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Should a Small Consulting Firm Work with Two Clients From the Same Field?

DILEMMA

About a year ago I started a small consulting company with a few colleagues who had left a very large company. We focus on market segment development in a particular industry segment. The strength we bring to our trade is in-depth knowledge of both marketing and the technologies of the particular industry segment.

After a slow start last year, we created an analysis for a client that was particularly successful for them. We received very high marks for the type of analysis we did, and word got around about what we had done. One of our client’s competitors approached us to do a similar analysis for them. We are not yet overcommitted in our business, and frankly need the work. Our knowledge of the technologies of the market segment makes it less likely we would be as successful with a client that was outside the industry.

We would be careful not to leak any competitor data to the new customer. If we were in a large company, we would make sure that no one who worked on the first engagement, worked with the second customer, but we have only five employees and we all worked on the first project. We did not sign any agreements not to work with a competitor.

On the other hand, we are concerned about a potential ethical issue here. What is your advice?

Founder and President
A fledgling West Coast consulting company

RESPONSE

Having worked on consulting projects (in which non-compete agreements were signed), I can understand your dilemma. Working for direct competitors is tricky and presents all sorts of scenarios for conflicts of interest, particularly if the work is knowledge based. Since your organization is small and you cannot segregate personnel by project, engagement team members may be forced to artificially divide their brains, which is of course impossible to do.

Therefore you must carefully weigh the nature of the work. Is it truly possible to avoid disclosing anything your first client has a legitimate right in not wanting a competitor to know? It is also important to note that law should not be a substitute for ethics, so the lack of a non-compete agreement cannot be the final word. However, it may be indicative of several things: (1) your client’s trust in you, (2) carelessness, and/or (3) the relative lack of priority given to secrecy by your initial client.

If the case involves one of the first two scenarios, then I think it is best to find other clients. You’ve probably worked hard to acquire a good name, which in the long run may be worth more than the prospective client. If it is the third scenario, then it is safer to proceed.

Kenman Wong
Professor of Ethics, School of Business and Economics
Seattle Pacific University

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