The Value of the Battle Never Fought

In his famous book, The Art of War, Sun Tzu makes numerous profound observations regarding military strategy – many of which have great applicability in the business world, and in the intersection between your business and legal matters. A couple of my favorites are the following:
• He will win who knows when to fight and when not to fight.
• He who wishes to fight must first count the cost.

I have always believed that there is great wisdom in these words – particularly in deciding how to approach (and equally importantly, how to anticipate and avoid) business disputes. After all, business is about making money, not winning battles.

Every business will find itself from time to time involved in disagreements. This is unavoidable and often outside your control – it’s just part of doing business. What is often (but not always) within your control, however, is how you anticipate, avoid (when possible), approach, evaluate, respond to and attempt to resolve these disagreements. Disagreements generally do not need to (and should not) rise to the level of adversarial disputes and/or litigation or arbitration – there is almost always another alternative which may or may not be acceptable, but should always be considered in a business-minded, even-tempered manner.

Owning and operating a business inherently involves risks, costs and uncertainty. However, with careful planning and conscious, deliberate strategies, you can generally predict and in large part control these factors and steer the company to a profitable outcome. Litigation, on the other hand, involves risks, costs and uncertainty that are often unpredictable, uncontrollable, and in some cases unacceptable. For these reasons I would urge you, the next time you find yourself in or approaching a possible business disagreement, consider all alternatives short of litigation, and only proceed with that alternative if you have considered the cost and made a reasoned determination that now is time to fight.

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Teamwork and Communication Versus Too Many Cooks in the Kitchen – Part 1 of 2

Team approaches in contract negotiations can be very effective. In fact, for some contracts, a team approach is essential – particularly when the contract will impact various divisions or facets of a company’s overall existing and future operations.

Consider hypothetical ABC Manufacturing Company (ABC) that has multiple divisions (including Aeronautics and Renewable Energy) operating independently, but within the same general industry groups. Further assume that ABC’s Aeronautics Division wants to license certain technology to Third Party Company (3P), but only for use in wind turbines – not in aeronautics or aerospace – because ABC has plans for use of the technology in those fields, but not in turbines. In this circumstance, it’s likely critical that ABC involve numerous parties in the contract process (although not necessarily in the actual discussions with 3P – see Part 2 on this topic). Who might those parties include, and why?

• Obviously, the heads of the Aeronautics and Renewable Energy Divisions – so that the precise scope and nature of the license can be considered, along with its impact on those divisions (now and in the future). Also likely those who are not division heads, but who may have a deeper understanding of certain products, projects and relationships.
• Research and Development – so that those negotiating the contract terms know what the current state of the technology is, where it may be headed, what rights are licensable, and what rights should be excluded/retained.
• IP – so that there is a clear understanding of what protections exist currently, who will be responsible for maintaining those protections, who has rights to derivative technology, etc.
• Strategic Planning – so that something that seems unimportant now doesn’t “unexpectedly” become important in the future – especially if there are parties within ABC who already knew it’s important.
• Legal – so that rights granted in this contract don’t conflict with rights previously granted to other parties, and the current contract ultimately says what the business people intend.
• Others – there may be any number of others that should be consulted or at least kept informed as to the discussions with 3P – accounting (budgeting and cost), marketing (brand and image), etc.

The point is, many contracts have far reaching and (sometimes) difficult to foresee implications for a company. Involve as many people and divisions as necessary to make sure you are aware of and consider all of these implications.

In Part 2, I’ll discuss the importance of speaking with one voice, notwithstanding the involvement of multiple parties.

Don’t Forget the Laws of Human Nature

It strikes me that both lawyers and clients get so wrapped up in the business, legal and technical issues of a deal or situation that they often forget what I will refer to as “the laws of human nature.” True, these are not the laws I studied in law school, but I can tell you this – failure to understand these laws can often result in the failure of a deal. And what’s so sad about that is it’s completely avoidable in most circumstances.

So what do I mean when I talk about the laws of human nature? Obviously, I’m not talking about statutes or regulations. Simply put, I mean those aspects of the deal-making process that have more to do with human behavior, values, interaction and communication than with the specific parameters of the deal. Failure to understand these “laws” and acknowledge the fact that they fundamentally affect business transactions is just as often the cause of a failed deal as the laws on the books.

So, here are 10 lessons I’ve learned as to these laws:

1. It’s important to know what you AND the other party to the negotiations need, what you want, and what you’ll accept – and how these may change during the course of negotiations.
2. Nobody needs to “win” a negotiation – the best deals are win-win.
3. It’s ok (and in fact, it’s often productive) for the other side to like you.
4. It is imperative that the other side respect and trust you.
5. Emotion is rarely productive in a business discussion.
6. Professionalism enhances the likelihood of success.
7. There’s no value in frustrating or embarrassing the other party or wasting their time.
8. It’s important to know when you’ve pushed far enough.
9. Miscommunication leads to failure just as often as disagreement.
10. The deal is never final until it’s signed.

Consider the laws of human nature the next time you negotiate a business deal, and I’m confident you will enhance your prospects for success.

How to Handle Partners Who Are Bullies

Bullying and bullies are in the news a lot these days. Usually these are kids who physically or mentally torment and intimidate their classmates. In business partnerships, we frequently see a different kind of bully – the partner (who never should have been a partner in the first place) who refuses to listen to other points of view, puts his own interests ahead of those of the partnership, and generally wreaks havoc on the business. So, how do you deal with these bullies?

The first and most effective way is not going into business with them in the first place. There are plenty of articles warning you to choose your partners carefully, so I won’t belabor that point, but it’s worth noting once more – there is virtually no business decision that will affect you more than the decision of who you go into business with – choose well.

Second, have clear, detailed and well thought out organizational and governing documents that all partners understand and agree to at the outset. These documents should cover such basic issues as: (i) who gets to be an owner; (ii) who participates in management and how management decisions are made; (iii) what your general business objectives are; (iv) what happens if the company needs more capital; (v) how you avoid or address disagreements; and (vi) how and when you will make the decision to sell, merge, dissolve or otherwise exit the business or the owners’ partnership.

The third strategy follows logically from the second – having those governing documents in place is not enough – follow them. The easiest way to handle a difficult partnership disagreement is to simply follow the rules that you’ve laid out for the business.

The final strategy is more of an admonition – do NOT allow your difficult partner to bully you into making bad decisions or otherwise treat you or the business unfairly or act unwisely and then claim to be a victim! I see this frequently, and it is NOT an excuse to simply say your partner is a bad person and made you do these things that were bad for you or the company. You’re the caretaker of your business, and no one said it would be easy. Stand up to the bully!

Is Your Lawyer Disruptive? Shouldn’t He/She Be?

When people think of the qualities they want in a lawyer, disruptive doesn’t always come to mind – in fact, it rarely does. However, this is one of the most important qualities in growth stage and entrepreneurial/start-up companies wanting to revolutionize their market segment and change the world. So why don’t clients (especially the kind mentioned in the preceding sentence) insist that their lawyers – in addition to being outstanding technical lawyers – be disruptive? After all, doesn’t it make sense that the most innovative and forward-thinking lawyers would relate best to the most progressive companies and clients? Sadly, I think the reason people don’t generally seek out these qualities in their lawyers is because they don’t know they exist. And, why is that? Because lawyers and the legal community have set the bar so low when it comes to innovation, creativity and client-centric business practices – choosing to require clients to conform to the traditional attorney-client model, rather than the attorneys focusing on what the clients want and need. In my opinion, clients should insist on more – and lawyers should deliver more.

So, I ask, is your lawyer disruptive, and if not, why not? The answer, of course, depends on what it means to be disruptive as a lawyer and whether/how that disruptiveness can benefit you and your company as a client and consumer of legal services. When I think of disruption in the legal world, I don’t mean reckless, hasty, rude or destructive. Rather, what I mean is not just the ability, but the desire, and in fact the affirmative goal, to think outside the box and provide creative client-driven solutions to your business and legal challenges – not canned or pre-scripted “one size fits all” responses from a dusty legal treatise.

With the foregoing definition in mind, you may say, “thank you but no, I don’t want my lawyers to be disruptive – I want them to provide the same “buttoned-down” black letter responses that their forefathers provided to my predecessors and leave creativity to me. If so, then this article probably hasn’t resonated with you. If, however, you like the idea of a creative, disruptive thinking lawyer and law firm, find one – they’re out there!

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!

Negotiating a Deal? Be a Mediator, Not a Gladiator

What’s the primary goal of most business negotiations? I don’t mean negotiations in the context of a dispute – I mean in the context of a prospective business deal or relationship. In that setting, the primary goal is to reach agreement. And that generally means emphasizing mutual benefit and necessary compromise to reach the desired outcome for both parties, not just one – after all, if your negotiations are so “successful” that the other party has lost everything, there’s really no reason for that party to proceed at all. In other words, you may “win” the negotiation battle but “lose” the deal.

So, how should a business person (and that business person’s lawyer) approach negotiations? Simply put, I think it’s better to assume the role of mediator than that of gladiator; be a problem-solver not a competitor. That doesn’t mean that you must avoid confrontation and disagreement in all cases. What it does mean is you should pick and choose your “battles” carefully; and where possible, avoid them entirely by finding creative solutions.

Negotiation is not generally possible without some level of disagreement. If that weren’t the case, we’d never need to exchange multiple drafts of an agreement, since all parties would simply agree to the first draft. Disagreement is not the problem. Confrontation, however, often times can be – particularly if it’s not handled with professionalism and diplomacy. If disagreement is necessary, try and explain to the other party why your position is reasonable, and why the issue is important. If it’s a potential “deal-breaker,” explain that too. In the end, I believe it’s most productive to avoid confrontation when you can. Disagree when it’s important, but even then seek compromise where it’s possible and makes business sense. Be creative and seek to find win-win solutions. Remember, the goal is to get the deal done on terms that benefit everyone – not walk away after “fighting a good fight.”