UNIT NINE – ETHICS AND COMPETITION
SECTION 9A – COVENANTS NOT TO COMPETE
READING 9.1 – A PRIMER ON COVENANTS NOT TO COMPETE: ARE THEY
VALID?
Use PowerPoint Slides 322 – 324.
Answers and Key Discussion Items
1. The courts are trying to strike a balance between the need for employees to earn a living and the need
for employers to protect the infiltration of their businesses by those who then leave and take
2. The types of provisions that will work are those that are drawn narrowly and that restrict the flow of
CASE 9.2 – BOEING, LOCKHEED, AND THE DOCUMENTS
Use PowerPoint Slide 325 and 326.
Answers and Key Discussion Items
1. The engineers and managers felt pressure, both professionally and financially to win the government
contract. They felt that with some extra, magical edge they could be assured of winning the bid and
thereby eliminate the pressure they felt. There are credo points for both those who did the hiring and
2. Boeing lost the contract; Boeing was banished from a line of government bids; Boeing’s share price
suffered; government officials and others who do business with Boeing felt a breach of trust that will
3. No, some do business no matter what, but Boeing still lost business, reputation, and they are still
4. Boeing’s culture had problems with the tone-at-the-top – the behavior of the top executives sends
signals to employees. Also, a culture of “win at all costs” permeated the company. The problem was
5. a. False impression
b. Taking things that don’t belong to you
c. Organizational abuse
Compare & Contrast
This question is an excellent one for students to discuss whether private actions should be considered or
controlled by a business. One school of thought focuses on the “flight to integrity.” That is, when
shareholders catch a whiff of impropriety, they take their funds and move to another company where such
scandals are not consuming the company and taking the focus off strategy and business. Others hold to
the firm view that what’s personal is personal and what’s business is business and ne’er the twain shall
meet. Stonecipher’s conduct was a blend – his affair was private, but his affair was with another Boeing
CASE 9.3 – STARWOOD, HILTON, AND THE SUSPICIOUSLY SIMILAR NEW HOTEL
DESIGNS
Use PowerPoint Slides 327 and 328.
Legal Issues
Be sure to review the Primer (Reading 9.1) with the students before tackling this case.
Answers and Key Discussion Items
1. Taking things that don’t belong to you; taking unfair advantage.
2. The language is more that of nondisclosure of confidential information than a covenant not to
compete, something that makes it easier for the courts to enforce, even in California. The covenant is
also very specific about the types of information that cannot be shared. The term “design plans” is
included so it looks as if the covenant covers what the employees did. They can go to work for a
competitor, but they may not take design plans with them. The case is still in litigation but the
3. I would never take something that did not belong to me. I would never use material that someone
else had developed without compensation or attribution. I would never allow someone to take credit
“Fair play” is what antitrust laws and enforcement of covenants not to compete try to accomplish. If you
are ahead because you have superior skill, foresight, and industry, i.e., a better mousetrap, then you have