Business Owners Separation – One Solution
“They say that breaking up is hard to do
Now, I know, I know that it’s true
Don’t say that this is the end Instead of breaking up
I wish that we were making up again”
Lyrics from the 1975 hit Breakin’ Up Is Hard to Do by Neil Sedaka
Let’s face it, whether it is a business or a personal relationship, breakups are tough. There is usually some underlying issue or problem that could probably be addressed logically, but soon emotions take over which leads to the famed “irreconcilable differences” and before you know it, you need an intermediary; sometimes to avoid physical confrontation.
I have been involved in countless shareholder disputes; many rather benign, but, also,a few doozies. Trust me, I am not a lawyer and when the legal threats start getting tossed back and forth, I am one of the first to head for the exits. I am not so naïve to believe I can reconcile irreconcilable differences; it’s just not what I do.
But, many situations can be negotiated out as long as there is some desire to reach closure by both parties. I have watched a very good lawyer friend of mine do this many times under the guise that many differences can be reduced to dollars and cents. Quite honestly, an objective issue (like money) is much easier to negotiate than a subjective one (like hurt feelings.)
Here is one technique that I recently used that seemed to work following this concept. Three partners in a business decided to go their separate ways. Of course, there was no provision in the “shareholders agreement” to cover this eventuality. Though often used as a solution, selling the business was not an option here. There were also differences as to what each wanted to do in the future. With all of the focus on each owners’ share of the company, there seemed to be a logjam in the separation process and it started to negatively impact the business.
I decided to bifurcate the focus into compensation for value contributed and ownership rights. After consulting with a compensation consultant, we were able to get the parties to agree to compensation levels based upon job responsibilities and then two owners agreed to take less compensation for less time. Next, we followed the concept of owners getting paid for any share of the business they gave up. We set up some limited buyouts and after a few weeks of haggling, an overall solution was reached.
With hindsight, there was really no major dispute. It was simply that a couple of owners wanted to pull back a bit but unfortunately, there was no framework to do so. Once emotions were put aside, getting to a solution was not that difficult.
So, two simple lessons learned. First, keeping a focus on measurable versus subjective points helps when resolving ownerships issues. Second, and more important, the time to negotiate exit provisions is at the beginning of a relationship, not in the heat of a dispute. Keep in mind the old adage… you should not get into a deal unless you know how you are going to get out.