What You Don’t Know Can Hurt Your Business

Recently, I attended a concert given by a major symphony orchestra. We had excellent seats in a concert hall that held 3,000 people. We were in a box in the first promenade level with a direct view of the entire stage. We also could see most of what was going on in the concert hall, both above and below our seating level.  

Disrupting an Orchestra Concert 

During a quiet section in the music I heard an unusual sound–like air being blown through a straw–loudly. My son heard it too and looked around the concert hall for the source. He later told me thought it sounded like someone having a sneezing spell.  

Looking at the stage, I saw the source of the sound. The principal clarinet player was holding her instrument horizontal to her body and was blowing into the side of the instrument.  

Having been a clarinetist myself, I immediately identified the problem. There is moisture in the air a clarinetist blows into the instrument. Sometimes that leads to condensation on the inside of the clarinet.  

This clarinetist’s instrument had moisture in it, and it most likely was near the hole into which she was blowing. A clarinetist can run a cloth swab through the instrument to remove moisture–but not if it is in one of the holes. She was trying to dislodge the fluid so she could clean it with a swab.[1] 

The clarinetist reassembled her instrument to play a passage. Although perhaps not audible to most of the audience, I could hear the subtle signs in her tone that there was moisture in her instrument.  

This went on several more times when the clarinets were not playing. The principal clarinetist would disassemble her instrument, blow into one of its holes, and try to swab out the excess moisture. Each time, her efforts resonated throughout the concert hall. Each time, more and more concertgoers looked around the concert hall for the source of the noise, likely not hearing any more of the music than I did.  

Focused on addressing her the problem with her instrument, the clarinetist was unaware how she was impacting the orchestra’s performance as a whole. At the same time, it seemed her efforts were unsuccessful in solving her own concern about moisture in her clarinet, and her frantic dis-assembling of her instrument cannot have done much for the quality of her playing.  

Disrupting a Business’ Operations 

Many business owners are like that clarinetist. They are determined to solve their own legal problems. Even though they may put a lot of effort into resolving legal issues, the problem continues.  

As they become more desperate, they draw attention away from their core business to address the legal problem. They still do not solve their legal problem. Plus, like the clarinetist’s efforts to clear her instrument, which disrupted the entire orchestra performance, the business as a whole is harmed as the owner’s efforts are hyper-focused on a single concern. 

Subject Matter Experts and Myopic Vision 

Business owners and officers are smart people. After years of education and experience, they, like all of us, want to believe that they can take care of every aspect of their businesses. But there are at least two reasons we should not try to do so:  

  1. They are not attorneys and are not subject matter experts in the area of law. 

  2. They are too close to the situation to be able to address a legal matter objectively and effectively. 

The reality is that all businesses rely upon subject matter experts to run effectively. They have accountants to handle financial matters and payroll companies to handle payroll distribution and filings. Yet, frequently, attorneys are not involved in day-to-day operations. Rather, attorneys are called only when the situation has become a crisis. 

Even though business owners and officers are smart, well-educated people and are subject matters in their fields, most of the time, they are not attorneys. The highest and best use for the business owners and officers is in the areas in which they are subject matter experts–running the business.  

By having an attorney involved regularly with a business, the attorney can identify potential legal issues and help the business implement preventive measures. An attorney who is familiar with the business is best able to tailor procedures to fit the business’ culture. Further, an outside general counsel, while dedicated to the business’ best interest, is able to identify areas of risk like an outside regulator or plaintiff might.  

There is an old adage “An attorney who represents himself has a fool for a client.”[2] Even those who have legal training are too close to the situation to be able to effectively address the situation. An outside general counsel can provide an outside perspective on a legal situation while also protecting and pursuing the client’s interests.   

The Ostrich Effect–Problems Don’t Solve Themselves 

Many years ago, a client came to me for advice on a legal situation that was brewing with his business. He had a business partner with whom he was becoming uncomfortable. He was concerned that she didn’t have the skill or dedication necessary to carry the business to the next level, and they were 50/50 partners.   

I evaluated his situation and recommended the partners enter into agreements to clarify partner obligations, provide for a modification of partner payments based upon productivity, and to include a buy-sell provision where one partner could buy the other one out under specified conditions at a pre-determined price.  I  provided him with an estimated cost of a few thousand dollars to proceed with the recommended strategy. 

This client was in a new business. He was a smart and talented man and would be quite successful. However, as with many startups, money was tight. He agreed that having an agreement up front to clarify those issues was best, but he said due to financial concerns, he would have to wait before implementing the strategy.  

As I felt obligated to do, I informed him that without clarification of roles and consequences for failure to fulfill obligations, his partner was not likely to change. Instead, it was likely the situation would worsen with time. I told him that I understood his financial situation, but I cautioned him to address the situation as soon as he was able. Otherwise, I warned, he would be coming back to me in a year or two with a much bigger legal problem, which could cost tens of thousands of dollars to resolve. He said he understood and departed my office on good terms.  

Two years later, this client scheduled another appointment. Before I could ask what brought him to my office, he said “I know you told me that I could pay you a few thousand dollars two years ago or else I would have to pay your several times that later because the problem would become bigger.” He added “You were right. The problem is bigger, and I am expecting it will cost quite a lot of money to address it.”  

During the previous two years, the business had grown exponentially, primarily due to his efforts.  Although he was overwhelmed running the business, his partner was absent. Yet, because she was a 50/50 partner and they had never signed documents clarifying what the partners’ roles were to be, she was legally entitled to half of the business profits.  

My client reported that his partner had offered to sell him her half of the business.  However, since the parties had not agreed on buy-sell provisions, the sale price needed to be negotiated. His partner was demanding an exorbitant price, which included a large up-front sum, plus large monthly payments over a two year period.  

She had hinted that if he did not agree to her buy-out terms, she might decide to get involved in business operations. He was concerned that if that happened, she might interfere with the strategies which had enabled the business to be so successful. 

In the end, I was able to negotiate tolerable buy-out terms for my client. However, the terms were less favorable to my client than a typical buy-sell agreement would have provided, and he incurred legal fees in five figures.  Plus, during what turned out to be a protracted negotiation process, my client was unable to devote as much of his attention to business operations, and the business’ growth slowed.   

An Ounce of Prevention 

Legal problems distract business owners and officers from business operations. Small legal problems may seem like minor distractions. But when they are not property attended to, small legal problems become bigger legal problems, as they did for this client. And big legal problems can be a huge distraction to business operations and growth. 

Having an attorney on your business team to assist with ongoing compliance concerns will help prevent key business personnel from deviating from what they do best–running the business. An outside general counsel who knows your business well can help your business put valuable risk prevention policies in place with a goal of halting small legal problems in their tracks, so they do not grow and significantly impact the business. 

[1] A swab is a piece of soft cloth, frequently chamois, which has a string with a weight tied to one end. The clarinetist drops the string with the weight on it into the instrument and pulls the chamois through the instrument to collect any moisture which has collected. This is important not only for the tone quality of the instrument but also for preservation of the instrument. The better clarinets are made from wood, and if moisture is left in them, cracks may develop.

[2] Normally I make every attempt to use gender-neutral language unless I am writing about a specific individual (in which instance, I use that individual’s preferred gender pronoun). In this case, I have always heard the adage spoken using the masculine gender. This could be an anachronism that fails to recognize the current gender diversity in the legal profession. Nevertheless, I have chosen to use the traditional adage and will use masculine pronouns in this part of the discussion.

© 2018 by Elizabeth A. Whitman 

 Any references clients and their legal situations have been modified to protect client confidentiality.

 DISCLAIMER: The content of this blog is for informational purposes only and does not provide legal advice to any person. No one should take any action regarding the information contained in this blog without first seeking the advice of an attorney. Neither reading this blog nor communication with Whitman Legal Solutions, LLC or Elizabeth A. Whitman creates an attorney-client relationship. No attorney-client relationship will exist with Whitman Legal Solutions, LLC or any attorney affiliated with it unless and until a written contract is signed by all parties and any conditions in such contract are fully satisfied.