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I'm suddenly facing a bit of an ethical dilemma. To give background:

The company I currently work for, let's call it AppCorp, currently has a client, let's call him Bill, who has built and launched a small social networking product. We inherited this project when he switched consultancies, and we are now maintaining it.

Our maintenance team works by having clients buy chunks of hours at a time ("maintenance retainers"). Bill has been renewing his maintenance retainers for the last few cycles, and he's an absolutely fantastic client. Likely the best that has ever come through this place – he is humble, patient, kind, and knows what he wants his product to be but doesn't dictate how to get there.

Today, Bill sent me a private text message that I'll summarize below:

  • The app has raised $750k, so it's relatively good in terms of capital
  • Operational costs are getting too high, so I won't be renewing my maintenance retainer.
  • I'm offering you 5% of the company to be a CTO in your free time, with you only doing maintenance and not adding features or doing anything too complex.
  • I plan on telling AppCorp all of this later in the week, but I wanted you to have an early heads-up.

This causes a list of problems in my head:

  1. There is no written agreement that I won't tell my boss about the fact that he won't be renewing his retainer (i.e., I responded to his text and said "don't worry, I'll keep it on the DL until you tell him"). I know for a fact that my boss is assuming this retainer will get renewed.
  2. He's asking me for free labor in exchange for equity, in my free time. This seems a little unusual. It doesn't technically violate my employment agreement, but it feels very under-the-table and I'm not sure if my bosses would find it acceptable to continue employing me.

So, should I tell my boss, even though Bill will tell him in a few days anyway? I'm afraid that he won't understand my predicament. I don't want to screw either of them, but if I tell my boss, then I'm screwing Bill. If I don't tell my boss, I'm (in a very small way) screwing AppCorp.

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    "It doesn't technically violate my employment agreement" - Confused about this. Typically, most companies would force you to sign a non-compete clause that I'm fairly certain would cover, what they'll see as, poaching the project maintenance from the company to you. – user17163 Oct 17 '16 at 16:03
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    @Thebluefish I updated my question – I just mean that there's a text message of me agreeing not to tell my boss. I made it sound way too formal. – Johnathan Wagner Oct 17 '16 at 17:10
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    5% isn't enough, so it's a bad deal and the rest is moot. – Kilisi Oct 17 '16 at 20:37
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    Both your contract with your company, and AppCorp's with your company, presumably specify or limit moonlighting and hireaway by client, limits, disclosure, conflict-of-interest, etc. What specifically do they say? (Even if they don't, your boss would be unhappy with you undercutting your company.) – smci Oct 17 '16 at 23:25
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    Hope you're not using your real name here coz it could be traced back to you and cause trouble. – user1306322 Oct 18 '16 at 12:40
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So, should I tell my boss, even though Bill will tell him in a few days anyway?

No.

...if I tell my boss, then I'm screwing Bill.

Yes, you would be.

If I don't tell my boss, I'm (in a very small way) screwing AppCorp.

No, you wouldn't be. Because of the timing involved and the fact that there aren't any crazy, illegal or unprofessional activities taking place or being planned, you have no ethical or professional obligation to disclose this news. Bill has made a business decision (not renewing his contract) and after that he'll have a follow-up business opportunity that he would like to propose to you. Because of the relationships involved, the right thing to do is for him to propose that offer to your employer first. It's his job to tell your employer and he gets to control how he breaks the news. Because of that you even have a small ethical obligation not to disclose the news because you should give Bill the opportunity to handle the communication with your employer.

Bill gave you advance notice as a courtesy so you wouldn't find out from your current employer but he's not expecting anything else from you right now, beyond considering whether you'd be open to such an arrangement. He's also not doing anything unprofessional or unethical here. If he was suggesting hiring you and asking you to keep quiet to your employer, that would be highly unethical. But even then, you still wouldn't be ethically obligated to disclose the offer to your employer. In that case you would just politely decline the offer and, if you were interested, you could tell him that you require approval from your employer so everything should all be done above board.

Now, given the dynamics here, it is incredibly unlikely that your employer would approve, so I frankly wouldn't worry about this further. Your employer will most likely and understandably see this as a clear conflict of interest. If they don't, then it's up to you to consider the details of the offer, but that's an entirely different topic. I will say that arrangements like this require highly professional conduct and clearly defined boundaries from all parties involved: Bill, you and your employer. It can be done well but it can easily go wrong. It's also dangerous to get a static percentage equity for an unspecified and unpredictable amount of work.

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    Please expand your first No answer. Provide reasons why telling your boss is a bad idea. IE The customer could change his mind and keep the contract,... – IDrinkandIKnowThings Oct 17 '16 at 16:24
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    @IDrinkandIKnowThings Isn't that what the rest of the answer is for? The first paragraphs are part of a unit. It's a bad idea to "tattle" because OP has no ethical obligation to do so and a small obligation to allow the client to control the messaging in this situation. Regardless, I've made some edits to clarify some points. – Lilienthal Oct 17 '16 at 16:54
  • I read that as explaining the Dont tell my boss part. That or just get rid of the quotes from the OP all together then it would read as a coherent answer. – IDrinkandIKnowThings Oct 17 '16 at 18:27
  • "Yes, you would be." -- in my view, though, Bill would be screwed over as a result of a mistake that he himself made. He informed an employee of a company that he planned not to renew his contract with that company. He has no reasonable expectation of this being kept from other people in the company. So in my view the "no" should be taken as "don't go out of your way to tell your boss", not "defend this secret as a holy trust", but others' opinions might vary as to what the questioner owes Bill. – Steve Jessop Oct 17 '16 at 23:38
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    @SteveJessop Yes, that's a good point. I didn't address it because it's unlikely that the boss will ask if OP knew about this already but if he does OP definitely shouldn't lie. A matter of fact response would be appropriate, some variation on: "Bill gave me a heads-up that he'd be discussing this with you and I didn't want to get in the way of that." – Lilienthal Oct 18 '16 at 9:21
17

Titles are cheap in small companies. As "CTO", will you be leading the technical direction of the company, or just providing code maintenance?

Questions to ask:

  1. Is the amount of technical support expected of you worth whatever the current value of 5% of the company?
  2. How do you define or limit the expectations as to what is "maintenance"?
  3. How would you convert your 5% to cash? Would that ever happen?
  4. What will you do if this company folds? Your 5% becomes worthless.
  5. Would your current boss at AppCorp be happy with your moonlighting, or would he see this gig as direct competition?

It seems likely that Bill is working to lower his operating costs which suggests the company may not be growing as rapidly as one might hope.

My recommendation:

Thank Bill for the heads up, decline his offer, but don't tell your boss about it. Your boss will find out soon enough and that way you won't raise any uncomfortable questions about how you learned about this.

I'm not sure if my bosses would find it acceptable to continue employing me

I wouldn't.

  • And just hope that Bill doesn't throw you under the bus when he meets with your boss. – David K Oct 17 '16 at 16:15
  • Bill has a lot of trust in my competence as a developer, and I'm the one he's interacted with the most out of the company. I know titles are basically meaningless, but it would almost certainly be a "leading the technical direction of the company" type of role, if it takes off. – Johnathan Wagner Oct 17 '16 at 17:47
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    Prematurely hit enter! Thanks for your advice. I will most likely decline, but I'm going to make sure all three parties are aware of what's happening. I discussed with Bill and he said that he wants to make sure everything is completely transparent to my employers, and his intention isn't to poach. – Johnathan Wagner Oct 17 '16 at 17:49
8

To dismiss the second point, it's not unusual at all to exchange time for equity--many startups do it. He doesn't have the money for the retainer, and this is a way to make progress. It's not likely to add up to much, other than a line-item on your resume--5% of a company that can't afford you? It looks good to put "CTO", but "span of control" determines how much that's really worth. This will be "I managed myself part-time". Plan accordingly.

Your contract with your company will likely dictate the terms of you working with former clients. There may be a black-out period. I would get an explicit sign-off from your consultancy if you go down the road. Then there are no misunderstandings later, if you miss a deadline elsewhere or start making serious money on the side.

Your boss will find out about the renewal at the appropriate time. You're not normally obligated to get or give that information, so you don't need to share--and shouldn't, since you've signed off against it. But you can already see the conflict coming into play here, so tread carefully.

5

5% isn't enough. You'd have no reliable revenue stream, no power to make decisions or change direction and just token ownership.

Moonlighting for actual money would be the only decent option.

The rest is moot, don't tell your boss, just refuse those terms and see what eventuates.

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    any calculations to back up this claim (5% isn't enough)? Isn't it a little bit hard to decide whether something is enough for someone when you have almost no knowledge of what this something is and whether it has any potential and what is considered good and bad deal for someone? I am not telling here that 5% is a good deal, just surprised on the swiftness of the conclusions. – Salvador Dali Oct 17 '16 at 21:22
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    @SalvadorDali 5% is the normal amount to offer when you want powerless work for free. I've lost count of the amount of startups that offered me 5% of a pie in the sky. 25% is closer to being worth investing your time (=money) into. But I'd want a third or half. – Kilisi Oct 17 '16 at 21:24
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    5% is a good amount if you're not doing any work, though ;) – Wayne Werner Oct 17 '16 at 22:20
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    there is no such thing as spare time when it comes to working – Kilisi Oct 18 '16 at 2:19
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    The problem with 5% is that it buys so little work that it can be dismissed as insignificant. When Bill sells the company, or even invites in a big investor, the new owner can argue that your contribution was never documented and he can't even find it and you're not entitled to anything so call a lawyer and try to squeeze a penny out of us. Not only has this been known to happen, my impression is that it usually happens. – A. I. Breveleri Oct 18 '16 at 3:28
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I'm offering you 5% of the company to be a CTO in your free time, with you only doing maintenance and not adding features or doing anything too complex.

That's outlandish. You will be expected to build new features for many hours a week and you will be expected to do many complex things. Except now you have sunk costs, you have equity you wish were going somewhere, etc. This is just a bait-and-switch at best.

Can you imagine a successful CTO who works with a "stopping by and checking in on how things have been going" relationship with the team? Of course not...

  • I'd say that depends on the nature of the company. If they have no other technical people, I'm inclined to agree with you. If they do... Then he could delegate? – cbll Oct 18 '16 at 11:26
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    @cbll By delegate you mean manage? I can't imagine an effective manager working 7-9pm a few nights a week. – user42272 Oct 18 '16 at 14:42

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