Nigeria's leading finance and market intelligence news report.

Balancing Competing Loyalties

Can you recall a time when you competed against a former colleague for a deal, or faced a tricky hiring decision with a former co-worker among the candidates? Or, maybe you’ve advised clients on an acquisition or a lawsuit while former collaborators were advising the counterparty?

These scenarios share a common thread: they may raise questions about your loyalty to current clients and stakeholders. Will you negotiate a deal that helps the former colleague at the expense of current stakeholders? Will you favor a former co-worker in a hiring decision at the expense of your current employer’s interests? Will you be an uncompromising advocate for your client when a former partner is advising the opposing party?

* indicates required

How do professionals behave when trying to quell such concerns? What are the consequences of such behaviors? These questions motivated our research, to be published in a forthcoming issue of Administrative Science Quarterly. We found that to maintain the perception of uncompromising loyalty to their current role, professionals often become contentious and aggressive toward former collaborators. They demonstrate their loyalty to current stakeholders by being combative negotiators, belligerent interviewers or hostile advisers. The problem is, such behaviors can hurt the same stakeholders they’re trying to win over.

The paradox of pursuing well-connected individuals with rich professional networks is that organizations also want such individuals to be exclusively loyal. When people compete against former colleagues, however, these two desires are inherently in tension. The same relationships that offer inside information and facilitate collaborative resolutions can compromise perceptions of loyalty.

THE LIABILITY OF PAST COLLABORATION

Using data from the Public Access to Court Electronic Records and LexisNexis’s Lex Machina databases, we tracked the professional histories of more than 20,000 external legal counsellors. These were lawyers from U.S.-based offices of law firms that represented companies in lawsuits over infringement of patents, copyrights or trademarks in U.S. federal district courts. Some of these lawyers had collaborated with one another on prior cases (as co-plaintiffs or co-defendants) only to face one another when representing counterparties in a different lawsuit. This dynamic appeared frequently in intellectual property lawsuits — we observed that one in three lawsuits featured lawyers on opposite sides who were former collaborators.

We examined how these lawyers behaved toward one another when faced with the loyalty concerns of their clients, as well as how these behaviors affected the outcomes they secured for their clients in litigation. We found that lawyers responded to loyalty concerns by distancing themselves from their former collaborators through excessive conflict. Rather than leveraging past familiarity to pursue rapprochement, lawyers on opposite sides who were former collaborators were contentious and aggressive in the courtroom. And this behavior dominated when the clients themselves were fiercely competitive.

We uncovered this dynamic by examining the details of nearly 5,000 intellectual property lawsuits. Even the most trivial situations, such as rescheduling hearings due to sickness or delaying filings because someone’s daughter had a recital, were met with vigorous opposition. Lawyers concerned with demonstrating loyalty were less likely to reach agreements about these issues on their own and consistently required the judge’s intervention. With increased acrimony in the courtroom, litigation was prolonged, and lawsuits were significantly more likely to go to trial rather than be settled out of court. This conflict escalation, on average, ended up hurting clients’ pocketbooks. Furthermore, the clients’ stock prices declined upon the completion of such lawsuits.

We dub this the “liability of past collaboration.” Hostility toward former collaborators rears its head when the respective stakeholders are strong rivals themselves. Most likely, these rival companies are watching the process carefully and may, perhaps inadvertently, apply undue pressure on their advisers to be loyal. In our data, when rival clients were involved closely in litigation, their lawyers’ aggressive behaviors across the aisle spiked.

It is also conceivable that by being aggressive toward past collaborators, lawyers attempt to convince themselves that they will maintain the highest levels of professional conduct and integrity, regardless of the pressure for loyalty. Fearing that they could be playing favorites, lawyers may overcompensate, despite the risk of compromising past relationships.

This dynamic extends beyond the legal context. When faced with situations that divide our loyalties, we strive to avoid playing favorites or even giving the impression that we may do so. These situations are ever-present in business. For example, in recent years, multiple executives have moved between Amazon and Microsoft. As competition in the cloud-computing market between these two companies heats up, one might wonder how these executives will behave toward former colleagues.

Our research shows that a powerful way to establish where current loyalties lie is to create distance from former collaborators using visible, salient and aggressive interactions. Sadly, we seem likely to take this behavior too far, potentially hurting the relationships and the bottom line.

MITIGATING THE LIABILITY OF PAST COLLABORATION

Our findings suggest several solutions for managers. First, when it comes to competing against your fiercest rivals, don’t get carried away by the promise of an “in” via consultants, bankers, lawyers or ex-employees who can potentially offer insight. The same relationships that allow these advisers to strike collaborative deals may raise loyalty concerns. If you do opt to engage someone connected to your rivals, beware of the steep costs of suspicion and excessive monitoring. This is where selecting advisers you know directly or come from trusted referrals could be critical.

Furthermore, recall that the liability of past collaboration was greater when former collaborators represented clients who were antagonistic toward each other. When engaging former collaborators as agents, it is thus important for competing clients to step back and focus on the matter at hand, without letting their rivalry block possible mutual gains in a specific transaction.

Second, as an adviser, recognize the situations in which your previous relationships can cast a shadow of doubt over your loyalty to current clients and stakeholders. Seek less conflictual ways to affirm your loyalty. It’s possible that being extra thorough and diligent in exercising your duties on behalf of your client can help ease loyalty suspicions. More experienced advisers can try to address the situation head on with a client, by referencing the ubiquity of such occurrences and their prior experience in handling them.

Paulo Coelho once famously quipped, “Where there is loyalty, weapons are of no use.” Our research suggests that this quote rings true in multiple ways. Loyalty can indeed eliminate the need for coercion with power. Yet in situations where there are divided loyalties, the quest to be and appear loyal can itself lead to unintended consequences. Loyalty can be a double-edged sword. Don’t overlook its downsides.

Maxim Sytch is an associate professor of management and organizations at the University of Michigan’s Stephen M. Ross School of Business, where Jose Uribe is an assistant professor of management and organizations. Yong H. Kim is an assistant professor of management at Hong Kong University of Science and Technology’s School of Business and Management.

Comments are closed.