Posted: May 15, 2013
Trusted advisor versus rubber stamp: Part 1
Guidance for CEOs navigating uncharted watersStephen Dietrich
(Editor's note: This is the first of two parts.)
There are many examples of corporate executives who have made questionable decisions or had a lapse in judgment costing their company money or bruising its public image. One just has to look at British Petroleum’s former top executive Tony Hayward’s demise on international television when he said that he wanted his life back after so many in the Gulf had just lost their livelihoods due to one of the worst oil spills in history.
Under times of heightened stress, company executives may lose their objectivity and make questionable decisions. Engaging in questionable behavior and/or exercising poor business judgment while under stress is nothing new among top CEOs, however, as the world becomes more and more transparent, the ripple effect of such decisions and behaviors may get played out on a larger stage. A CEO can appear to be bigger than life, and his or her missteps may harm many others beside themselves, such as employees, stockholders and even society at large.
What is new is an emerging phenomenon of CEOs acknowledging the use of a trusted advisor to aid executives in navigating decisions and understanding the broader ramifications of their decisions. This is not to say that business leaders have not relied on trusted advisors in the past, however, changes in society such as social media, highlight the need for a reflective, broad based advisor. Seeking out and relying on such an advisor is more and more accepted and increasingly sought after.
What Advisors Offer
Understanding the road ahead when selling or acquiring a business will help you avoid common pitfalls. There are many advisors who offer expertise in tax strategy, corporate acquisition issues or how to proceed in litigation. However, an advisor who comprehends and can analyze a situation on many different levels and is willing to use those skills to solve a problem or address a situation with more than a technical expertise is a valued asset.
Characteristics of a trusted advisor:
1. Thoughtful and reflective;
2. Experience in M&A transactions;
3. Focuses on the risks or legal issue;
4. Objectivity and clarity of thought to guide a company through complex issues;
5. Keen awareness of the dynamics between varying personalities; and
6. Ability to remain calm and provide an unbiased perspective.
When Are Advisors Needed
Corporate executives should seek out the type of advisor described above during significant milestones in a company’s life, including merger and acquisition transactions, planning for strategic growth or in times of crisis. During these significant junctures, an advisor who is able to take a step back and assist in objectively evaluating a situation as a whole can better advise the ultimate decision maker to fully understand the goals and potential paths to reach those goals, and express an opinion of the probable outcome of each choice and its impact.
A situation where there are competing goals or potential outcomes that do not present a clear path to follow is when advice should be sought and reflective responses -- not just explain a contract or your rights and expectations about behavior or responsibilities of the other party -- solicited.
Handling Transaction Fatigue
Recently, I assisted a client with a $70 million purchase transaction. At a point where both the buyer and seller were suffering from deal fatigue, an issue arose relating to the allocation of liability for employee vacation matters. Under the purchase contract, the issue was clearly a seller responsibility, and the seller readily acknowledged that to be the case.
Regardless of that clarity, the seller stated that they were not going to take responsibility and the buyer would have to deal with the matter after closing. Although the vacation liability was at most a $30,000 issue, given the state of the deal and the fact that the contract clearly addressed the issue, the buyer was adamant that the seller should handle the matter as required by the contract or the buyer was going to walk away from the deal.
Because of my relationship with the client, I had not only worked through this the deal with him, but I had worked with the buyer when he was not suffering from deal fatigue and the associated stress, I used my role as his advisor to get the buyer to look at the overall transaction, the savings we had negotiated elsewhere in the transaction and the goodwill with his new employees that may accrue if he took care of this issue.
There were some colorful conversations and a few tense days as the parties appeared to be at a standstill. Ultimately, the buyer elected to proceed after looking into what benefits may inure to him if he accepted responsibility as well as his original and overall goals of the transaction. Following the closing, my client acknowledged that my ability to help him step back and evaluate the issues in the context of his overall goals for engaging in the transaction was invaluable to him in that stressful moment.
Stephen Dietrich is a shareholder at the international law firm of Greenberg Traurig, LLP. Dietrich represents corporate and other entities in mergers and acquisitions, debt and equity financing, and restructuring transactions. For more information, email him at firstname.lastname@example.org or call 303-572-6502.