Putting a price on your contacts

FT.com

January 22, 2014 4:28 pm

By Maija Palmer

When Boardex started mapping the professional relationships between prominent business people, the London-based company was targeting corporate governance watchdogs as clients.

James Daly, chief executive, thought its database would be used to track connections between executives and board members to guard against cronyism in the wake of Enron’s 2001 collapse.

The product eventually took off – but not in the way Boardex intended. Corporate governance watchdogs were interested, “but they didn’t have the budget to spend on it”.

Instead, the database was picked up by bankers and lawyers as a way of identifying which employees were best placed to win new business.

Mr Daly says clients are paying up to $1m a year to use the data. “Two years ago it started to become a trend. Companies started looking at the relationships their employees had and recognised it as a form of capital.”

Technology such as Boardex’s is indeed making it easier to put a value on the adage “it is not what you know, it is who you know”, both for high-level employees and rank-and-file workers.

In recent years, for instance, companies such as Klout, Kred and Peer­Index have emerged, promising to measure the level of influence that an individual has online.

Factors such as how many followers someone has on Twitter and how influential those followers are can be condensed into a single number by Klout. Accenture, the consultant, is among those using it as part of its recruitment process in the US.

Profiles on the LinkedIn networking service are another guide to an individual’s connectedness, publicly listing how many contacts someone has (although it stops counting at 500).

But to what extent should employers track such indicators when they hire, promote and manage staff?

Michael Wright, head of talent acquisition for the Asia Pacific region for Group M, an advertising company, says that, while he would never hire someone solely on the basis of their Klout score or LinkedIn profile, it can be a useful filter for weeding out candidates.

“If someone has just four connections on LinkedIn and they haven’t bothered to upload a photo, it is a warning sign. They would be off our longlist of candidates for a role,” he says.

“If someone is looking to relocate from Europe to Asia and a quick scan through their contacts shows they have no connections in Asia, that would count against them as this is a relationship business,” he adds.

Paul Guely, managing partner at Arma Partners, a corporate finance advisory firm, says technical tools can only be a small part of the process.

He says: “I am a member of a number of social networks and I do get value from them in terms of seeing who knows who. But when I want to understand what “know” means – whether someone trusts this person, how much business they really do together – I have not yet found a substitute for the off-the-record phone call to someone who knows them.”

Russell Reynolds, an executive search firm, is one of the more than 250 companies that use Boardex’s software. Tim Cook, co-leader of its information officers practice, finds the software useful for looking at a candidate’s job history, but says it can never be a complete substitute for a recruiter’s own market insight.

“Knowing who is connected to who is interesting, but knowing who has excelled in their role and how they have done it is the insight on which we act,” he says.

The Boardex database maps relationships between more than 600,000 business people. If a bank wants to pitch to a company for work – to Intel, say – the software can indicate which of its employees are closest to Intel senior management.

The relationships are ranked by strength, “so that having met someone once at a cocktail party does not have the same value as having served on a board with them for 10 years,” Mr Daly says.

The most valuable information is not so much the direct connections, which might be known through other means, but the second-degree ones, which are more difficult to discover.

The system can also show a company areas where it lacks connections, as well as the impact a particular employee’s departure might have.

Mr Daly goes so far as to claim that its algorithms could put an overall financial value on a company’s relationships that would merit being placed on its balance sheet alongside other intangible assets. He believes such a number would be at least as valid as an estimate of goodwill – a notoriously finger-in-the-air asset created in takeovers.

But even as companies are offered new ways to value their employees’ relationships, there is concern in some cases over who owns those networks. Put bluntly: are your business contacts your own or the company’s?

Mr Daly talks of a “healthy tension” between individuals and their employers on this point. This is by no means entirely new. The loss of valuable connections has always been a threat to any relationship-based business, such as investment banking.

The tension is also creeping into the world of social media, however; courts have yet to work out a clear position on who owns what online when an employee leaves (see box).

Donna Ballman, an employment lawyer and author of the book Stand Up For Yourself Without Getting Fired, says that as “relationship capital” becomes more important, employment contracts will need to start including more clauses on ownership of online networks.

“This issue continues to be a hot topic in employment law. The courts frequently look to what the parties agreed in any contracts. I see provisions dealing with social media in employment agreements, confidentiality agreements, intellectual property agreements and non-solicitation agreements,” she says.

Even so, it remains unclear whether such contracts related to social media can be enforced. If any of the contacts are deemed to be in the public domain, for example, ownership clauses would not apply.

So how worried should you be if your own Klout score is less than stellar and you do not have a contact who knows Larry Ellison and can therefore make you stand out on the Board­ex database?

“It is just one tool in a very big toolbox,” says Mr Wright, of Group M. “The final decision on hiring needs human assessment. But it will be used more and more. I have a friend who says you are the product of the people you keep company with and I think there is some truth in that.”

Online poaching by former staff

Companies are used to clashing with former employees that try to poach clients or otherwise exploit professional relationships they had nurtured in their old role.

The rise of social media, however, has created fresh potential for conflict when well-connected employees quit. The question increasingly being raised is: who gets to exploit the departing worker’s online network?

So far, the case law in this area is mixed.

Litigation in the US between PhoneDog, a mobile phone review site, and one of its former employees, Noah Kravitz, was expected to be a test case last year.

Mr Kravitz had created a Twitter account, @PhoneDog_Noah, which he used to promote the company, gaining 17,000 followers in the process.

When he left the company he changed the Twitter handle to @noahkravitz but retained the 17,000 followers.

PhoneDog sued him for $340,000, putting a price of $2.50 on each Twitter follower, per month. However, the case was settled out of court and although Mr Kravitz did keep his followers, it is unclear whether he paid for them.

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