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.

Serving on a Board of Directors – Part 2 – Duties, Responsibilities and Exposure

In Part 1, I suggested that, before you agree to serve on a Board of Directors, you ask some very fundamental but important questions to determine whether you should serve on that particular Board and what the actual and potential ramifications of doing so might be.

In Part 2, I want to be a little more technical (which is somewhat out of character for this blog) by making you aware, at a very basic level, of the legal duties and responsibilities of Directors.  Briefly, those duties and responsibilities (in my words), and certain related relevant concerns and standards for Directors, can be summarized as follows:

• Duty of Care – Directors must act with the care that a similarly situated person in a similar circumstance would reasonably believe to be appropriate.  This includes a duty to be informed, to prepare for and attend meetings, to candidly share information and opinions with other Directors and company management, and to make appropriate inquiries into company matters.  In meeting the duty of care, Directors may reasonably rely on others, such as the Corporation’s attorneys, accountants, outside auditors, etc.

• Duty of Loyalty – Directors need to act in “good faith” and in a manner that they reasonably believe is in the Corporation’s best interests.  This includes, among other things, avoiding, and where necessary disclosing, conflicts of interest, and making “corporate opportunities” available to the Corporation.

• Duty of Disclosure – Directors have a duty to inform their fellow Directors and (in appropriate circumstances) the Shareholders of the Corporation of information that is relevant to corporate decisions, and not to mislead.

• Business Judgment Rule – The business judgment rule is not a separate duty or responsibility; it’s the standard by which Directors’ decisions and actions are measured.  Generally, Directors are presumed to have acted in good faith, on an informed basis and with the honest belief they were acting in the Corporation’s best interests.  If this is the case, a court will not second-guess the Directors’ decisions.

• Confidentiality – Generally, Directors must maintain all non-public information regarding the Corporation in confidence.

Before you agree to serve on a Board, and throughout the time that you serve on a Board, make absolutely certain that you understand the above duties and responsibilities.  If in doubt, speak with the Corporation’s legal counsel, and where necessary, with your own personal counsel.  These duties and responsibilities cannot be taken too seriously.

Now is the Time to Clean Up Your Corporate Affairs

Consider these fact patterns:

• A governmental agency commences an investigation regarding your company.
• Your company applies for a necessary license or permit.
• Your company gets sued.
• A prospective major investor wants to invest $5 million in your company.

What do they all have in common?  Very little, other than in each of these situations it’s extremely likely that you will be asked to confirm that your legal structure and corporate affairs are in order – and if they’re not, it could prove troublesome and expensive at a minimum, or fatal to the deal or even to your company’s survival at the extreme.

So what should you do about this?  Simple – you should ask your legal counsel to quickly audit your corporate books and records to make sure they’re in order; and if they’re not, you should get them in order asap.

You may be asking – what will this cost, and can’t we just wait until the need arises to get our “corporate house in order?”  The answer to the first question is, not as much as you think.  The answer to the second (and related to the first) is, only if you can afford the potential downside of an adverse determination by the agency, licensor, judge or investor.  In other words, if you’re willing to live with the risk of your company being shut down, a plaintiff getting a large judgment against your company (AND EVEN YOU PERSONALLY), or an investor choosing to invest his $5 million with someone else, all because it may save you a little inconvenience or money in the near term – then you don’t need to clean up your affairs.  If, however, you want to make sure your company both survives and has the chance to grow and flourish – then this is something you need to do now.