Whether waxing poetic about net neutrality or defending the merits of outsourcing, Silicon Valley execs love to talk about how a free market breeds innovation. So it might come as a surprise that some of those execs were engaged in a secret pact not to recruit one another's employees—in other words, to game the labor market. The potentially illegal deals suppressed salaries across the sector by a whopping $3 billion, claims a class-action lawsuit scheduled for a May trial in San Jose, and were done to juice the bottom lines of some of the nation's most profitable companies.
"I don't want to create a paper trail over which we can be sued later?" Google's Eric Schmidt wrote in an email.
Documents filed in conjunction with the litigation, first reported last month by PandoDaily's Mark Ames, offer a fascinating behind-the-scenes glimpse of interactions among the likes of Apple's Steve Jobs, Google's Eric Schmidt, and Intuit Chairman Bill Campbell. In early 2005, the documents show, Campbell brokered an anti-recruitment pact between Jobs and Schmidt, confirming to Jobs in an email that "Schmidt got directly involved and firmly stopped all efforts to recruit anyone from Apple." On the day of that email, Apple's head of human resources ordered her staff to "please add Google to your 'hands off' list." Likewise, Google's recruiting director was asked to create a formal "Do Not Cold Call List" of companies with which it had "special agreements" not to compete for employees.
A few months later, Schmidt instructed a fellow exec not to discuss the no-call list other than "verbally," he wrote in an email, "since I don't want to create a paper trail over which we can be sued later?"
Eric Schmidt Google
Good luck with that. The "no poaching policies," as they were known among senior-level executives at companies such as Adobe, Intel, Intuit, and Pixar, were first exposed by a 2010 antitrust lawsuit filed by the Department of Justice. The DOJ complaint is the basis for the current class action, which was filed in 2011 by the San Francisco law firm Lieff Cabraser Heimann & Bernstein, alleging that some 64,000 tech workers were harmed.
The case, interestingly, has garnered little attention outside of the tech world. Sure, the average middle-class worker probably won't shed a tear for the most likely victim here: Silicon Valley code jockeys and junior execs banking six-figure salaries and perhaps million-dollar stock options. The Bay Area, after all, is recently ablaze with animosity over tech-fueled gentrification and income inequality. And yet the collusion of CEOs to artificially suppress high-end salaries speaks to an economic malaise that affects every working stiff: The widening gap between the rich and poor isn't some accident of free-market capitalism, but the product of a system that puts corporate leaders and their shareholders ahead of everyone else.
"I'm sure you realize the asymmetry in financial resources of our respective companies," Steve Jobs emailed Palm's then-CEO.
The lawsuit describes the rapid spread of anti-recruitment pacts between 2004 and 2007—arrangements perhaps facilitated by the overlap on Silicon Valley's corporate boards: Jobs, who became Disney's largest shareholder after it bought Pixar, served on Disney's board until his death in 2011. Schmidt sat on Apple's board until 2009, and Intuit's Campbell (a former Schmidt adviser) still does. Intel CEO Paul Otellini has held a seat on Google's board since 2004. Such close ties have long been seen as a problem for shareholders, but the nonrecruitment pacts suggest that such cozy relationships could harm workers, too.
Steve Jobs, according to unsealed court documents obtained by Mother Jones, was a leading advocate and enforcer of the nonrecruitment pacts. Two months after entering into the agreement with Google, he emailed Bruce Chizen, then Adobe's CEO, complaining that Adobe was poaching Apple employees. Chizen's reply, that he thought they'd agreed only to avoid "senior level employees," didn't satisfy Jobs. "OK, I'll tell our recruiters that they are free to approach any Adobe employee who is not Sr. Director or VP," he shot back. "Am I understanding your position correctly?"
Chizen responded that he would rather the arrangement apply to all employees:
The next day, Adobe's vice president of human resources announced to her recruiting team that "Bruce and Steve Jobs have an agreement that we not solicit ANY Apple employees, and vice versa."
In one instance*, Jobs allegedly played hardball with a reluctant CEO. In mid-2007, he called Edward Colligan, then president and CEO of Palm, to propose "an arrangement between Palm and Apple by which neither company would hire the other's employees," Colligan testified in a sworn deposition. When he refused, citing the deal's possible illegality, Jobs threatened to sue Palm for patent infringement. "I'm sure you realize the asymmetry in financial resources of our respective companies…" he wrote Colligan in a follow-up email. "My advice is to take a look at your patent portfolio before you make a final decision here."
The Valley's hush-hush wage-control policies have been in play at least since the 1980s, soon after Jobs bought Lucasfilm's "computer graphics division" and renamed it Pixar. As George Lucas later put it in a deposition, firms in the digital-filmmaking realm "could not get into a bidding war with other companies because we don't have the margins for that sort of thing." Lucas and Pixar's then-president, Edward Catmull, made the following agreement, according to the lawsuit:
(1) not to cold call each other's employees; (2) to notify each other when making an offer to an employee of the other company even if that employee applied for a job on his or her own initiative; and (3) that any offer would be "final" and would not be improved in response to a counter-offer by the employee's current employer (whether Lucasfilm or Pixar).
After its purchase by Disney in 2006, Pixar made the same "gentleman's agreement" with Apple, according to unsealed emails from the lawsuit. (Last year, Pixar, Lucasfilm, and Intuit settled their part of the class-action lawsuit for an undisclosed sum in a deal that allows the affected employees to file anonymous claims.)
There's "no evidence that our policy hindered hiring or affected wages," a Google attorney wrote.
In its earlier antitrust suit, the DOJ argued that the Valley's no-poaching agreements were patently illegal—clear violations of the Sherman Antitrust Act's ban on restraining interstate commerce. In 2011, without admitting fault or paying fines, Google, Apple, and four other tech firms settled with the DOJ and agreed to discontinue their anti-competitive behavior.
Representatives for Apple and Google declined to comment for this story, but Google argued at the time that its pacts hadn't hurt workers. There's "no evidence that our policy hindered hiring or affected wages," a Google attorney wrote on the company's public-policy blog. But "we abandoned our 'no cold calling' policy in late 2009 once the Justice Department raised concerns, and are happy to continue with this approach as part of the settlement."
Whether and how the pacts truly affected wages is at the heart of the ongoing suit, which is slated for trial May 27. The defendant firms insist that their employees' salaries weren't widely suppressed because they were based on a "pay for performance" model. That is, workers got raises based on their accomplishments, not on what their coworkers earned.
Tom Perkins, cofounder of the storied Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers, could have used a forum at San Francisco's Commonwealth Club to row back from his much-maligned comments comparing the treatment of America's wealthy by the left to that of Jews under the Nazis. Instead, the man who provided seed money for Amazon and Google doubled down, telling the audience that "I think the parallel holds."
It was hardly the only bombshell Perkins dropped during a Q&A with Fortune's Adam Lashinsky, provocatively entitled, "The War on the 1%." Asked to offer one idea that could change the world, Perkins proposed a change to Americans' voting rights: "You don't get to vote unless you pay $1 in taxes…If you pay $1 million in taxes, you should get a million votes. How's that?" (In an interview after the forum, Perkins said he was simply "trying to be outrageous.")
Remember the SOPA blackout? The 2012 protest against the expansion of online copyright enforcement was pretty hard to ignore, with Google and other major sites blacking out their homepage logos or going offline entirely.
Yesterday's "The Day We Fight Back" protest against NSA surveillance was supposed to have been similarly huge, but unless you follow this sort of thing closely, you might have missed it. It was covered lightly in the press, and only briefly trended on Twitter. Given how much Edward Snowden's revelations have supposedly insulted the sensibilities and threatened the profits of Silicon Valley, the "we" in "The Day We Fight Back" has proved surprisingly small.
It's not such a huge leap from protesting NSA spying to protesting the practices of private data-miners.
This is not to say the NSA protest didn't get any attention: It generated 350,000 Facebook shares, some 75,000 phone calls and 150,000 emails to Congress, and 215,000 signatures on an online petition. Yet that can't touch the impact of the protest against Stop Online Piracy Act—the largest protest in the short history of the internet. The SOPA campaign took off because "people find it much easier to rally around a specific 'ask'" such as killing SOPA, says Adi Kamdar, an activist with the Electronic Frontier Foundation, which helped organize yesterday's protest—"a much broader ask and a much more nuanced ask."
Yet the anti-NSA action might have gone viral had major tech companies put their weight behind it. While the Reform Government Surveillance Coalition (which includes Twitter, Facebook, and Microsoft) endorsed the protest, and Google and Twitter issued supportive statements, you wouldn't have known it from their homepages.
The reluctance of Big Tech to ally too publicly with NSA critics reflects the complexity and geopolitical sensitivity of surveillance in the digital age. On one hand, American tech companies need to side with the privacy advocates to reassure their users—especially noncitizen users—that their data isn't simply being handed over to the feds. On the other, appearing too anti-establishment could make them look unpatriotic, jeopardize government contracts, and hurt their other legislative priorities, such as immigration and tax reform.
And then there's the question of whether Silicon Valley really wants to stoke the fires of indignation about online privacy. It's not such a huge leap from protesting the collection of personal data by government spies to protesting similar practices by private data-miners and online advertisers.
The SOPA blackout represented the perfect storm of consumer indignation and corporate self-interest. People wanted to upload and view songs and movies without getting thrown in jail and the owners of file-sharing sites such as Facebook and YouTube wanted to keep selling ads based on all of those uploads and page views. The NSA battle is different: A creeping police state could be a much more serious threat, but it's also much harder to figure out how it would affect surfing the Net, or the strength of the next quarterly earnings report.
Latest update (7/10/14): On Monday, Gov. Andrew Cuomo signed the Compassionate Care Act, making New York the 23rd state to legalize medical marijuana, albeit only in nonsmokable forms such as pills, oils, or vapors.
Colorado and Washington were just the start. The movement to end the prohibition of pot is catching fire, with legalization bills and ballot measures now being discussed in 19 states and the District of Columbia. Marijuana activists predict that recreational pot smoking will become legal this year in Alaska, Oregon, and quite possibly Rhode Island, which could be the first state to take the leap by a vote of its legislature. But that's not all: 24 states are looking at creating or expanding medical-marijuana programs, or are vastly scaling back penalties for small-time possession. With a slew of polls now showing that most Americans think pot should be taxed and regulated like alcohol, it's probably only a matter of time before legalization sweeps the nation.
During last week's State of the Union address, President Obama offered the usual bromides about giving every citizen a fair shake. "Here in America," he said, "our success should not depend on accident of birth, but the strength of our work ethic and the scope of our dreams....It's how the son of a barkeep is the Speaker of the House, how the son of a single mom can be president of the greatest nation on Earth."
"The data suggest that more than half your overall lifetime status is predictable at the point you are conceived."
Few goals earn more rhetorical points in DC than defending America's status as the land of upward mobility. In his public speeches, President Obama has begun using equality of opportunity language as a replacement for "income inequality," a term more freighted with class conflict. But maybe that's not such a good idea. Gregory Clark, a Scottish-born economic historian at the University of California-Davis, argues that our identity as a nation of bootstrappers is largely a myth.
In The Son Also Rises, which publishes later this month, Clark argues that researchers have vastly underestimated how hard it has been—and how hard it remains—for someone born into a low-status situation to ascend the social ranks. His results come from tracking the historical incidence of surnames across generations of tax rolls, university enrollment logs, and professional society membership lists in various countries. I called Clark to talk about his findings and the new book, which veers into areas of academic inquiry that some readers may find a bit uncomfortable.
Mother Jones: How much of a consensus is there among economists that any American can go from rags to riches?
Gregory Clark: Conventional studies suggest that we live in highly mobile societies: Within two or three generations, your family history is really not going to matter.
MJ: And those findings have been used to justify a kind of callousness: Why bother helping people if anybody can be successful, so long as they try hard enough?
MJ: But your results are at odds with that.
GC: What I find is that the actual underlying rates of social mobility are much smaller than all these studies find. There's a very high correlation of status across generations. The data suggest that more than half your overall lifetime status is predictable at the point you are conceived. And that number is just as big in Sweden, and just as big in medieval England. We have not in modern high-income, public-education, open-access societies actually managed to increase the rate of social mobility above what it was in preindustrial society.
MJ: That's an amazing finding. Explain how you came to it.
GC: We look, for example, at the rich people in the 1920s who had rare surnames—names like Guggenheim or Roosevelt—and just track the average status of those surnames 80 or 90 years later.
MJ: How do you measure status?
"We can ask, 'What are the names that are showing up in that elite, and how persistent is their appearance in this elite?'"
GC: I have a number of different measures for different societies. So for England, where we have some of the best data, we know everyone who went to Oxford and Cambridge from 1200 to the present. That tells us who the educational elite were in England over 800 years, and then we can ask, "What are the names that are showing up in that elite, and how persistent is their appearance in this elite?"
MJ: Why are your results so different than those of previous studies?
GC: The existing studies look at something like your income relative to your father's income. But income is just one aspect of your social status. I know someone who lives in San Francisco who has an undergraduate degree from Northwestern and a graduate degree from Stanford Law School whose current income would be approximately zero, and has been for the last 10 years. He has devoted himself to the study of Buddhism and he mainly lives on the income of his partner. So measured in terms of income he would show up as exhibiting drastic downward mobility. But his true social status hasn't changed in that way.
There's a lot of froth and instability in measures like income, and there is a deeper underlying stability to people's social status. Looking at not only income but also education, wealth, health, longevity, you actually find that these things are changing much more slowly. If you have a rich father and your income falls a lot, we can predict that your children will likely move back up the income ranks. People know this from their own families—they see much more stability in terms of social status than these studies would suggest.
With adopted children, "the majority of the outcome is actually predicted from the family of their birth."
MJ: You've found, surprisingly, that access to wealth and education is not all that important as a determinant of status. Will you offer an example?
GC: Take England in the 19th century, where the only two universities were Oxford and Cambridge. To get admitted, you typically went to an elite private grammar school and you also had to attend Church of England services. We find that there is a very strong persistence of elite families at the universities. In recent years, the universities have tried to become more meritocratic and more democratic: They admit students based on performance on national exams. They don't give any privilege to the fact that your parents went there. And public financing for tuition is now available. But what we find is that elite families persist at Oxford and Cambridge at the same rate as they did in the 19th century. It hasn't managed to change the rate of social mobility.
Princeton University Press
MJ: But why not? Is it simply that wealthy families can afford to train their children to score better on entrance exams?
GC: Some of that we contest, because we can look at what happens to children who are adopted into other families who often come from less elite backgrounds. What we find is that the adopting family can have some influence on the outcomes for these children, but the majority of the outcome is actually predicted from the family of their birth, and not the family they were adopted into.
MJ: So are you saying that genetics, not just culture, contribute to a person's ultimate status?
GC: We know that both must play a role. I don't have data that can clearly sort these two things, but the nature of the inheritance that we observe is always consistent with genetics being the major source of these advantages.
MJ: But if you followed that logic, wouldn't it imply that certain ethnic groups are smarter or more capable than others?
GC: There is no evidence of any racial differences in average ability in any of the data that I have. If you look at ethnic groups who occur as doctors at more than average frequency within American society, they are mostly non-white—black Africans, black Haitians, Egyptian Copts, Iranian Muslims, Hindus, Chinese, Filipinos. The evidence is that any group can, under the right circumstances, become elite—or become an underclass group in a society.
MJ: You had some interesting examples about how these "elite" groups are created.
"If your surname is Jewish, you are about six times as likely to be a medical doctor as the average person."
GC: In Muslim Egypt, the high-status community is the Copts, who are Christians. Once Egypt was invaded from Arabia, the Copts didn't have to become Muslims, but if they remained Christians they had to pay a head tax. Essentially, all of the poor Christians preferred to convert and avoid the tax. The high-status Copts stayed and have remained high status to this day. Similarly, there's good evidence that the modern Jewish population became a high-status group by 90 percent of the population converting to Christianity, with the converts being the lower end of the distribution.
MJ: Your book also discusses how Coptic and Jewish surnames are associated with high status in the United States.
GC: The American Medical Association has a record of about a million doctors. If your surname is Jewish, you are about six times as likely to be a medical doctor as the average person. But it turns out that the most elite group by that measure are the Egyptian Copts. They are something like 18 times more likely to be a doctor than the average American.
MJ: You're courting controversy, especially when you turn to explaining the persistence of disadvantage among groups such as the Roma or black Americans. The Economist accuses your book of "trafficking in genetic determinism" by being too quick to write off the impacts of social reforms. The Civil Rights Act is only 50 years old, after all.
"Social status is just as persistent in Sweden—where there isn't a huge income gain from being at the top of the ranking—as it is somewhere like the United States."
GC: But even when you look at a society like Sweden, which has undertaken many of these programs for many, many years, you find very little ability to actually change that rate of social mobility very much. In Sweden, however, the disadvantages from being in the bottom 10 percent of the social spectrum have been very significantly reduced compared to the United States.
MJ: If this is all true, it might lead to some interesting conclusions: Don't worry about funding scholarships at Harvard because it won't change social mobility very much. Instead, focus on social services and increasing the minimum wage.
GC: I think it's an argument for saying we should limit income inequality, because, also, we don't think high wages are playing that much of an incentive role in determining what people do with their lives. Social status is just as persistent in Sweden—where there isn't a huge income gain from being at the top of the ranking—as it is somewhere like the United States. So there is absolutely no reason to accept whatever the market spits out as the income distribution. We can decide what the income distribution should be.
MJ: That might be a hard sell in Washington.
GC: Look at it this way: I'm five-foot-seven. No one is going to believe that I have any possibility of making it in the NBA. But for some reason, in these other aspects of life we somehow think that everything should be possible for people. I think maybe it's part of how we have to feel about the world in order to make our own way though it.
MJ: Of course, on an individual level, going from rags to riches is possible.
GC: Yes, and in the long run, everyone is the same. But it's a long run. We find that 90 percent of the elites in a society are coming from people who are just slightly below that level. Very, very few are being drawn from families who fall way down the distribution. These transitions are good stuff for magazines and inspirational presidential speeches, but their frequency in real social life is quite, quite limited. The current differences in status will persist for hundreds of years. There will not be equality for Latinos and blacks within your lifetime or the lifetime of your children, your grandchildren, or your great grandchildren, if this data is correct. What's happened in England is that the medieval elite are now finally average. But that process took 300 to 400 years.