Employee turnover and the “Trade Secret Piggy Bank Effect”

April 26, 2017

Employee turnover and the “Trade Secret Piggy Bank Effect”

Most organizations have identified employee retention as an ongoing, critically-important Enterprise Risk Management (ERM) challenge that must be mitigated to ensure that the companies have the requisite staffing resources to successfully compete in their respective markets. The biggest risk facing companies from increasing employee turnover rates is the skyrocketing number of trade secret thefts occurring without management’s knowledge. Business drivers for the increased management focus on employee turnover rates include the rising costs associated with on-boarding new replacement employees. The impact of employee turnover is not only felt by the organization in its immediate ability to deliver goods and products on time, but also in its ability to develop and manage longer-term projects and strategic plans. Organizations not only have to manage the costs of on-boarding new employees after losing key employees, but they also suffer the opportunity costs caused by the sometimes-steep learning curves encountered as the new staff members acclimate to new organizational cultures, staffing structures and management teams. Although corporate executive teams, Human Resources and other internal corporate stakeholders have been brainstorming ways to encourage employee retention and reduce the costs associated with employee turnovers, research indicates that there is still a lack of urgency within organizations to implement employee retention programs. So what could spur a sense of urgency into corporate leadership teams to fix employee turnover problems? Perhaps the devastating financial impact of losing more than 80% of the company’s value overnight to the malicious actions of a departing employee will provide the necessary motivation for risk management teams. The biggest financial cost caused by employee turnovers remains mostly hidden from management’s view — the significant cost of trade secret thefts by departing employees, contractors and external partners. Unfortunately, most companies are unaware of the significant threat associated with departing employees who take trade secrets when they decide to resign from their current positions to either work for a competitor or start their own competing company. The value of the stolen trade secret information can be assessed to be in millions of dollars, depending on the sensitivity of the information and the competitive landscape of the particular industry, and can be catastrophic to business plans and strategies. Are Your Employees Collecting Your Trade Secrets? Yes. Probably. A research report published by the Software Engineering Institute at Carnegie Mellon University in May 2013 analyzed the behaviors of departing employees and contractors who had been caught stealing proprietary information, including trade secrets, from their employees and clients, respectively. The study found that employees who had decided to leave their positions actively downloaded, uploaded or printed out proprietary data owned by their employers or clients (in the case of contractors) within 30 days of actually leaving the organization. The report suggested that the employees were motivated to steal the information for personal interests, greed, and/or revenge against their employers. Another article entitled “Laughing Out the Door: Half of Employees Admit to Stealing Corporate Data” published on Workforce.com on February 11, 2013, indicated that sixty-two percent of employees believe that it is acceptable to transfer work documents to personal computers, tablets, smartphones, or into the cloud, and most never delete the data they have moved. Data analyzed from internal corporate investigation files of trade secret theft cases revealed that most employees and contractors begin collecting proprietary and trade secret information belonging to their employers almost immediately upon starting their employment. Investigative evidence also suggested that employees move documents containing trade secret information to USB storage devices, file share websites and personal email accounts routinely throughout their tenures with their corporations, often in direct violation of internal acceptable use policies and procedures.


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