Q Case Discussion 27: Bimbo Bakeries Thomas’ English muffins are a popular brand produced by Bimbo Bakeries USA, the American division of a Mexican company called Grupo Bimbo. The muffins contain small air pockets that Bimbo markets as “nooks and crannies” and that are produced by a method that is a closely guarded trade secret. As of 2010, only 7 people knew the secret, one of whom was the 56-year-old vice president in charge of bakery operations in California (henceforth “the VP”), who had 8 years of experience at Bimbo and nearly 40 in the industry. Early in 2010, the VP (whose Bimbo salary was $250,000) accepted a job with a $200,000 salary at Hostess Brands, a competing company that had previously tried to learn the secret, while apparently allowing his Bimbo co-workers to believe he was retiring. When Bimbo learned the truth, it obtained a federal court order barring the VP’s move to Hostess. The VP claimed that he was leaving Bimbo because he had grown unhappy in his job in the wake of a broad cost-cutting drive that involved plant closing and layoffs. To protect the nooks-and-crannies trade secret, Bimbo compartmentalized the information to prevent leaks. The secret was split into several pieces including the basic recipe, the moisture level of the batter, the equipment used, the baking method, temperature, etc. Many employees possessed some of these pieces of information, but only 7 (including the VP) possessed all of the knowledge needed to produce a finished product. Most workers had only the information directly relevant to their assigned task. In exchange for gaining access to the full secret, Bimbo made the VP sign a confidentiality agreement barring him from revealing company secrets, but it did not prohibit him from leaving Bimbo to work for a competitor. The VP did not join Hostess right away after receiving the job offer late in 2009, instead delaying the start date until January 2010 so as to collect the year-end Bimbo bonus. In the meantime, he continued to attend meetings at Bimbo and receive documents where confidential company information was discussed, while informing no one at Bimbo of his impending departure. The VP gave two weeks’ notice in early January 2010, but Bimbo executives learned of his plan to move to Hostess just days before his scheduled departure, and confronted him by phone. Minutes after that conversation, the VP apparently used his laptop to access a dozen company files containing confidential information, copying them to a flash drive. Bimbo’s lawyers alleged that a search of the company’s computer records revealed other activities in the preceding weeks suggesting that the VP had copied sensitive files. The VP claimed that the downloads were merely efforts to practice his computer skills in preparation for the new job. Bimbo also claimed that the VP had access to many more company secrets that were at risk of being shared with Hostess, including sales and production plans, labor agreements, and key financial information. A federal judge barred the VP from moving to Hostess, stating that his behavior demonstrated “an intention to use Bimbo’s trade secrets during his intended employment with Hostess.” Hostess claimed that it sought to hire the VP “for his vast experience in our industry, not for any particular technology” and that the agreement that the VP signed with Hostess required that he not reveal Bimbo’s trade secrets. During the legal wrangling over the case and its appeal, Hostess withdrew the VP’s job offer on the grounds that the company needed to move on. 1. Describe the skills that the VP has likely acquired during his time in the industry and at Bimbo. In particular, which are likely to be more “specific” (and what is the nature of that specificity, i.e., firm-specific, industry-specific, etc.?) and which are likely to be more general? How portable are these skills? How would you describe the “nooks and crannies trade secret” in terms of its specificity and portability? 2. Based on the information provided, comment on the pay difference between Bimbo and Hostess? What factors do you think are driving it? Is it consistent with the description of the VP’s skills that you provided in #1? 3. Suppose that you’re the Bimbo executive who hired and supervises the VP. What strategies would you have recommended at the time the VP was hired to reduce the likelihood that he would one day depart (with sensitive information in hand) for a competitor like Hostess? 4. Some bakery experts dispute Bimbo’s claim that the method for creating nooks-and crannies truly involves a top-secret process. They say that it’s more about smart product branding than proprietary baking; in short, English muffin dough is very watery, and when it is cooked at high heat the water evaporates quickly and leaves large air pockets behind. Other baking industry consultants disagree and say it’s not so simple and that it is hard to get nooks and crannies consistently, every time, which lends credence to Bimbo’s claim of a valuable trade secret. Which argument sounds more plausible based on the information provided, and why? Do the two arguments have different implications for how the compensation should ideally be designed for people like the VP? Explain. 5. Suppose that several months after the legal wrangling ends, the relationship sours between the VP and Bimbo, and the VP eventually leaves the company. Shortly thereafter, the VP sues Bimbo for “constructive discharge” after having blocked the VP’s employment at Hostess. The VP seeks monetary damages because of lost compensation. a. Suppose that you are a compensation consultant hired as an expert witness by the VP’s legal team to compute the appropriate damages. Explain how you would do this. Keep in mind that the court will choose either your number or the number that Bimbo’s team provide … it will not choose anything in between. b. Suppose instead that you are the compensation consultant hired as an expert witness by Bimbo’s legal team to criticize the figure that was produced by the VP’s team and to compute an alternative figure for the damages. Explain how you would do this. Keep in mind the court will choose one of two numbers … the on you provide, or the one you provided in part a). Note: This case is based on an article published in The New York Times by William Neuman: “A Man With Muffin Secrets, but No Job With Them” (August 6, 2010).