Confidentiality Agreements--beware who you trust

 The 1999 movie “the Insider” tells the story of a tobacco executive whose conscience becomes too much and feels obliged to disclose the harm done by tobacco products but is hamstrung by the confidentiality agreement (CA) with his employer, Big Tobacco that protects the firm. It's a great movie with Russell Crowe and Al Pacino. I cant actually recall seeing it when it came out, it's not surprising at that stage of my life.

The movie got me thinking about CA’s in general. On the surface, they seem quite innocuous. Maybe protect the firms IP or a client list etc. Then again how do they relate to my industry, funds management. Unless you have developed a smart algorithm there is not too much original IP in the industry that has any longer term value. The dynamic nature of markets make current assessments quickly out of date. The DDM and DCF models were invented decades ago! Client lists? The Australian market is quite small and is vehemently guarded by consultant gatekeepers who own the client. The fund managers' relationships are with very few institutional consultants and a few more retail consultants. Everyone in the industry knows who these people are there are very few sources of clients not touched here, except the very largest, who can be easily identified.  Client lists? No big deal.

Then what is the reason for confidentiality agreements? Who and what do they protect? A non-compete I can understand, and it has become industry norm for a three-month non-compete. No issues there.

Going back to the movie there was the likelihood that there were hidden agendas regarding non-disclosure of health issues that after a long and involved law case appear to have been settled for a multi-billlion dollar payout by the tobacco companies. The law case was not simple or easy for the informants and besides alleged threats, the case largely rested that the CA would hold and the truth would not be told. Do we come to the conclusion that CA’s are an attempt to stop the truth from coming out?

In the movie the insider joined tobacco for higher pay and prestige but seriously underestimated the lack of moral compatibility he shared with his new employer. As things got nasty, big tobacco ran a smear campaign against the insdier, called the lowest act of character assassination that you can undertake, great.

What were the insider's options? As I can see, he had four. Resign out of disgust, pragmatic but gutless. Second, join in, drink the Kool-aid and share the benefits, as well as living with a moral by-pass.  Thirdly, ignore it exists, the “hear no evil, see no evil” strategy.  Pragmatic but maybe only suits a certain style of character. The fourth option is to take the moral high ground and is the most dangerous, that is to try and change the corporate culture. The trouble with the fourth option is you will become a target. Very few people change when they are that far invested in the undertakings.

The point of this dissertation is to make people aware and to be careful of CA’s. Is there a benefit in keeping valuable IP safe? Or is there another agenda where inappropriate actions are protected but leave those same people with the avenue to not reveal the whole truth but run a cherry-picked agenda, safe behind a CA.   In the end, I suppose the late great Charlie Munger was right, get toxic people out of your life, as fast as you can. Ahem.