“It was the right move. We’re lucky to have him as a contractor now.” Veer Saini, the head of creative services at the advertising firm Blackbird, was referring to one of his star designers, Ishan Misra, who had left months earlier to start his own agency. Blackbird had become its first client, and now Veer was stopping by the office of HR director Diya Mathur to update her on how things were going. At first Diya had been skeptical about the arrangement, but she’d ultimately bought Veer’s argument that Ishan was determined to strike out on his own and that they’d be fortunate to keep working with him in any capacity. Ishan was also immensely grateful for their support. And so far, the situation seemed to be working out. “I’m certain he’ll have other clients in no time,” Veer continued. “It was always clear that he wasn’t just a top-notch creative but someone who could excel on the client management side as well. Here, with our size, he’d never be able to do both.” Blackbird, based in Delhi, had 200 employees organized into three divisions: account services, media, and Veer’s group, creative, which comprised more than 50 people, including 12 designers. They created websites and promotional material for clients—mostly small and midsize businesses. When the group had a large project or got particularly busy, Veer would outsource 1 some of the design work to freelancers or small boutique agencies. Ishan had been in charge of managing those contractors, and he’d been frustrated at times with the quality of their work. He felt he could do better. When Veer first ran the idea of turning Ishan into a contractor by Diya, he pitched it as a win-win. His team would get reliable outside help, and Ishan would be able to pursue his dream of building his own venture. After getting over her initial hesitation, Diya saw that there was an added benefit. Their support of Ishan would send employees a positive message: Blackbird was invested in their future, even if it wasn’t at the firm. Ishan would also join the company’s alumni network, which Blackbird used as a recruiting tool. “There is one issue I wanted you to be aware of,” Veer said cautiously. Diya raised her eyebrows. “Just something we should keep an eye on,” he said. “Some of our other employees seem very interested in the arrangement that Ishan got. I’ve overheard discussions between them. Ashok even asked me directly about it.” Diya didn’t like the sound of that. “I thought Ishan was a one-off. How many of the rest of them could seriously set up independently? And should we be worried about him trying to poach some of our staff?” She got an uneasy feeling in the pit of her stomach. One of the things that had been bothering her over the past few months was the company’s lack of a clear noncompete policy.2 Technically, there was nothing stopping Ishan from hiring his former teammates or working directly with Blackbird’s clients. But she, Veer, and Blackbird’s CEO, Syed Alvi, had agreed to the arrangement with Ishan because they trusted him. They’d also decided that they would develop protocols—for contracting with former employees who’d set up shop on their own and ensuring they didn’t end up as Blackbird’s competition—based on what they learned from this experience. “This was always my worry,” she said to Veer. “Ishan was the first, but he probably won’t be the last.” The Fallout The following Tuesday, Diya was in her office trying to finish up a recruiting report for the firm’s board meeting on Friday, but her phone kept buzzing. Picking it up, she saw that Veer had texted her repeatedly: Ashok is resigning. Asking for the “same deal” as Ishan. Can we meet this afternoon? Dev and Prisha just asked if I have time to talk as well. What is going on??? When can we meet?? I’m worried about a domino effect here. I’m sorry, I know you’re prepping for the board meeting. She texted him back, asking if they could meet in the conference room by the elevator. When she arrived, Veer was pacing back and forth, hand to his forehead. “I’m having second thoughts about the Ishan arrangement,” he said. “I’m worried we sent the wrong message—that people will be rewarded for quitting. And now some of our designers seem to want to follow in Ishan’s footsteps. But they’re not Ishan. They don’t have the same skills and potential. We can’t lose—and then give work to—all of them!” Diya took a deep breath. Veer’s team was in the middle of a product launch for the agency’s biggest client, Neev, and had been pushing back deadlines for other client projects. If several designers left, the remaining ones would be overwhelmed. “OK, for starters,” she said, “let’s make it clear we can’t guarantee we’ll give them business.” Veer nodded. “And what if they want to join up with Ishan?” “Do you think he’s offering them work?” 3 Diya asked. Veer shrugged. “There’s one other thing,” he said. “I’m hearing that some of our other contractors are concerned that Ishan’s getting special treatment. I think they feel threatened. I guess it’s possible that as he builds his agency, he might lure away some of their best staff, too.” “Let’s not get ahead of ourselves,” she said, “I want to focus on getting your team to stay put.” “What about their employee contracts? Can we leverage those in any way?” he asked. Diya shook her head. Until now, Blackbird had avoided putting noncompete clauses in its employment contracts, in part because they were tough to enforce under Indian law. But they also didn’t fit the culture and image that Blackbird was trying to create.4 The firm had always sought people with an entrepreneurial spirit and encouraged its employees to grow professionally, even if that meant moving on. But she had to do something to stop departures—now and in the future. Traitors? The only opening Syed had in his schedule that day was during lunch, so Diya and Veer met him at his favorite café down the street from Blackbird’s office. He wasn’t happy to hear their news: “We train these people, give them the skills they need, and then they stab us in the back?” 5 Diya was used to Syed’s hotheaded reactions but knew he could be reasoned with. “Becoming reliable vendors isn’t exactly stabbing us in the back,” she countered. “They have to know they’re putting us in an impossible situation, especially with the Neev launch coming up so soon. I don’t like this one bit.” “Neither do we,” said Veer. “I wish I’d put the brakes on this whole Ishan arrangement,” Syed said. “Now people think they can go off and still earn money from us while also possibly working with our competitors. How can we even be sure that Ishan’s not doing that? Or contemplating hiring away some of our best people?” He thought for a moment. “What if we announce that we’re beefing up the employment contract, including a noncompete? Our current employees won’t be obligated to sign it and agree to the new terms, but maybe it will make them think twice about jumping ship. They’ll realize that we’re not going to give everyone else the same deal we gave Ishan. It’ll send a strong message.” Diya paused before responding, “We need to carefully consider the consequences of doing that—the effect on morale and our ability to recruit.” Syed shook his head and looked down at his plate. None of them had touched their food. Veer spoke up. “We could offer people something to stay, instead: a retention bonus.” 6 “Then Diya will have a line out her door of people threatening to quit just to get more money,” Syed snapped. He thought for another moment. “We can’t change their employment contracts, but we can change company policy. We can announce that effective immediately we will no longer contract with any former employees.” Veer’s eyes widened. “So we’d cut ties with Ishan?” 7 “I know it would be painful, but we have to do something,” Syed said. The Right Rewards Diya had invited Prisha Kumar, one of the designers who had indicated that she was considering quitting, to go for a walk. She wanted to understand Prisha’s perspective so that she could figure out how to persuade her—and the other employees who were flight risks—to stay. As soon as they met on the plaza in Cyber City, Prisha opened up: “Isn’t it everyone’s dream to work for themselves? Ishan made it seem possible, and you all were so great about it. It’s part of what I’ve loved about working here. It’s like a family 8 that encourages everyone to spread their wings and fly off on their own.” Case Study Classroom Notes A recent study of 150 marketing firms with revenue over $200 million indicated that they outsource 45% to 48% of their creative, strategy, media planning, and analytics work. Because the Indian Contract Act, 1872, prevents agreements restraining citizens from exercising a lawful profession, trade, or business except in certain cases, and India’s constitution protects the right to practice any profession, trade, or business, courts in India have been circumspect in upholding noncompete agreements. Without a noncompete, how can Veer ensure that his former employee doesn’t hire people away from Blackbird? Researchers have found that subjects in simulated noncompete conditions showed significantly less motivation and got worse results on effort-based tasks. What expectations should employers have about loyalty from employees? In a 2016 survey 74% of firms with 20,000-plus employees used retention bonuses, but only 3% of those with under 100 did. According to Salary.com, such bonuses are typically 10% to 15% of salary. Is this ethical? While firms with a “family” culture often see benefits like higher morale, some experts believe it can blur the line between professional and personal relationships in an unhealthy way. Diya felt conflicted. Of course, she’d worked hard to cultivate a warm and trusting work environment, but she bristled at the idea that Blackbird would unconditionally support employees even after they’d left the firm. “I have to be frank, Prisha,” she said. “This is putting us in a bad spot. If several of you leave, we’ll fall behind. We can’t recruit fast enough to replace you. We could lose clients, including Neev.” “But we could still do the work on a contract basis.” “It’s not that simple. There would be inefficiencies, a learning curve. Veer wouldn’t have the benefit of you all in one place, fully collaborating.” “I’m sorry,” Prisha said. “I don’t want to abandon you all, but Ishan seems so much happier and has the potential to make more money. It’s really tempting to follow his lead. I have to think of my own interests.” So much for family, Diya thought. “I see where you’re coming from,” Diya said, “but let me present the counterargument.” She shared all the reasons to stay: the security, the benefits, the company’s growth potential, and yes, the close-knit culture. But as she was talking, Diya realized that she wasn’t sure those upsides were convincing enough. Would retention bonuses or pay increases be more compelling? Or was it time to intensify the downsides of leaving by instituting a no-working-with-former-employees rule and inserting language to the same effect and noncompetes in all future employment contracts? Would carrots or sticks be more persuasive? The Experts Respond: How should Diya handle all the employees who want to follow Ishan? John H. Chuang is the cofounder, chairman, and CEO of Aquent. It’s time for Blackbird to lean into 21st-century management, embrace the gig economy, and let more employees go freelance. Diya and Veer made the right decision with Ishan, and they’ll attract more talent, foster greater loyalty, build a better culture, and produce more-creative work by letting others follow suit. To keep pace with societal and technological change, companies today need to be flexible with—and offer flexibility to—their workforces. Young people, particularly creatives, want the autonomy and variety that gig work offers. And companies like Blackbird can greatly benefit—first, by reducing the danger of having people they can’t keep busy on the payroll and, second, by serving clients with curated teams designed for their specific needs. If your employees are almost exclusively full-time, you’re stuck with their skills; budgets often won’t allow you to bring in extra expertise on projects. It’s better to have fewer staffers and access to a network of people who can provide exactly what you need when you need it. Many large ad agencies are moving toward this model, with support from their clients. It’s the same approach you see in filmmaking: bring great people together, have them collaborate, then disband. If Blackbird can learn to do that and earn a reputation for corralling just-in-time talent, it could have a huge leg up in the market. Freelancers as well as full-time employees will flock to an organization that offers flexibility, independence, consistent work, and the opportunity to collaborate with many different coworkers. Clients will love the customized service; if they request cutting-edge work—say, for designing an experience in the metaverse—Blackbird might be one of the few firms able to provide it. I don’t think Diya or the CEO should question the loyalty of employees who want to do what Ishan has done. Fidelity doesn’t come from a full-time contract. It comes from enjoying the work you do with an organization. I suspect that Veer’s team members will be even more committed to Veer and Blackbird if they’re allowed to leave and partner with the company. Ishan is already proving that. Management should make good on its promise to invest in entrepreneurial employees and help them spread their wings. At Aquent we employ 10,000 people, but only about 10% are full-time. The majority of our creative work is outsourced; we have just one in-house global creative director, who orchestrates it all. Our business helps enable the gig economy but also relies on it, and we’re trying to improve it—for example, by offering contractors and staffers the same benefits. Blackbird might not be able to go that far right away. But it should take the first step into the future of work. Craig Millon is the chief client officer of Jack Morton Worldwide, part of the Interpublic Group of Companies. Diya and Veer should do everything they can to retain Blackbird’s creatives on a full-time basis. Clients might come to your agency because of its brand or reputation, but they stay to work with specific people, so you want to own that talent, not rent it. There are many other benefits to having people on staff, always working together, whether in person or virtually. First, it creates a diverse, cohesive community that employees want to be part of. It also strengthens a company’s culture, providing differentiation in a competitive market. The work will be consistent because full-timers are more likely to have trust in one another and deep insight into client needs. Everyone will be more aligned and more committed to the same goals. It’s hard to maintain those things—community, culture, consistency, and commitment—when you rely heavily on freelancers. You might save on salary, benefits, and development costs, but contracting out core creative work poses too many risks. Your relationship with your key talent becomes purely transactional, leading to more churn, and the work inevitably suffers. For all those reasons, Blackbird shouldn’t allow Ishan’s colleagues to follow his lead. But keeping the team intact will require more than the carrot of retention bonuses or the stick of potentially unenforceable noncompetes. Diya and Veer need to better articulate Blackbird’s value proposition for employees—why their experience working for the agency full-time is better than the one they’d have as freelancers. At Jack Morton we start with a purpose—“be extraordinary”—knowing that’s the reason, beyond getting a paycheck, that our people want to work for us. But we also consider and highlight the intangible benefits of being part of our agency, including the opportunity to work on cutting-edge projects all over the world and to collaborate with a diverse group of colleagues at the micro level (in the office and on discrete teams) as well as the macro level (across functions, geographies, and business units in the broader ecosystem of our parent company, Interpublic). As a smaller firm, Blackbird can’t yet offer all that. But it can decide what it stands for, communicate that to employees, and emphasize perks like a sense of togetherness, training and development, leadership opportunities, more choice of projects, and the chance to work directly with clients. I’m not against using contractors. We employ many talented ones alongside our full-time team members. Recently, we even helped an employee in business development go out on his own, just as Ishan did. The part of his job that he enjoyed and excelled at—setting up meetings with prospective clients—wasn’t something we needed covered full-time, so we agreed that he should start his own firm and became his first customer. Because we couldn’t offer him a better experience than he’d get freelancing, the arrangement made sense. But we focus on keeping talent growing internally and leverage contractors for specific needs or niche expertise. Diya and Veer should make all talent decisions on a case-by-case basis. But I’d steer them toward giving the people that create the most value a reason to stay. Maybe one day in the future they’ll even persuade Ishan to come back. HBR’s fictionalized case studies present problems faced by leaders in real companies and offer solutions from experts. This one is based on “Pioneer Urban: Conundrum of Nurturing a Startup,” an original unpublished case developed at MDI Gurgaon.
