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June 18th! Has it really been two whole weeks since my last post? Er, well, one year and two weeks to be exact. That’s a serious case of writer’s block… We can blame that on ramping up at the new job, some time consuming responsibilities with my church group, some new responsibilities with the UVU Alumni Association, and me just liking to spend the little free time that is left over with my family. However, the kids are in bed, my wife is in the other room painting, and I decided that there was no time like the present to try and make an effort to jump back in the saddle.

I have read/am reading some very interesting books over the last year. I finished Atlas Shrugged, which just blows your mind these days if you chase each reading session of the book with a session of the national news. Scary in its accuracy. I’ll try to put together a post on the book later like I have done for my other reviews, but it is a pretty long and complicated book, so I’m not sure how it’s going to come out. I’ve also been reading The E-Myth and the 5000 Year Leap. I’ll do separate posts on each of them when I’ve finished. I also think I’m going to dare to delve just a little into the political realm here as a means of exploring to refine my own philosophy and viewpoints, hopefully through a little interaction and discussion with readers.

I think I’ll close out today’s post with a little nugget on lawyering as a corporate attorney. Educate your business people on the ins and outs of contracts. Challenge them on their understanding and take time to explain the impact of specific language, provisions, and terms. Most importantly, find a way to do this in a way that is very relevant and clearly valuable to them. Even though you are in-house, you still have a client and you’ll get less resistance from them if they are confident that you fully understand their pressures and objectives, and if they fully understand the value of what you are protecting with your changes. Often the value you are preserving is only visible in the medium to long term, so it takes a kind of constant dialogue to help keep that notion in the forefront of the business mind. If you are a small business owner dealing with attorneys, take the time to really own your agreements by going over them until you understand the anatomy of an agreement and the effect of each part. Don’t be afraid to ask your attorney questions. As much as you can, try to compile and/or use use standard agreements from your attorney. That will not only decrease review time for your agreements, it will also help ensure that you are bound by terms you feel comfortanble with.

Part II

My last post set the stage for some discussion on the utility of bulky agreements when papering up deals. There are lots of reasons to do this. Attorneys wouldn’t be able to charge what they do if there wasn’t some real value in their work. Let’s first recognize that attorneys set themselves to the task of identifying potential risks and preparing a defense against that risk. That preparation takes the form of a written agreement between the parties to a transaction. Agreements also have the salutary effect of defining key terms that each party can refer to in future discussions as they clarify how the deal is evolving. One might think of agreements as being in some ways similar to body armor. Experts have studied the body’s form and function and identified which areas of human physiognomy are most critical to the body’s functioning and are most vulnerable to attack. They looked at the different forms of attack that are most likely. Then these experts then set about devising a product that would protect the most vital areas of the body from the most likely forms of attack. The more risk you perceive, the more you will want body armor that is strong and comprehensive. So why would you ever want anything less than maximum protection? If you know a police officer, ask him to let you try on his riot gear. In addition to being expensive, it’s heavy, hot and uncomfortable. Its bulk, required to protect you, also impedes your movement, slowing you down and making you less nimble. In some situations, having too much body armor could actually work against you and become a disadvantage.

Papering up collaborations and transactions reflects many of the same dynamics. Preparing a “bulletproof” agreement requires a lot of time familiarizing the attorney with the transaction and then a lot of attorney time thinking through the specific risks that could arise in this particular transaction. The language used to describe precautions for certain risks may be complex, bulky and difficult to understand. Agreements themselves may grow to include hundreds of pages, including often confusing cross references to other sections and definitions of terms. Presenting such an agreement to a potential business partner may cause quite a reaction. First, it makes the deal more expensive – it will communicate to the other side that they will have to incur some substantial legal expense to have their own attorneys review the document to look for areas that they find to be unfavorable to their interests. If the partner is not accustomed to dealing with attorneys or complicated agreements, he or she may decide not to proceed with the deal. I have seen this a number of times with international parties whose local business customs are based more on codified laws than on agreements between the parties. Second, it may introduce something of an adversarial spirit to the deal and detract from the collegial enthusiasm that accompanied the deal up to that point. I would say that this development, in proper bounds, is somewhat healthy, as it helps business partners remember that each actually does have many opposing interests and that deals can go bad. Finally, you may end up making the relationship so rigid and guarded that it becomes difficult to function.

The good thing is, it does not have to be all or nothing. As military and law enforcement personnel select body armor that is appropriate for their particular activity and situation, small business owners can develop a strategy for papering up deals that matches the needs and dynamics of their industry, management style and legal environment. You do not have to provide for every conceivable misfortune in each agreement. Over time you will develop a feel for the protection you want and the flexibility your deals demand. And hey, if you really want absolute protection, you can still wear your full body armor to Church on Sunday, but don’t be surprised if you have the whole row to yourself more often than you like.

The Scene: A small town saloon in the wild west, in the late 1800s. A rancher and a farmer sit around a table discussing their businesses – the rancher’s herd is growing and he needs more grazing land. The farmer has been unhappy with some spots of his acreage that haven’t performed well and agrees to let the rancher’s herd graze there for a fee. The matter discussed, the partners stand, look each other in the eye and shake hands. Agreement.

Fast forward about a hundred years to the same location to now find a bar in the place of that saloon. Once again, we find a couple of potential business partners discussing matters around a table. One has a brilliant idea and a lot of enthusiasm, the other has money and connections. They get along well and each see merit in what the other can bring to the venture. The matter discussed, the partners stand and look each other in the eye. Then the investor turns, delves into a bag, and produces a small library’s worth of documents. “These are the standard forms and agreements I require when I invest. My attorney has already filled in the basic details of this deal. Have your people look over them and let’s try to get this settled as soon as possible.” The partners shake hands on leaving, but it’s not the same.

I probably didn’t really have to hark back to a simpler time to find a deal done on a handshake – to find an agreement based on honor, trust and mutual reliance between partners. One of the points of friction in many companies, large and small, is that “legal” or “accounting” are holding the deal up. Randy Komisar, in his book The Monk and the Riddle, describes how it felt to be the attorney in a side room going over papers, verifying all technicalities, while the management players were in the board room after an acquisition, shaking hands and celebrating. Many yearn for a simpler time, when deals could be done on a handshake, but the evolution of experience and a complex legal liability landscape have changed the rules of the game. That said, for the intents and purposes of many entrepreneurs and small business owners, agreements often may not need to be as long or incomprehensible as our attorneys may advise in order to be effective.

Nearly everyone who has ever needed to review a business contract has become familiar with the term “boilerplate“. It refers to language which is considered to be more or less universal in its application and non-negotiable. Although in many applications, it is universally applicable, much of the boilerplate is drafted to favor one party’s position. As I mentioned in a previous post, lawyers are paid to be pessimists, and to plan for when the deal goes bad, not if it goes bad. And where Sales and Marketing think through where they want to drive a deal, lawyers are asked to think of all the places a deal could go off into uncharted territory and provide for a safety net. That safety net takes the form of an agreement with a whole host of “What ifs,” including the ever-popular what happens in the event of an Act of God, an unforeseeable and unpreventable natural disaster? In the event that particular crisis does hit, you’ll be glad that language is there, but it does make agreements bulky, imposing and harder to understand. Luckily, it can be minimized as you develop a legal strategy for your company. I want to break this up in an effort to make my posts less long and more readable, so I’ll continue to explore this over my next post or two, which should also help me post more often.