A cautionary tale for every CEO who believes in handshakes and good vibes.
Sometimes as business owners we are victims of trusting the wrong people. If you have ever shared your client list, your process, or the inner-workings of your business in a context that you thought was “confidential”, you’re gonna want to read this blog post. This is the story of an executive coaching program gone wrong.
So What Happened?
This is the story of Direct List LLC v. Vistage International, Inc. Direct List is a direct marketing company that specializes in lead generation, email marketing, direct mail, and data processing. Vistage International offers executive-level business coaching. One of the main selling points of the coaching program was that everything would be confidential.
Direct List’s CEO, Eran Salu, was paired with Vistage Coach Phil Kessler in 2011. At the time, Salu was paying around $1,300 per month for the Vistage program. For the next three years, Salu shared confidential business information and trade secrets about his business with Kessler, all in the context of the confidential executive coaching program.
To add another layer, Kessler apparently liked what he heard and hired Salu for his own marketing needs. Before long, Direct List was hired by Vistage itself and other individual Vistage coaches to assist with their marketing.
Noticing Salu’s success, in 2013 Kessler asked for a 10% cut of Salu’s profits from the work that Direct List was doing for Vistage. Kessler argued that he was entitled to a cut since he made the introductions. Salu maintained that Kessler was simply doing his job as a business coach and therefore wasn’t entitled to a cut. Kessler backed down.
Two years later, in 2015, Salu had to leave the Vistage coaching program because he was relocating to another state. Three months later, Salu’s entire direct marketing team quit. Salu later discovered that at least one of his former employees was working for a new company called AVS Leads, which is owned by none other than Phil Kessler - his old business coach.
Salu was left with one devastating conclusion: Kessler was using the trade secrets and proprietary business information that Salu had shared over the years to run a directly competing business and to poach his employees. It was a one-two punch to Direct List. Salu tried to turn to Vistage for help, but they said it was none of their concern. In the end, Salu was forced to sue.
A good business coach can be an invaluable partner. A bad one can be devastating, especially if such a person can gets hold of your trade secrets and proprietary business information. This case illustrates why the US has trade secret protection laws and why contracts often contain long confidentiality clauses. One thing that CEOs need to remember is that trade secrets must remain confidential in order to receive legal protection. If the trade secret is disclosed to the public (or to an unscrupulous business coach) it may lose eligibility for legal protection.
How to Spot Red Flags
So what can a CEO do to protect herself? Look for red flags. There were several red flags in this situation that you can look out for in your own business relationships.
1. Conflicts of Interest
Red flag number one is lack of respect for conflicts of interest. In this case, Kessler hired Salu to perform marketing services for him. This means that at one point, Salu’s business coach was also his client. While that may not be a conflict of interest per se, these kinds of arrangements should raise questions. Good business relationships respect conflicts of interest and create appropriate boundaries to protect everyone involved.
2. Inappropriate requests for money
Red flag number two is inappropriate requests for money. Two years into their relationship, Kessler asked for a 10% cut of Salu’s profits from the Vistage client work. Basically, he wanted to come back after-the-fact and collect a 10% referral fee. Out-of-the-blue requests for money are a red flag. While referral fees are perfectly valid in the right context, such arrangements typically involved a contract signed in advance. After-the-fact financial requests are often a warning sign of things to come.
3. Too Much Information
The third red flag is when someone is asking for more information than is necessary to do their job. To be sure, someone like a business coach is going to need some information about your business in order to help you. However, they probably don’t need to know who your clients are, which employees are the highest performers, or anything else that is confidential or proprietary. If someone is pressing for specific details that aren’t really necessary for them to do their job, that is a red flag.
No one said that being a CEO was easy. As leaders of our companies, we have to make judgement calls on who to trust. Hopefully this blog posts provides some helpful guidance along the way.
Thanks for reading the Bevel Law Blog! While this information is hopefully helpful to you, nothing in this blog is intended to be legal advice. Always consult a lawyer before making any legal decisions based on topics in this blog.
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