Bottom Line Business Insights : Maryland Business Lawyer & Attorney : Wagonheim Law Firm : Mergers & Acquisitions & Contractual Negotiation

 Guest Blogger: Michael Lentz, Esquire

It’s that time of year again. The NCAA’s annual tournament to determine college basketball’s national champion, colloquially known as “March Madness®,” started last week. In one of Thursday’s games, tiny Morehead State upset traditional powerhouse Louisville, in a true David-vs.-Goliath outcome. Trailing by 2 with roughly twenty seconds left, Morehead State had the ball and called its final timeout.

            Morehead State’s coach told his team to deliver the ball to Demonte Harper and just wait. The plan was that Harper would hold the ball for one final three-point attempt, as time expired. The game would be decided then and there. At the time, Harper had made only two of his nine shots, none of his five three-point shots, and by all accounts was having a terrible game. Of course, Harper made his shot, and Morehead had its Hollywood ending. 

            In interviews after the game and the next day, Morehead’s coach said that he planned to use Harper in an all-or-nothing spot because he was generally an excellent shooter, and he was several inches taller than the players likely to be guarding him. As a result, he would likely have an easier time taking a shot. The coach knew his players’ respective strengths, put them in position to succeed, and trusted them to do their jobs.

            That’s great advice for any small business owner. Figure out what every member of your team does best, and put him or her in a position to do that, as often as possible. If you’ve got a genuinely wonderful “people person” who would be an excellent ambassador for your company, get him in a position to interact with the people that matter to your company. Similarly, a shy, quiet wallflower type is probably best not being your receptionist or leading a sales team. Let your speakers speak and your writers write. 

Of course, once you’ve identified each person’s strength, keep asking them to use it, even if they’re in a bit of a slump. This is true even when the outcome really matters – in fact, it’s especially true when the outcome really matters. That’s (probably) why you hired them in the first place.

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In my post on February 1, 2011, I wrote about the benefits of dating before one gets married. I was writing specifically to warn against the danger of inviting someone into your company as shareholder or director based solely on hope or expectation. My strong recommendation was (and always has been) to work with the person, see how s/he:

• Reacts under pressure
• Interacts with company personnel
• Affects the general work environment
• Works on a day-to-day basis
• Actually performs the job you s/he has been brought on to do.

Only after “dating” can a business owner be even reasonably certain of the advisability of a long-term relationship. 

But that’s not the end of the company-as-marriage analogy. There is still infidelity to deal with.

When one participates in a company, as an owner, officer, director, or even some other variety of “managing agent,” the laws of most states impose certain duties on that person. Chief among them is the “duty of loyalty.” One would think, just as with marriage vows, that one would only breach the duty of loyalty at one’s own peril.

In life, there are always temptations. In business, that temptation takes the form of the desire to take more (or all) of a good deal for oneself rather than sharing the proceeds with others. Sometimes, the thought occurs with the possibility of landing a large, new contract or upon hearing of a tremendous sales opportunity. 

“Maybe,” the thought goes, “I could set this one up outside the company and triple what I would otherwise get in commission or draw.”

Possible. Sometimes, to be sure. But what of those left on the outside looking in? 

Maryland Law, like that of most other states, has made actionable what is known as a “breach of corporate opportunity.” This means, in effect, that one may be held liable to compensate the corporation for the improper taking (some would say “theft”) of a business opportunity that rightfully belonged to the company. 

Let’s assume that Susan Smith was a shareholder and vice president of ABC Janitorial Corporation. Upon seeing an opportunity for a large contract on the horizon, Susan set up a new company with her husband called DEF Cleaning. DEF then snared the contract for itself. In so doing, it wrongfully claimed one of ABC’s opportunities for itself. 

The long and short of it is that Susan, as a co-owner and officer of ABC, owed ABC something better than just her full-time, physical presence. She owed ABC her loyalty. When she decided to deprive ABC of an opportunity that rightfully belonged to it, she committed the corporate equivalent of adultery. 

 And in business, just like in marriage, there is usually a price to pay.

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Guest Blogger: Michael J. Lentz, Esquire

Last October, CNN ran a story about a Pennsylvania woman mauled by a pet bear that she kept in her backyard. When I saw this story, my first thought was “well, that was a headline waiting to happen.” CNN also reported that, in addition to the 350-lb. black bear, the woman kept a Bengal tiger and an African lion. Apparently, she had the necessary permits from the Commonwealth, and “the property routinely passed inspection and had no violations.” Even doing everything right, the poor woman was obviously still at risk. After all, the bear, even in a cage in a Pennsylvania neighborhood, was still a bear. 

Of course, almost all small businesses have bears in their backyards, too. Whether it’s a client or customer who persistently fails to pay, or an employee who shows up late, leaves early, and habitually fails to produce, or a vendor that consistently fails to deliver as promised, business owners often accept, and even seem to welcome these rascals. Despite well-honed instincts warning of potential problems, many business owners disregard these instincts, for a variety of reasons, some sound and some not. With proper care and feeding, the delinquent customer, incorrigible employee, or unreliable supplier may, for a while, appear pleasant to have around and a worthwhile addition to the business. 

Eventually, though, damage to the business is inevitable. The customer will abandon the business with an enormous receivable, the employee will disappoint a significant client in a critical situation, or the supplier will fail to deliver vital materials. 

Bottom Line: Trust your instincts, and remember that the things that threaten your business now will threaten it as long as you welcome them, even if they appear to be under control for a while. 

Michael graduated from Georgetown University Law Center in 1998. After spending five years with large Baltimore firms and three years as a solo and small firm practitioner, Michael joined Wagonheim Law in 2006, where he continues to utilize his extensive experience in commercial, bankruptcy, and appellate litigation to work with companies throughout the mid-Atlantic region.

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