The Importance of Follow-Through and Tying Up Loose Ends

Averting a crisis is exciting! Negotiating a deal is exciting! Closing a deal is exciting! Moving on to the next deal is exciting! Making a follow-up “To-Do List” and completing the tasks on that list is not. However, I see time and again situations where important post-closing items fall through the cracks and ultimately end up costing parties time and money – often resulting in lost opportunities, disappointed expectations and a failure to obtain the full benefit of the bargain that was struck.

So what are some of the most common examples of poor follow-through? You might be surprised – they include failure to:
• actually sign the transaction documents, or to obtain all necessary signatures from parties such as, e.g., guarantors;
• obtain final executed documents and keep them where you can locate them in the future;
• attach critical exhibits – like legal descriptions, product schedules, minimum purchase quotas, etc.;
• obtain bonds, proof of insurance or important loss payee designations;
• docket important future dates, like delivery of tax returns, financial statements, renewal/termination dates, etc.;
• properly file (or to promptly file) documents such as mortgages, UCC financing statements, patent applications, etc.;
• follow the terms of the transaction documents, or to execute an amendment when the deal changes;
• require the return of confidential information and business assets such as copies of agreements, customer lists, product specifications, laptops, cell phones, etc. upon the termination of a business relationship; and
• obtain required approvals from lenders, shareholders, directors, etc.

The above items are merely examples of failures to follow through that can have a devastating impact on a deal or company. My advice – don’t be the company that fails to follow through by tying up the loose ends of your deals. Make post-closing checklists; prepare executive summaries of important agreements; docket dates; keep originals (or at least copies) of important agreements where you can locate them; and most importantly, take the necessary steps to realize and protect the value of your deals!

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The Agreement is Signed – Now What?

Ever heard someone say, “Now that the contract is signed, we can put it in a drawer and never look at it again.”? I understand this thinking – if it means the business terms are so clear, and the relationship is so good, that they don’t need to obsess over contractual minutia. In other words, compliance is sort of on auto-pilot. What I’m opposed to, however, is not knowing, or directly ignoring, the requirements of your contracts.

Businesses ignore their contracts for a variety of reasons, including:

 • Things are going so well from a business standpoint that they don’t care what the contract says.
• Conversely, things are so bad that they don’t care.
• They’re too busy, or compliance is too much of a hassle.
• Or, finally, the contract simply doesn’t accurately state their business arrangement.

None of these are good reasons to ignore your contracts. Non-compliance means risk; risk means exposure; and exposure threatens the success (and sometimes survival) of your business.

Here are a few suggestions to ensure contract compliance:

• Keep your contracts as simple as possible.
• Try to match your contract terms with your general business practices and processes.
• Seek uniformity in your contracts (and make sure your lawyers do this when they draft them) on both business terms and more standard “boilerplate”terms.
• Have the same person negotiate the same types of contracts.
• Assign a specific person to be ultimately responsible for performance, oversight and compliance for each contract – preferably the person who negotiated it or someone who is directly involved in performance.
• Prepare executive summaries of the material terms, and review them periodically.
• Make sure those directly involved in the performance each contract know its terms.
• And finally, don’t enter into contracts that don’t accurately state your business agreement, and amend them if circumstances change so that they no longer do so.

Think of it this way – if the deal was important enough to enter into a contract, then it’s important enough to make sure that contract is accurate and to comply with it.

What Would a Judge (or Jury) Do?

I was working through a contract recently with a client and having the same conversation I’ve had many times over the years.  My client informed me that she and the other party had a high level of trust and had verbally agreed upon the basic business terms to govern their relationship.  Counsel for the other party had then been asked to prepare a simple contract and came back with something quite lengthy and detailed and quite different from what the parties had discussed and agreed.

So, what’s the best way to approach this situation?  My client’s inclination was to raise her concerns in an e-mail but (to avoid delays) otherwise just execute the agreement and move ahead.  After all, the parties trusted each other and knew what the deal was, and they didn’t want lawyers getting in the way – which was already happening with the first draft of the contract.  As you may guess, I was not in favor of this approach.

In these situations, perhaps the most basic question is similar to the one on so many bracelets – “WWJD?”  I don’t mean the question that immediately comes to mind for most of us, but rather – “What would a judge or jury do” if confronted with this contract and this set of circumstances?  Or more specifically, what would a judge or jury, without knowing the parties and their agreement beyond what’s in the written contract, determine their legal rights and obligations to be?  If you can’t live with the various likely interpretations, then you need to redraft the agreement, even if it means taking out much of the inaccurate detail and taking a “less is more” approach – which is what we did in this case.

No matter how quickly you want to move and how important the deal is, the material business terms should be accurately reflected in a written contract; and you should never sign a contract that misstates those terms – no matter how high the level of trust.  Remember – “WWJD?”

Strategic Alignment Goes Beyond Your Workforce

Business consultants frequently discuss the importance of having an aligned workforce – one with an identified and accepted culture, common values, a shared vision for the future, and a uniformly adopted strategic plan for getting there.  I would suggest for businesses of all shapes and sizes the need for alignment extends beyond your workforce to include, at a minimum, your legal counsel and other important advisers.

Why, you might ask, is it important that your outside advisers be “aligned” with you and your business?  In the simplest terms, having aligned advisers results in: (i) less wasted time; (ii) less wasted money in both consulting fees and lost opportunities; (iii) less frustration and misunderstandings; (iv) more productive negotiations and transactions; and (v) more meaningful and direct accomplishment of your business goals.

So, what does it mean to have aligned advisers, and how do you get them?  Here are a few thoughts:

•         First, choosing the “right” advisers is critical – different advisers have different personalities, approaches and philosophies – choose those that share yours from a big picture perspective.  But understand that this alone is not enough.

•         Remember, you set the course – not them.  Aligned advisers adopt your approach, not theirs – so they need to know what your approach is and what your objectives are.

•         In addition, your advisers must know what tactics and methods you want to use to achieve your objectives – overall and in each transaction or circumstance.  Make sure your directions are clear in this regard.  Think joint venture versus distributor, or even 50-page agreement versus handshake deal.

•         Make sure your advisers are informed as to changes in culture, philosophy, tactics, objectives, budget, etc.  They can’t execute what they don’t know.

•         Finally, periodically evaluate your advisers and their alignment.  If they don’t get passing marks, make a change.

The value of alignment cannot be overstated.  Make it part of your consulting and advisory relationships.

Joint Ventures Present Potential Rewards AND Risks

What are the most basic qualities characterizing a good joint venture?  I would argue that the most important keys are business synergies and a shared vision of what the companies want to achieve and how they can achieve more working together than working alone.  Equally important – and sometimes lost in the early optimism and desire to move quickly – is understanding and agreement as to:  (i) what each company is and is NOT bringing to the JV and what its responsibilities will and will NOT be; and (ii) what each company can do outside the JV – both during and after the JV’s existence.

Why is it so important to decide and define these things?  Because, chances are, if this is a truly strategic joint venture, these are the things that each party may want to pursue on its own (outside the JV), and they may very likely be directly related to, and often competitive with, the purposes and products of the JV.  This means that several key provisions of your JV documents must be carefully considered and drafted.  Some of those are as follows:

• Ownership of (and Rights to) Pre-Existing Intellectual Property – who owns the IP that each party brings to the table, and separate from ownership, does the JV (or even the other party) have any license or use rights to that IP during or after the JV’s existence?

• Ownership of Jointly-Developed IP – similarly, who owns the jointly developed IP, and what use rights do the parties have during and after the JV’s existence?

• Confidentiality and Use of Information and IP – what can the parties do with the confidential information and IP of each other and the JV?

• Assignment of Inventions – Are each of the parties (and their employees?) required to assign all inventions and IP resulting from their joint efforts to the JV?  Only those relating to the business activities of the JV?  What about after the JV’s existence?

• Non-Compete – what exactly can the parties do and not do during and after the JV’s existence?  Compete with JV?  Compete with each other?  And what does compete mean?

• Non-Solicitation – who can the parties do business with during and after the JV’s existence and what kind of business?  Pre-existing customers?  Non-competitive products?  Anyone and anything?  Etc.

Joint ventures present exciting opportunities. Just remember to carefully define the parties’ rights and responsibilities to avoid disagreements in the future.

Subtlety Has Its Place

As the title to this post indicates, subtlety has its place – just not in business negotiations or contracts.  This is not to say that people shouldn’t be tactful, courteous and professional in these contexts – of course, they should be.  I’m not talking about manners; I’m talking about clarity, precision, directness and transparency – i.e., the things that avoid uncertainty and minimize the risk of disagreement (and litigation).

Occasionally, clients will ask me to word a provision in a contract so that it isn’t as clear or explicit as it might be, so that it’s “less conspicuous,” or in a way so that “later, we can take the position that it meant X. . . .”  This is almost always a bad idea.  After all, a contract is meant to be a clear and complete expression of the parties’ mutual intent and agreement – trying to “finalize” the deal while simultaneously avoiding clarity and completeness in order to avoid points of disagreement is NOT a recipe for success; to the contrary, it is a recipe for future disputes.

So, what does this mean for your negotiations and contracts?  Quite simply, items of potential disagreement should be identified and discussed (and hopefully resolved) early on, just as items on which the parties agree should be discussed.  Dispute resolution at the point of negotiation/deal-making and as part of the contractual process is healthy and productive.  It generally leads to one of 2 outcomes – either the parties ultimately reach agreement through compromise, concessions, etc., and they move ahead with the deal; or they don’t, and the deal doesn’t get done.  Either result is far better than signing a contract or entering into a relationship only to end up in the other kind of dispute resolution – the kind that comes after the contract is signed and involves 2 teams of lawyers, a judge, jury or arbitrator, and words like injunction, breach of contract, damages, and legal fees.  Don’t be subtle . . .

Nice to Meet You – Let’s Get Married

Only fools rush in.  We’ve all heard that expression many times and probably think we’re far too wise and experienced to be such a fool.  However, you’d be amazed at how often businesses and individuals rush headlong into business relationships or contracts only to find out they should have used more discretion, patience and judgment.  Remember, before you date someone, you usually want to know at least a little bit about them; before you go steady, you want to know a little more; and before you get married, you really want to know them well.

Consider applying some of these dating lessons and clichés to your business and legal relationships and contracts, and you may find you have fewer emotional breakups or (more importantly) fewer bad marriages that end in messy divorces:

  • Ask around (a/k/a, do your due diligence) – learn all you can about a person or company before you engage them, become partners or enter into a long term binding contract.
  • Trust your instincts (a/k/a, if it doesn’t feel right, don’t do it) – unless there’s some compelling reason you have to work with a specific person or company or you have to jump into a deal with both feet, if you’re getting a bad vibe, don’t proceed.
  • Go slowly (a/k/a, – start small) – whenever possible, start with a smaller project or a short term relationship and see how it goes. There’s usually time and there will almost always be more opportunities to work together if the first one goes      well.
  • Build in an escape hatch (a/k/a, don’t put all of your eggs in one basket) – even if you’re ready to hire someone or enter into a contract, make sure you have the ability to terminate or get out of the relationship.
  • See other people (a/k/a, avoid exclusivity) – exclusive relationships are serious commitments and have high risk (and potentially, high reward); take your time.
  • There are more fish in the sea (a/k/a, know when to say when) – ending a bad relationship is always hard – whether personal or business – but when your gut tells you it’s not right, then it probably isn’t. Cut your losses and end the relationship (in the right way, of course).

The bottom line is, business and legal relationships resemble personal relationships – with the same types of risks and rewards.  Look before you leap.