When area bankers change jobs, honor trumps non-compete handcuffs
Barbara Mahoney says Leominster Credit Union was never harmed by an employee defection.
Martin F. Connors Jr.: Agreements are tough to enforce.
Donna Russo of Digital Federal Credit Union: DCU makes an effort to ensure pay and benefits are competitive.
As senior vice president of human resources and training at Digital Federal Credit Union, (DCU) the largest credit union in Central Massachusetts, Donna Russo has the formidable task of sifting through piles of submitted resumes in search of worthy candidates to fill positions.
It's fairly easy to identify frontrunners. Those who have worked for other local lending institutions stand out, Russo said.
“Those resumes and applications always make it to the top of the pile,” Russo said, explaining that the familiarity those candidates bring with them of the local lending landscape is invaluable.
For the region's banks and credit unions, applicants such as those are very common, according to Russo and others in her field. Banking professionals have a high tendency to advance in their careers, and in a tight-knit industry in which everyone knows each other, it's easy to find new opportunities at competing institutions.
Because Marlborough-based DCU, with about 725 on its payroll, has an intensive employee-training program, Russo admits it stings when your own people leave. Usually it's because they find career-climbing opportunities at other institutions that might not come up for a long time if they were to stay.
DCU does its best to retain employees by constantly reviewing its compensation and benefits packages to make sure they're competitive, creating a workplace culture that makes the workday pleasant, and promoting from within whenever possible.
“You don't want to wait until your good ones decide to move on,” Russo said.
What happens when a bank or credit union employee, particularly one in a management position, decides to switch employers, taking with them knowledge of their former employer's pricing and strategy, as well as the loyalty of some customers?
It sounds like it could ignite a disaster. But while losing employees isn't ideal, the effects aren't usually disastrous, according to Barbara Mahoney, senior vice president of human resources at Leominster Credit Union (LCU).
No harm at LCU
Like Russo, Mahoney said lending professionals typically leave an employer after they've reached a mid- to high-level position and there are few opportunities to grow. Those are the people with the most knowledge about proprietary information, but Mahoney said LCU has never faced a situation in which the business was harmed because of a defection.
“People are very professional,” Mahoney said. “They're not going to put themselves in a position to jeopardize (their reputations). I think it's like a silent rule.”
Mahoney estimated that a banking professional will work at between three and five institutions throughout their careers. The number of job changes has increased in recent years, but she said that's true in all sectors of the economy.
There are advantages to sharing the same pool of professionals with institutions throughout the region. Mahoney said new employees already know the major players, and they arrive well trained for their new positions.
“It's just a natural fit,” Mahoney said.
But is it realistic to expect that banking managers don't use information they picked up with a former employer to their advantage at a new bank or credit union? And wouldn't that, at least indirectly, have an adverse impact on the former employer?
It might be a wash. Martin F. Connors Jr., CEO of Fitchburg-based Rollstone Bank & Trust, said customers tend to follow the bankers they're used to dealing with, that particularly in the commercial banking arena. If someone leaves, or joins Rollstone, it's a fact that some business will follow him or her.
“It happens, and it goes both ways,” Connors said. “We've had people join us from over the years from other banks, and they have clients who they've dealt with over the years who want to come with them.”
There are legal measures banks and credit unions can pursue to prevent employees from disclosing proprietary information, or working for close competitors right after leaving a job.
Russo said those measures — which include non-compete and non-disclosure agreements — are very difficult to enforce, which is why DCU doesn't typically use them. Mahoney said they're not necessary at LCU, because the commercial lending portion of the business is relatively small, compared to those at some other institutions. She said lenders with larger business portfolios tend to be more interested in non-compete agreements because losing just a couple of accounts can be devastating to the business.
Connors agreed that such agreements are difficult to enforce, which is why Rollstone doesn't employ them. Rollstone employees do sign non-disclosure agreements, Connors said, but they come with gray areas. For example, it's easy to find out who Rollstone's customers are without having inside knowledge of the bank, so it's hard to prove violations of such agreements.
Corroborating those points was attorney Richard C. Van Nostrand, a Westborough-based partner in the employment litigation group at Mirick O'Connell.
No need for non-competes?
Van Nostrand said there's been an increased appetite for non-compete agreements in the last three years, which he believes is due to growing economic activity following the Great Recession of 2007 to 2009.
But lending institutions haven't jumped on the bandwagon. Van Nostrand, whose clients include both large, national banks and smaller local institutions, said he hasn't drawn up a non-compete agreement for a lender in at least a couple of years.
They're certainly appropriate for employees of lending institutions, who make money by building business relationships in the community, Van Nostrand said. But he thinks there's something to the notion that saving face in the community that motivates people to play nicely. That's particularly true of the Greater Worcester region, he said.
“Worcester's a big, small town and reputation can be extraordinarily important, particularly in the close-knit communities, like the banking community,” Van Nostrand said.
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