Page 36 - May-Jun 19

FEATURE

a Deadlock Committee as part of their Don fired Mitch on the spot. In response, emotions, sometimes the toxic brew
agreement. Members of the Committee Mitch called a police officer friend who bubbles over into a business divorce.
were Mitch, Fran and Electrix’s outside appeared at the office with Sharon,
accountant. The Committee was tasked Fran and Electrix’s accountant to hold There were two issues that set Don up for
to resolve deadlocks concerning a meeting of the Deadlock Committee. failure on the CEO issue. First, the phrase
policy, the direction of the company, The Committee decided that Mitch was “foreseeable future” was completely
and the decisions that required still President, two signatures would be amorphous and its meaning could not be
Sharon’s approval. Although arguably required on all checks, and Don was not objectively determined. Indeed, the Court
included in this provision, the issue permitted to remove any corporate papers found that the phrase was ambiguous
of when Don would have to give up from the office. They specifically declined on its face. Second, the agreement
his role as CEO was not specifically to determine whether Mitch would between Don and Sharon did not set up a
mentioned as one that the Committee replace Don as CEO (the “foreseeable specific mechanism to decide this issue.
would have jurisdiction to decide. future” issue). Afterwards, Mitch came
to Don’s desk looking for the office If I were involved in the drafting of the
After Don and Sharon finalized their master key. Don resisted and they got agreement, I would have advised Don
divorce, they both agreed to appoint Mitch into a physical altercation, at which point differently. First, I would have drafted
the President and Fran the Vice President Mitch’s police officer friend arrested Don. the issue in more concrete terms. For
and Chief Financial Officer of Electrix. Mitch lodged a complaint with the police example, the parties could have agreed
Mitch, eager to put his own imprint on and Don was temporarily restrained that barring mental incapacity, Don was
the company, started holding weekly from entering Electrix’s premises. to serve as CEO, if he wished, until a
breakfast meetings to which he did not date certain, say until he was 70. At that
invite his father. Don also learned that The next day, Sharon announced an juncture, if Don still wanted to continue as
Mitch tried to transfer a patent owned by upcoming meeting of the Board to CEO, the matter could have been decided
Electrix to himself and change the name discuss the incident. Because Don was by Don and Sharon and, if deadlocked,
of the company. Mitch claimed that he barred from the office, he would be the accountant could break the tie.
approached his father to replace him as permitted to attend by phone. Before This would have eliminated Mitch, the
CEO, and that Don agreed. When Mitch the meeting took place, we filed an interested party, and his sister, who may
had papers drawn up to that effect, Don order to show cause and complaint on also have been biased, from participating
refused to sign them and denied that Don’s behalf and obtained a preliminary in this critical decision. Another option
he agreed to give up his role as CEO. injunction preventing the Board meeting would have been to submit the issue
from occurring. There were two issues to binding arbitration with one or three —
Shortly afterwards, Mitch advised his in the lawsuit: Don’s entitlement to arbitrators. Either option would have
parents that he had directed that all the significant sums owed to him by Electrix prevented the issue being decided by the
company’s debts be paid and, as a result, and whether he could continue on as courts, the primary benefits being control The proof is in the crimp.
they would each have to lend Electrix a its CEO. Although Don prevailed on his of litigation costs and knowing ahead
six-figure sum to keep the business afloat. claim to a substantial monetary damages of time who would decide the issue.
When Don delivered his loan check to the award, he was ultimately unable to
company’s bookkeeper, he discovered that maintain his title as CEO, as he died And the cloud.
Sharon had not yet made her payment. during the middle of the litigation. Rocco is a Speaker, #1 Bestselling Author
Outraged, Don demanded that the and Law Firm Partner. After working in
bookkeeper reimburse him for prior loans the trenches with business owners to ®
he made to the company. Mitch stepped Summary prevent, mediate and litigate internal Smart Tool+
business disputes for more than two
in and explained that Sharon was waiting decades, Rocco has seen first-hand why
for confirmation that Don made the loan The story of Don and his family business financially sound companies nevertheless
contribution. Mitch and Don had a heated demonstrates why family squabbles are fail. Out of these deep experiences,
exchange and Mitch stormed back to his a red flag signaling business breakups. Rocco has learned what it takes to make
office. A short while later, Don noticed While disagreements between owners businesses last. Rocco speaks nationally
all the employees leaving because Mitch and executives are normal in every about this important topic and his unique
had sent them home to avoid hearing any business, when mixed with family law practice is focused on helping his
further family confrontations that day. clients achieve business longevity.

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34 Insights Magazine | May/June 2019 | www.ieci.org in a verifiable success every time. go.abb/smarttool

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