IT ISN’T A PROBLEM…UNTIL IT IS

Be proactive to avoid unnecessary disputes & litigation

By the time I receive a call, my business clients are usually deep into a dispute, standing at the crossroads of fight or flight - they’re facing a choice to pursue/defend or stand down.

Legal disputes are widely known for being risky, time consuming and costly. However, many of these disputes could have been avoided if those involved had been more proactive in their business dealings. Too often, when I'm asked to assess a dispute prior to or during the early stages of litigation, I find that the contracts or business processes in place are misaligned with the current legal landscape. On more than a few occasions, I’ve framed my reports to company leadership around the theme "it isn't a problem until it is."

Clearly not all disputes can be avoided, but some (likely many) can be by regularly reviewing contracts and core business processes, with a view to aligning them with the most recent legal developments and evolving best practices.

In Jim Collins’ iconic book, “Good to Great,” which consistently ranks among the top leadership books of all time, he sets out that greatness stems from “conscious choice and discipline” [source] - getting to Great requires overcoming the comfort of complacency.?

Applying this framing, companies can reduce the likelihood of disputes and litigation by proactively:

1) Consulting Legal Advisors

Far too many fail to contact their legal counsel until they encounter a problem. However, involving legal advisors as part of a regular, systematic review of business contracts and processes is a prudent investment, particularly in litigious or regulated environments.

A few notable examples that I’ve come across:

Review everything to do with employment - given the dynamic nature of the area, it’s a minefield for employers and essential to engage an employment lawyer along with HR specialists for support (message me for a referral to my go-to employment lawyers).

• Employee guidelines, policies, handbooks and hiring processes must be maintained, updated, and aligned with the current legal framework; similarly, take the opportunity to update employee contracts with changes to their employment (pay, duties).

Insurance coverage needs to be reviewed not only for adequacy but also to assess what happens in the event of claims.

• It is important to consider who controls the matter in case of litigation, as insurance companies may not always align fully with your interests; for contracts involving indemnification rights, such as Directors and Officers (D&O) agreements, consider advancement rights (note: advancement is more common in the US than in Canada).

For condos, conduct a comprehensive review of the governing documents on a regular basis (annually, biennially at most), updating as needed.

• Changes in condominium law and the introduction of tribunals in some jurisdictions, like the Condominium Authority Tribunal (“CAT”) in Ontario, can significantly impact risk exposure for condo corporations (note: it’s important for boards to allocate greater legal costs in their annual operating budgets, to enable their property manager to consult with the corporation’s lawyers as situations develop - message me to connect with a few of the best Ontario condo lawyers I’ve worked with).

2) Prioritizing Documentation

Ensuring contracts, agreements and business processes are well documented is crucial to reduce the risk of disputes stemming from misunderstandings or misinterpretations. A regular audit of these documents and day-to-day operating procedures is important to ensure they’re fully aligned with the most recent legal developments.

A few notable examples that I repeatedly come across:

Commercial contracts that are based on templates, yet the templates aren’t kept current.

• Employment and consumer contracts require extra scrutiny to correct ambiguous and unfair contract terms.

Corporate minute books that are neglected, too often are incomplete and not current

• Aside from the legal obligation to have up-to-date minute books, count on producing them in the event of litigation.

Shareholder agreements for private companies, written at the outset and then filed.

• Unlike good wine, shareholder/partner agreements don’t get better with age - they should be reviewed periodically and updated to reflect changing circumstances.

3) Adopting an Outside-In View

Doing business as usual (aka status quo) contributes to greater exposure to claims and litigation, given the increasingly dynamic legal environment. Implementing a structured process and embracing a culture of continuous improvement can significantly reduce this exposure.

That includes ongoing monitoring of legal trends, particularly through case law, and scanning for relevant best practices, such as (but not limited to):

• Tracking Delaware governance trends, as the epicentre of American corporate law, to inform your training around leadership roles and fiduciary responsibilities.
• Applying the core principles of Sarbanes-Oxley Act (SOX) to non-public companies, to enhance financial and governance oversight (watch for my future post on this topic, where I’ll cover the ‘power’ of implementing a modified SOX certificate discipline).
• Adding a board of directors to private companies, and in particular multi-generational family businesses, to help steward the business and oversee risk.

The foregoing is intended to raise awareness of an array of issues and set out a proactive framework to lessen the risk of litigation. It’s important to note the issues flagged along with the examples provided are not intended to provide or imply legal advice. Readers should consult with their lawyer about these issues to obtain legal advice pertaining to their unique situations.

I am not a lawyer and do not provide legal services. [DM me to refer you to lawyers specializing in wills & estates work.]