Process Insights Archives

“Umbrella Negotiating” – Best Response to Private Equity “Hurricane Tactics”

Published on February 5th, 2019 by Alan L. Sklover

Umbrella Negotiating Sklover Working Wisdom

 
“I am no longer afraid of the storms for I am learning how to sail my ship.”

– Louisa May Alcott

ACTUAL CASE HISTORIES: Kalisha, 44, had worked for six years as the Financial Controller of a St. Louis-based, family-owned lighting distributor. After three generations of family ownership, during which the staff grew from two to 150, the grandchildren-owners received an inquiry from a Private Equity firm about their interest in possibly purchasing the company. With assurances that each grandchild would likely make many millions of dollars when, three to five years later, the “re-invigorated” company was to be sold. It didn’t take long: they decided to “cash out.”

Pretty soon, the Private Equity firm, their lawyers and their accountants began reviewing the company’s financial records, bank statements, leases, employment agreements, all as part of their “due diligence,” upon which their formal “offer” would be based.

It did not surprise anyone when the company’s owners called for a meeting of the company’s executive team to announce what was happening. At that meeting, the overall message was clear: “This is a great opportunity for everyone. There will be bonuses, there will be stock ownership, and this will be a golden opportunity for everyone . . . So long as you stay on board, work hard, help make the company a greater success, we might just make enough money to never work again.” Wow.

Then, four months later, without warning, the management team were called into a conference room, given documents to review, and told they needed to be signed by the next morning. Each executive received six documents, some one page long, some tens of pages long, each nearly impossible to understand due to their dense legal wording, multiple definitions, and confusing cross references. When some people asked for a chance to have their attorneys look them over, they were sternly warned, “What are you going to do? Don’t you trust us? Don’t ruin this for everyone.” To make a long story short, everyone signed, and no one ended up happy.

As Private Equity investors increasingly assemble “private equity” – meaning investments from college endowments, individual investors, pension funds, and religious organizations – this scenario is playing itself out scores of family-owned companies each day.

LESSONS TO LEARN: The commonplace understanding of employment agreement negotiation is a rather simple, three-step process: (i) first, the employer provides the employee with a draft document; (ii) then, the employee and his/her lawyer look it over, (iii) finally, the employee’s lawyer and the employer’s lawyer discuss, and negotiate, mutual concerns. With few exceptions, that is not how Private Equity investors and owners operate today with companies they purchase in order to sell.

With few exceptions, Private Equity investors (a) buy, (b) change, and (c) resell companies over three to five years. They are not long-term investors. They seek the best possible return for their investors and themselves, and do anything and everything they can think of to do just that.

The problem is this: to do so, they often promise the sky, and make sure the “papers” provide little or nothing of that. Instead, they tend to (a) reduce employee overhead (meaning salary and benefits), (b) manage to avoid paying out “suggested” promised bonuses and stock or other forms of equity, and (c) make sure that the agreements that they require employees to sign provide them the right to do just those things. Generally speaking, over time, they will bring in their own executives whose job is to sell the company, not to run it. They have no loyalties; they have only greed, and the legal help to get them what they want. Unless wisely resisted.

Do they want anyone to know or understand what they are signing? No. And they are good at it. Remember: (a) Buy, (b) change, (c) sell, within three to five years. And to do so they engage in what I call “hurricane tactics.”

“Hurricane Tactics” are what I call the use of seemingly overwhelming force, in an atmosphere of near-blindness, by among other things a “blizzard of papers,” so that the course of events proceeds this way: (1) rather vague assurances are made to employees of great opportunity and fortune, provided the employee agrees to remain and work hard for several years, however (2) without any solid commitments being made to ensure the employer fulfills those vague assurances. Instead (3) the agreements are chock full of provisions by which the employer is enabled to avoid and evade any commitments, of any kind, to the employee.

A. What are these “Hurricane Tactics?”

    1. Lack of Clarity: The use of words, phrases, definitions and dense, complicated language an experienced employment attorney has a devil of a time understanding. There is simply no good reason to draft legal documents no one can understand; only bad reasons. (See the next section: The documents almost always say, one way or another, that if there is anything unclear in the documents, the “Management” has full and final say about what it means);

    2. “Unlimited Leeway”: Provisions in the agreements that give to employers the sole, final and unreviewable decisions – like “sole and unreviewable discretion” – as to what a document means, or what constitutes “reasonable,” “promptly,” “bad faith,” “adequate performance,” “cause” and “misconduct,” to name just a few, making those words and phrases essentially meaningless;

    3. “Subject-To” Provisions: Phrases that make the employment-related agreements “subject to” other documents that are not provided for review, such as the Limited Liability, LLC Operating, or Shareholders’ Agreement. Others, such as the “Award Agreement” for stock or options are often not even drafted yet. “Subject to” means that this document is subservient to other documents, and that those other documents govern and control in the event of any inconsistency, conflict or dispute. But it is almost always the case that you have no right to change those other documents, and they do, without telling you. (See the next section.)

    4. “Incorporation by Reference” of Other Documents that are Changeable Unilaterally: As examples, the three agreements noted in the preceding agreement are controlling, and each of them provide that they can be modified at any time, without notice. So, if an employee is provided 2% of the company’s shares, these documents can permit 10 million new shares to be sold, making the employee’s ownership not 2% of the company, but 0.00002 percent. So these “incorporated by reference” documents can make the one you are signing essentially meaningless.

    5. Coercion by Last-Minute Lateness (“Don’t be the one who spoils this for everyone.”) Perhaps most cynical of all, the practice of providing the employees only a day or even just hours, to review several documents consisting of hundreds of pages, and no real opportunity to even find or retain an attorney, to request changes or otherwise negotiate.

In one instance, my client was given only 30 minutes to sign several documents, and only the signature pages of the agreements were given to her to sign; the substance of the agreements were not provided, so she had no idea what she had agreed to. For Private Equity investors, that means “Mission Accomplished.”

So, those are the fundamental elements of the “wind-in-your-face, rain-in-your-eyes” hurricane tactics. Is it possible to successfully negotiate against these “Hurricane Tactics?” Yes, it is, and I’ve found the best way is to use what I call “Umbrella Negotiating.”

B. So, What is this “Umbrella Negotiation?” Simply, focus on two things: (i) Firm Footing (what I call “Positional Leverage”) and (ii) one Document that Covers Everything (an “Umbrella Memo”). By those phrases, I mean the use of two concurrent strategies, (i) “positional leverage” before the hurricane arrives, and you are exposed to its unsettling and disorienting “elements” and (ii) preparation of one single – and rather simple – document that covers you regarding all other documents, in all events, just as a strong umbrella does in a hurricane.

“Positional Leverage” and “Umbrella Memos” are explained in greater detail below. Simply put, for now, it is being on your firmest footing, and projecting your points in the negotiation as soon and as clearly as you can.

“Umbrella Negotiation” serves to hold back the strong wind, protect against the furious rain, and permit you to both see what is going on around you, and to stand up to it, not getting overwhelmed, drenched or “hosed.” The elements of “Umbrella Negotiation” are explained below.

Is it easy? No, but with a little effort and energy, it’s not impossible, either. Is it effective? Yes, it can be very effective, and I truly believe it is the most effective way to address Private Equity “Hurricane Tactics.” Just as David defeated the more-powerful Goliath with a firm footing and a single, simple weapon, so too can you prevail in employment negotiations with Private Equity investors or owners.

WHAT YOU CAN DO: These are the “Umbrella Negotiating” steps that I employ in these circumstances and they are in my experience the most effective way to negotiate employment agreements of nearly every kind:
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Don’t be too Rational . . . It’s not Logical.

Published on May 8th, 2018 by Alan L. Sklover

Two Heads Logical Rational

Workplace Negotiating Insight No. 17: Don’t be too Rational . . . It’s not Logical.

Observe and Learn:

It happens quite often . . . clients share with me their frustration, their disappointment and their difficulties at work due to the seemingly irrational behaviors of others.

Underlying these frustrations and disappointments are their views that some other person they are dealing with is not acting rationally.

Here is an example: “If he just scheduled our team meetings on Friday, then the entire team could attend, and that would prevent so many miscommunications.”

Here is another example, “If she would just approve one more staff member on my team, all 12 of my other team members would be more effective, and we would more than make up the cost. I just don’t understand her thinking.”

Often, my response is this: “It is not wise to expect people to be rational because when you do so, you are not, yourself, being logical. Logical people recognize and incorporate into their expectations that people are both rational and irrational, and often more irrational than rational in nature.”

What so many people miss – and in doing so cause themselves untold difficulties – is that so very much of people’s behavior is not based in rational thought, but rather in emotion.
Some people go so far as to suggest that most of human behavior is not rational, but emotional.

Fear, greed, lust, insecurity, control, pity, revenge, and other emotions so often lurk beneath the surface of daily life, and underlie even our loftiest decisions.

Not taking into account these powerful emotional motivators makes you so rational that you are not, yourself, being logical. And often the key to getting whatever it is you seek lies in your appealing not to others’ rational minds, but rather to their emotional needs.

And, this is not a one-way street. As the saying goes, “Understanding other people’s motivations is very hard. Understanding your own motivations is even harder.”

So, in dealing with others at work, navigating and negotiating through your work day and work life, bear in mind that expecting 100% rationality is so, so often simply illogical.

Observe and Learn.
Then Navigate and Negotiate.

Need to send a memo or letter? A good checklist or form agreement? For a complete list of our Model Letters, Memos, Checklists and Sample Agreements, Just [click here.]

Interested in Membership? It’s free, and has advantages, including discounts on our products. Just [click here.]

Need a private telephone consultation? Just [click here.] Evenings and weekends can usually be accommodated.

© 2018, Alan L. Sklover All Rights Reserved. Commercial Use Prohibited.

Make a “Go File” . . . Pleeeeeze

Published on May 1st, 2018 by Alan L. Sklover

File Folder

Workplace Negotiating Insight No. 16: Make a “Go File” . . . Pleeeeeze

Observe and Learn:

Life is unpredictable, and workplace life is especially unpredictable. You need to be prepared.

You don’t know when you might be laid off, offered a great job elsewhere, or be cut off from access to your office computer.

If anything good, bad or ugly happens to you at work, to protect yourself, your finances and your career, you REALLY need to have at hand a copy of the various written materials that seriously affect you. Otherwise, you will be “in the dark,” and effectively unable to stand up for yourself. At a critical time, being “in the dark” is not good.

What written materials? They include offer letter, employee handbook, bonus agreement, emails in which you were given promises or assurances, retention agreement, employment agreement, stock option award, non-compete agreement, etc., etc.

Trust me: If a real problem occurs, your computer access will be turned off before you know it. And, HR will not provide such materials to you when you most need them. Then you will not be able to negotiate.

And, too, if a prospective employer, recruiter or interviewer asks to see your present agreements, or review your non-compete, if you are unable to provide a copy, you may lose out on a terrific opportunity.

For example, can you start a great new job next month, or have you signed a “Garden Leave” provision in which you promised to give six months of notice when you leave?

So, it’s prudent that, little by little, you take home and keep a copy of all such written materials, and place them all into a “Go File.” Just as “emergency preparedness” authorities recommend people should create a “Go Bag” of valuable papers and prescription meds just in case they need to evacuate their homes without notice in event of fire, flood, etc.

Be wise. Be prudent. Be prepared.
Protect yourself by creating a “Go File.”
Pleeeeeze. You’ll be glad you did.

So many of our clients have failed to do so, and have suffered mightily because they didn’t.

Observe and Learn.
Then Negotiate.

Need to send a memo or letter? A good checklist or form agreement? For a complete list of our Model Letters, Memos, Checklists and Sample Agreements, Just [click here.]

Interested in Membership? It’s free, and has advantages, including discounts on our products. Just [click here.]

Need a private telephone consultation? Just [click here.] Evenings and weekends can usually be accommodated.

© 2018, Alan L. Sklover All Rights Reserved. Commercial Use Prohibited.

Workplace Negotiating Insight No. 15: “Standard Language” . . . There’s no such thing.

Published on April 10th, 2018 by Alan L. Sklover

eye

It happens to me nearly every day; in fact, it happened to me just last week. When discussing language in a legal document with an employer’s HR or Legal representative, I am told “That is standard language. So, we can’t change it.”

I know why they say that: they are fearful. You see, “long, long ago, in a land far, far away,” some attorney prepared that “standard language,” and this person I am dealing with today is fearful that, if he or she makes a decision to change it today, it could be a mistake. So, it’s easier to use the excuse of “standard language” than to use their brain to address the opportunity, problem and people counting on us to do so.

To get past that, I remind this person of three points: first, this problem is not “standard,” but arose from “substandard” events, so its solution cannot be “standard.” Second, this opportunity is not standard, so the language we need to use is not going to be “standard.” And, third, these people are unique and special, so our efforts on their behalf require unique and special language.

What am I really saying? In essence, “The people you and I represent want this problem to be solved, or this special opportunity achieved. We should try “special” hard to make sure that gets done. They deserve an extra ounce of thought and an extra pound of courage from us . . . otherwise they will not be happy with the outcome . . . or us.”

If you are ever uncomfortable with the “standard language” put in front of you to sign, and are told “It is standard, so we can’t change it,” think of these “non-standard” arguments to overcome such nonsense.

Sure, you should say it “softly,” and sure, you should say it “simply,” and, too, you should say it with “sincerity.” Get past the “standard” argument, and get to the “special” one -the one that works- you and your employer want.

You are not standard, and your employer is neither. Instead you and your employer are worthy of the effort and fortitude that this problem, solution, opportunity and situation need. It’s like buying shoes . . . they’ve got to fit your feet.

This usually works for me, I am confident it will likely work for you, as well.

Observe and Learn.
Then Negotiate.

Need to send a memo or letter? A good checklist or form agreement? For a complete list of our Model Letters, Memos, Checklists and Sample Agreements, Just [click here.]

Interested in Membership? It’s free, and has advantages, including discounts on our products. Just [click here.]

Need a private telephone consultation? Just [click here.]

© 2018, Alan L. Sklover All Rights Reserved. Commercial Use Prohibited.

Promise Received at Work? Ask These Two Critical Questions

Published on February 13th, 2018 by Alan L. Sklover

 
“People with good intentions make promises.
People with good character keep them.”

– Author Unknown

ACTUAL CASE HISTORY: Brianna, an Executive Assistant to the Regional Vice President of a major clothing chain, was soon to complete her fifth year of service, all with positive attendance record, positive performance reviews, and positive relations throughout the company. Without her seeking it, one of the company’s vendors made her a job offer with greater compensation and a clear career path to executive level responsibilities.

When Brianna gave her Manager notice of resignation, he pleaded with her to stay, and promised her, in turn, that he would ensure she soon received a very significant ?“retention bonus” totaling almost one half of her full-year salary. With that promise in hand, she politely declined the job offer that had been made to her.

Brianna waited one month, two months, then six months, and the promised retention bonus did not arrive. Finally, she summoned the courage to ask her Manager about it. He said he would look into the matter for her.

About a week later, he told her he had good news, namely, that he confirmed with the company’s Controller that the retention bonus had been officially approved. When it still had not been paid to her after another month, she then received a memo from the Controller’s office apologizing for taking so long to get back to her. The Controller’s memo, though, contained some considerably disappointing news.

First, the retention bonus would be paid, but not for another year “as had been explained to you,” but had not, in fact, ever been discussed. Staying for another year was not something her Manager had ever mentioned.

Second, her retention bonus would be paid to Brianna “if and only if” (1) her next performance review was “exceeds expectations,” (2) the region she worked for met its sales goal for that year, and (3) she assumed additional responsibilities, including extensive travel, that had never been part of her job.

Oh, and one more thing: Brianna’s retention bonus was also conditioned on her agreement to relocate to another city if the company moved her division headquarters during the next year, something that recently had been rumored.
Brianna did not feel at all that she had been treated fairly, not in the least. She decided to seek a position with another employer, as soon as possible, with no looking back this time.

LESSON TO LEARN: What Brianna learned – the hard way – is that, at work, if a promise, assurance or pledge is made to you – whether of a raise, bonus, promotion, stock options or anything else of value – you should instantly ask two critical questions: “When?” and “What are the If’s?” meaning the conditions for receipt.

Nailing down the answers to these two simple questions will greatly increase your chances of receiving what was promised to you, perhaps more than anything else you can ask, say or do.

WHAT YOU CAN DO: At work, If you are offered, promised, assured, pledged or guaranteed anything of value, ask both (1) “When?” and (2) “What, if any, conditions exist on my receiving it?

Ideally, you will develop the habit of asking these two questions, because if you don’t ask them, you just cannot expect anyone else at work to ask, or answer, for you.
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Alan L. Sklover

Alan L. Sklover

Employment Attorney
and Career Strategist
for over 35 years

Job Security and Career Success now depend on knowing how to navigate and negotiate to gain the most for your skills, time and efforts. Learn the trade secrets and 'uncommon common sense' of Attorney Alan L. Sklover, the leading authority on "Negotiating for Yourself at Work™".

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