Personal development

When your insight belongs to someone else

There’s a market for skilled and experienced people moving between banks or offering their services as consultants. BOB SOUSTER examines the ethical constraints on using intelligence that’s really owned by others.

After spending eight years as the Business Development Director of JKL Bank plc, Jamie, a Chartered Banker, decided to use his knowledge and experience to set up a consultancy. His board colleagues at JKL Bank were disappointed, as Jamie was highly regarded for changing the image of the bank as a significant innovator in its market.

The board asked Jamie to delay his departure for four months so they could use his skills to complete three major current projects. Jamie agreed and two months before he was due to leave, he met Trader Ltd, a major corporate client, to negotiate new business opportunities for the following year. The meeting was inconclusive, so the JKL Bank board agreed Jamie’s successor would carry this potential new business forward in due course.

On leaving, Jamie set up his private limited company as a consultancy on strategic development, specialising in marketing. To generate regular cash flows, he offered incompany courses on business development and seminars for marketing professionals.

One of Jamie’s first clients was PQR Bank plc, historically his former bank’s most direct regional competitor. PQR Bank invited Jamie to run five business development courses for its branch managers, focusing on sales strategies and managing clients effectively. Much of Jamie’s experience proved useful and the client was delighted with the results.

News of Jamie’s programme caused concern among his former employers, who seriously questioned whether intelligence gathered during his time with them would have been used on his programme for PQR Bank: significantly, 20 PQR Bank branches were in towns and cities where JKL Bank also had branches.

Following his success with the courses, Jamie was asked to provide input into PQR Bank’s marketing strategy at the highest level. At his board presentation, Jamie gave several examples of cases where he’d secured lucrative contracts with corporate clients.

One scenario was a thinly disguised case study based on Trader Ltd, and Jamie described how he would secure the company’s business. As Trader Ltd was a distinctive company with unique products, it was clear to the PQR Bank board which company he meant.

One month later, PQR Bank secured a lucrative contract with Trader Ltd. A director of JKL Bank learned of Jamie’s involvement as a consultant to PQR Bank from a contact in Trader Ltd, and JKL Bank sent a strong letter of protest to the chairman of PQR Bank stating that they were considering action against both PQR Bank and Jamie personally.

The famous management author Charles Handy wrote that value added is a function of “information, ideas and intelligence”. Just as business executives’ salaries carry a premium for these “three Is”, consultants are also paid on the basis of what value they can add to a business. In the highly competitive world of banking, there’s a market for skilled and experienced people prepared to move between banking organisations, and also for consultants who can offer their services for a fee rather than a salary.

Banking organisations have to trust individuals to keep their secrets. If they do not, competitive advantage can quickly be eroded or lost altogether. At the same time, nobody should be naive enough to assume that past experience with an organisation will never be applied outside it.

This case concerns two main issues: first, Jamie’s business development programme and, second, how his subsequent work may have led to PQR Bank securing business with Trader Ltd. The banker’s duty of confidentiality is established in common law and reinforced by Section 171 et seq of the Companies Act 2006, which sets out seven general duties of company directors.

In addition, members of the Institute are bound by its Code, which states that members will “treat information with appropriate confidentiality and sensitivity”. The Code also refers explicitly to a requirement to “uphold the highest standards of diligence, integrity, honesty and trust”. As a Chartered Banker, Jamie is bound by these obligations. If he remains a member of the Institute, it is irrelevant that he has left the bank.

Jamie can probably defend the programme he ran for PQR Bank on the grounds that he was providing general advice on branch development strategies. Even as a director of JKL Bank, he would have had few opportunities, and probably too little time, to consider the forensic details of each individual branch development plan. And it would have been almost impossible to know the precise details of every client relationship.

Unless JKL Bank can prove that Jamie used specific information about its operations in the business development programme, there is very little it can do. The banking industry uses many sales and marketing trainers who go on to work as consultants for other banks. The majority will act with integrity and know where to draw the line between telling “war stories” about their general personal experiences and giving specific intelligence about clients and internal processes.

The contract with Trader Ltd was secured because PQR Bank was able to interpret Jamie’s case study as a business opportunity. Jamie would argue that he took a hypothetical company and discussed how he’d approach the business. However, if the case study was so thinly disguised that PQR Bank was bound to relate it to a real company, Jamie is in breach of several legal and ethical duties.

Firstly, he may be in breach of his fiduciary (and now statutory) duty not to use information obtained while acting as a director to make personal gain. Jamie would not have attended that meeting with Trader Ltd had he not been a director, so it’s only for the benefit of JKL Bank that he should have acted. In a 1972 case law precedent, IDC v. Cooley, the former CEO of the claimant secured a contract he had learned about while with the company. The court held that his profit belonged to his former employer.

Secondly, Jamie is almost certainly in breach of his duty of confidentiality arising from his former contractual relationship with JKL Bank. It’s broadly accepted that employees should regard information acquired while with their employer as confidential, even after they leave.

Thirdly, Jamie has not acted with integrity and has not respected the sensitivity of JKL Bank’s trade secrets. This means he is in breach of the two provisions of the Institute’s Code.

Jamie’s case is highly topical in an environment where information is a crucial element of successful strategy.

About 80 per cent of executives are head-hunted and, in many cases, those approached will be judged not only on their knowledge, skills and experience, but also on their ability to produce instant intelligence at no extra cost.

Banking professionals have to be aware of the boundary between using personal experience and using intelligence that really belongs to others.

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