When business partners separate, they can feel as emotionally bruised and financially drained as in a couple’s divorce. But a damaging separation is avoidable if the parties keep communicating directly, address problems quickly, focus on a reasonable objective and be ready to compromise.
In our experience, when business partners part company, they often give up too early on the process of resolution and either abandon it to their advisors or escalate unnecessarily. Either way, they usually suffer overwhelming stress and steep financial losses.
For many reasons, a business divorce can erupt quickly, or simmer and brew for some time. Some examples include:
- One business partner complains that other partners are not contributing equally or appropriately, especially considering initial promises or current compensation. An excellent example is the story of Sierra Nevada Brewing with Ken Grossman who bought out his business partner after years of litigation. https://www.npr.org/2020/03/27/822609215/sierra-nevada-brewing-company-ken-grossman.
- Founders of a business introduce an investor and over time, that investor asserts more and more control, ultimately clashing with the founders. This happened to one of the founders of WhatsApp. https://www.washingtonpost.com/business/economy/whatsapp-founder-plans-to-leave-after-broad-clashes-with-parent-facebook/2018/04/30/49448dd2-4ca9-11e8-84a0-458a1aa9ac0a_story.html.
- A business partner suffers poor health or passes away and his or her family members become more involved in the business. As they do, they uncover issues or friction develops with the other business partner. The other partner feels challenged and perhaps disrespected. The family members feel disenchanted with the other partner and regret inheriting legacy business problems which were not resolved thoroughly and promptly.
- Business partners fail to resolve complaints or disagreements over several years. These differences fester and the business falters or one of the business partners suffers an illness or dies. Quick and decisive action is required but instead, all these differences surface and threaten to overwhelm the partners and their families.
- A business partner, usually a founder, loses interest and commitment to the business but still expects compensation and stature which he or she has enjoyed for some time.
In any of these situations, business partners can avoid an expensive and debilitating fight by implementing these key steps:
- Keep communicating directly until a deal is completed
- None of us look forward to having a “difficult conversation”. Sometimes we rehearse what we want to say repetitively in our minds, finding new issues and new reasons which can complicate and derail plans. Or perhaps we find little reasons to procrastinate and wait for a more auspicious time which never seems to arrive.
- In a business separation, usually the discussions seem so bruising and inconclusive, that a business partner wants to give up. That urge should be resisted because either:
- The disagreements will become sharper and harder to solve; or
- The disagreements may recede for a while but will eventually surface again and when they return, they will be more intractable.
- When discussions descend into sharp exchanges, including stinging personal comments, there is a natural temptation to retaliate, to counter pettiness for pettiness, jab for jab. This should be avoided because it will only delay and impair a resolution, restraining the partners from moving on to their next endeavour.
- Direct communication must not be delegated entirely to advisors, friends or family members – you cannot leave it to “the advisors” to work out a deal.
2. Address problems promptly
- Businesspeople who work closely and intensely together will surely have differences. That is natural and expected. A frank and constructive exchange of different views is often a necessary stimulus for business creativity and growth.
- However, when serious issues are disregarded or dismissed and when business partners stop speaking candidly and regularly with each other about their aspirations and concerns, the business relationship is in trouble.
- If there are frequent and transparent discussions, then differences will be recognised earlier and resolved with less stress and expense.
3. Focus on a reasonable objective
- When a businessperson is surprised and even hurt by his or her business partner’s decision to separate, he or she can often focus on the past, reviewing even the slightest gestures or comments in light of this revelation.
- This leads to a misguided focus on why and how this separation evolved including perhaps some recrimination. You may ask yourself why didn’t I see this coming?
- A better approach is to consider what should be one’s goals in this changed circumstance. Reflecting on that is challenging especially in the midst of an emotional reaction to a sudden revelation. Usually there isn’t much time to assess and select one’s goals. There may be pressure by the initiating partner to get a deal done quickly and before the other partner has digested the news of a separation.
- If a businessperson calmly considers his or her goals, then he or she can evaluate every step of the process and every response against those goals. Is this step taking me closer to my goal or farther away?
- Without clear goals, you are more likely to be distracted and preoccupied with the inevitable ebbs and flow of the negotiations to resolve the differences.
4. Be ready to compromise
- Careful and thoughtful compromise is essential for any business deal.
- But even the most pragmatic businessperson can stubbornly insist on unreasonable goals in a business separation.
- Compromises, especially for a business founder, can be distressing and often appear as ingratitude and disrespect.
- It helps to have a trusted advisor with whom you can discuss and evaluate offers and other steps.
Unfortunately, often there is no quick or easy separation between business partners, especially if they have been working together for a long time. Whether their rupture has been building for some time, or if it erupts quickly, the consequences can be draining financially and emotionally. However, the toll can be diminished if business owners keep communicating directly, address problems promptly, focus on a reasonable objective and being ready to compromise.
If you would like to discuss a business break up, please contact a lawyer at Houser Henry & Syron LLP at www.houserhenry.com.
Since 1934, Houser Henry & Syron LLP has provided legal services to Canadian and foreign private businesses, helping them deal with complex legal challenges to grow and to manage risk successfully. We help our clients with mergers and acquisitions, commercial real estate, reorganizations, shareholders disputes and agreements, commercial agreements, employment issues and financing. We also pride ourselves in practising in Plain English.