A recent article in a national newspaper covered a legal battle between a well-known Canadian entrepreneur and his investors. The entrepreneur had founded a chain of casual restaurants that included franchised and corporate-owned operations. He had recently won CEO of the year; he was a member of the Order of Canada and was known for promoting the idea of a “kinder capitalism”.
The newspaper article, however, painted a different picture. It was an ugly story. It listed claims and counter claims that included absence of financial reports, sustaining losses, paying for improper personal expenses, personal loans, and a request from the entrepreneur to remove director(s) and from investors to remove the president and restructure the business. Reading between the lines, one could identify both with the emotional issues on the part of the founder, who believed in his vision for what the business would accomplish, and emotions on the other side from investors who’d lost confidence in the future of the company.
Another article the same week reported how two 50-50 partners of a major Canadian publisher are going to Ontario Superior Court of Justice to settle a breakdown in their relationship that had started twelve years ago. In 2020, their partnership was described as “perfect people for the job”. Today, the conclusion has become, “they can no longer work together”. The causes given include thwarted business plans and ignoring proper corporate governance.
Going to court to settle disagreements is sometimes necessary and unavoidable, but in my experience, it is rarely the right way to resolve matters. In addition, the legal route costs a lot of money. So, the key question is: Can legal battles be avoided? The answer is yes.
My research provides the following list of recommendations (were written by a lawyer). The list included:
- Create clear and understandable written agreements and follow them.
- Obtain legal advice before you sign an agreement, consider mediation, and compromise to avoid litigation.
These recommendations are good but somewhat a bit general. I have created my own list. These were not written by a lawyer, but specifically designed to apply to business:
- It is great to seek a “kinder capitalism” model, but do not forget to make a profit along the way. Big profits, small profits ... that is not the point. Make an honest profit with a positive cash flow.
- It is good to select investments through a screen of ESG (Environment, Social and Governance), but do not forget that organisations can be classified as For Profit, Not for Profit, Cooperative, and Government. Making a profit is not bad. It allows you to do more of what you want to do, including being a “good corporate citizen and contributor to the community”. The key is in how you make the profit? In an honest and fair way... YES... in a dishonest and manipulative way ... NO.
- If you want to arrive on time for an appointment, start early, plan well, and aim to reach your destination earlier. Do not race and drive over the speed limit to show up on time. The same applies to running a business successfully. Seek a balanced approach to running the business for the benefit of all stakeholders and not just for the shareholders. Do not aim for “maximising or minimizing” .... aim for “optimizing”.
- If you have partners, shareholders, and investors, then prepare a budget, a plan, and update your stakeholders on time and with quality information. Communicate and keep them informed. Answer questions and be transparent.
- If the business is facing challenges, address both the short term and the long term by adding a strategic plan with numbers to the yearly budget so that all stakeholders understand where they are, where they want to be, and what it will take to get there.
- If you negotiate, always seek a WIN-WIN and not a one-sided outcome. Include in your final agreement the rules for a potential but undesired separation. Always part in an amicable manner. Life is too short.
- A mediation route can be a good recommendation, but only if agreed upfront and not as a last resort. Agree on an acceptable mediator to both sides ahead of a potential disagreement. If you do not need it, no harm done, if you need it, you are one step ahead because you already know in advance who will be the mediator.
While my seven recommendations are not” full proof” to help you avoid of legal battles, following them will help minimize the risk of going the legal way—almost always the better route!
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