Resolving Disputes at an Owner / Manager Level
Any dispute is disruptive to business, but a dispute that arises between the owners and/or management can be catastrophic, particularly in food businesses, where any disruption to the day-to-day operations can cause irreparable harm. Tom Bourne, senior associate at Cripps Pemberton Greenish, who specialises in shareholder / boardroom disputes, says that communication is the key, and having the right documentation in place can help resolve disputes more quickly.
A Common Goal
It sounds simple, but the owners and managers in any business need to have a collective understanding of where they want the business to go and how they are going to get there. I am often asked “[x] isn’t pulling their weight”, what can we do about it?. This may be the case, but the individual concerned may say that they were doing what they thought was required, or they were ‘pulling in a slightly different direction’ because there wasn’t a clear business plan in place.
The risk of divergent views generally increases with the number of “active” shareholders, but disputes are also surprisingly common in family business, especially where the business passes down the generations. If the first generation (usually just one or two individuals) passes down the business to their children, it increases the number of interested parties, who may not have the same ‘vision’ as their parents or each other.
Shareholders / Management Agreements
Once the owners/managers have reached an agreement it is important for this to be documented in a management / shareholders agreement, so that each party clearly understands their respective roles and responsibilities. As a dispute resolution lawyer I often hear, “we thought we didn’t need an agreement because we knew and trusted each other”, and when a relationship is going well, especially in the early days, parties are often reluctant to talk about what might happen if they disagree, but it is surprising how quickly trust and good will (even friendship) can break down when a dispute arises. In the absence of any agreement, the statutory rights and obligations of owners or managers are limited.
Dispute Resolution / Exit Mechanism
It is common for business owners/managers to disagree from time to time. A clear decision making process can help, but sometimes a dispute will still arise. A well drafted shareholders / managers agreement can help resolve any issues by setting out a way that any dispute can be resolved, for example by referring the issue to an independent third party. This can help to resolve a difference of opinion, but sometimes the only solution can be for the owners/managers to go their separate ways. In the absence of a binding agreement, the only solution available may be to liquidate the business. Having a quick way of removing a disruptive party from the business might be the key to securing the business for the long term.
It is common for there to be differences in opinion in any business, but having the right agreements in place can help prevent any misunderstanding arising and provide a quick way of resolving disputes, before they become business critical.
This article first appeared in Out of Home magazine in June 2019.