HR Ignorance Imperils Startups

Leaders of optical networking startups are, as a rule, a driven, single-minded bunch, focused intently on developing highly sophisticated products.

But in one key area, they may be asleep at the switch.

Lawyers and human resources (HR) firms are raising red flags about the lack of attention to HR that reigns in all kinds of hi-tech startups. For instance, EmployeeMatters Inc., an outsourcer specializing in personnel administration on the Web, says it sponsored a survey of 200 Internet startup senior executives (including 162 CEOs) and found most don't know or care about HR.

According to the firm, 51 percent of the execs interviewed said they don't have anyone on staff dedicated to HR; 71 percent won't be hiring an HR person; 41 percent rely on their own advice and judgment in HR matters; and over half don't have any written employee guidelines for sexual harassment and other government-mandated policies

EmployeeMatters says winging it in matters of hiring and firing and disregarding the need for clearly stated policies can have dire consequences for startups -- including losing the business through expensive litigation. Of course, it could be argued that EmployeeMatters would say that, given its core business.

But other experts say the firm isn't exaggerating the trouble. Fram Virjee, a partner in the Los Angeles law firm of O'Melveny & Myers LLP who specializes in employment and labor issues, says startups are notoriously at risk for all kinds of labor-related litigation. "They're getting into a lot of trouble," he says. Problems come from slapdash employment contracts, nonexistent or incomplete intellectual property agreements, and non-compete clauses that can't be upheld in court. Another source of trouble comes from seeking out and hiring help from would-be competitors -- a tack that can attract unwanted attention from competitors with deep pockets (see Vendor Lawsuits Get Personal ).

Startups also can get caught out in relatively innocuous ways, he suggests. For example, asking a job applicant something like "Does your family mind if you relocate?" can be a time bomb, since a subsequent offer or refusal of employment may appear to be based on a candidate's family situation or marital status -- opening the company to discrimination suits.

Predictably, Virjee suggests startups get help from a good lawyer up front -- one who really understands employment law. But he scoffs at any hint that he's hyping the problem in his own interest. "Just today, I reviewed cases for ten different startups," he maintains. "They included a couple of sexual harassment cases, a senior executive compensation case, a couple of gender discrimination cases... No, it's not a made-up problem. What do you think I'm a lawyer for?"

Some startups, however, claim that avoiding trouble doesn't always require hiring more lawyers or specialized HR help. Paul Harrison, VP of marketing for Xtera Communications Inc., a startup in long-haul DWDM (see Xtera Communications Inc.), says that good recruiters are key to staying on the right track. "Folk who work at startups have fire in the belly and don't need or want to be encumbered with complicated HR... That's why they left big companies," he says. "If you get a really good recruiter who understands the business and the law, and you pay them well in stock options, that person can help you establish and build a good team," he says.

But other optical startups are hedging their bets. "You can never compete with big companies if you don't put in good systems early on," says Phil Hughes, founder and VP of program management at Brightlink Networks Inc., a startup in the metro space. Brightlink has a full-time VP of human resources and has already educated its staff about the laws on discrimination and sexual harassment. It also advertises widely for positions, ensuring there won't be any hint of having commandeered employees from a competitor. "It's vital for us to be transparent with regard to financials and relationships," Hughes says. "We're planning big, and we want to think like a large organization from the start."

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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