervisors have to instill in their subordinates a sense that secrecy is every bit as central to the firm’s strategic direction as, say, service quality, safety, or ethics.

“On the surface, an organization that has numerous TSPPs and clear, substantial punishments prescribed for breaking them might appear to be one that protects its secrets effectively…” the authors write. “Instead, it is the climate that these rules and other organizational factors create that will, to a large extent, determine whether companies are able to protect their secrets.”

To do so, managers should treat the issue of secrecy with the utmost clarity, communicating frequently to employees about the company’s TSPPs, the authors advise. This communication should be coupled with clear incentives for employees who stay in line with the firm’s policies — the same way other formal aspects of a job are tied to rewards or reprimands. Regular communication about the enforcement of TSPPs and about punitive measures taken against employees who break these rules also signals to the workforce how highly a firm values its insider info, and gives employees a ready excuse and no shortage of motivation to defy colleagues or outsiders who press them for proprietary details.

There’s also a legal benefit. When a trade secrets case reaches the courtroom, a judge typically asks for evidence that the misappropriated information was truly confidential. The more a company can prove that the TSPPs surrounding the proprietary knowledge were not merely documented but well understood throughout the organization, the better it can demonstrate that the trade secrets were required to be kept in-house and not shared with others.

But creating a secrecy-focused climate can be tricky, the authors note. There’s an inherent contradiction in emphasizing that employees should protect intellectual property even as they are being asked to collaborate with ever more supply chain partners to improve operational and product quality — and are even given assignments that appear to broaden the risk of spilling secrets. Consider again the case at Apple, where employees are not allowed to take prototypes off the company campus but are required to test forthcoming products in real-world settings. Or imagine the delicate balancing act of trying to convincingly pitch a product in development at a sales meeting without divulging too many of its crucial details. The responsibility to keep things hush-hush can affect the way people do their jobs: As psychologists have noted, merely keeping a secret can cause people stress.

An important factor in how well secrecy holds up in a company is the amount of trust that workers place in their leaders, which has been shown to increase employees’ willingness to abide by the rules and conform to an organizational culture. And leaders themselves must also provide a good example; if they preach the importance of secrecy and then leak insider information in interviews or during shareholder meetings, employees will likely take a similarly lax attitude toward the company’s intellectual property.

Source:The Secret to Protecting Trade Secrets: How to Create Positive Secrecy Climates in Organizations,” by Kirsten M. Robertson (University of the Fraser Valley), David R. Hannah (Simon Fraser University), and Brenda A. Lautsch (Simon Fraser University), Business Horizons, Dec. 2015, vol. 58, no. 6

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Listen, Do You Want to Know a Secret?