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Governance – “Strange days have found us”

Many decades ago, the Doors told us “Strange days have found us” and the Grateful Dead said, “What a long strange trip it’s been”. I’m referring to the pervasive perception that everything – or at least far too many things – are topsy-turvy these days.

Let me explain. I am a business lawyer, not a litigator by choice. I do deals, friendly, happy deals where both sides to the deal crack the champers when closing happens. I don’t go to Court, ever (though I have appeared behind the barrister to whisper corporate law advice in their ear). I don’t like disputes, generally speaking…but governance disputes are quite interesting, I must admit.

However, I do governance advisory to corporations, associations, and partnerships. And what is “governance advisory”? you might well ask.

“Governance” is mainly about the government of organizations and the legal interactions of Directors and/or Officers and/or Shareholders – the parties that manage the affairs (run the business) of an organization. “Interactions” is a euphemism for parties fighting each other, often like cats and dogs. Usually, but not always, the fighting is about money, which makes sense in a market capitalistic state. (Governance advisory can also involve non-adversarial corporate matters, but much of what I have done recently involves disputes).

Sometimes though, parties are fighting about non-financial matters, like personality conflicts, bad behaviour at the Board of Directors, strident opposition to plans for changes, goals, ethics, corporate bullying – you get the idea.

In my practice, I am seeing more and more internecine corporate battles of extraordinary ferocity, complexity and correspondingly, extraordinary legal costs. It’s really expensive! I just received a Motion Record for a private not for profit club that is 106 pages long and has a multi-branch Bay St. firm acting for the disgruntled member. It’s unbelievable. Costs will skyrocket on this one!

Many governance fights never get to Court (or other formal dispute resolution forum) due to the high legal expenses. Like most litigation, these governance cases usually settle when one or both parties are experiencing legal fee fatigue. You can accumulate a lot of legal expenses before the parties realize the necessity to settle. And, like other litigation, a party generally must pay as they go – replacing retainers every month or so depending on the intensity. This fact gives wealthy parties a huge advantage over a party that can’t afford $5K monthly retainers, or more, or isn’t used to the fun world of being brought to Court.

From the very beginning of my mandate in a governance matter, I look for the sensible, easy, practical, speedy way to end the war, knowing it might take some legal strategic skirmishes to get to the point that settlement is taken seriously (for people “to come to their senses”). For example, there are various legitimate, legal actions that one party can take to advance their legal position before settlement.

Settlement does not always mean splitting a financial claim in half or forcing a difficult compromise of principle. Sometimes, there is a clear ‘right’ or ‘just’ side of things, but it will still cost a small fortune to drag the other side to the point of willing constructive discussions.

Returning now to my thesis: that many things have become topsy-turvy these days, it is my perception that people in organizations of all kinds are fighting with each other a lot more than in past times. I often say that “everyone knows a lawyer who will send one threatening letter, but it’s quite another thing to fund litigation proceedings” – but things have gone beyond that now. Lots of letters and emails are sent by lawyers threatening litigation (what we call ‘sabre rattling’) but in too many cases, they are going beyond that to actual Court proceedings – clogging up our civil (non-criminal) Court system so that everything costs more and takes forever to happen.

Even lawyers are shaking their heads and calling it “crazy times” – fighting in expensive Court forums over very low-dollar matters or trivial pursuits. My corporate clients with potential disputes or active disputes are advised to strenuously avoid litigation and if it is not too late, to obtain Directors and Officers insurance, aka D&O insurance.

I would repeat that advice to you: NEVER sit on the Board of Directors of ANY organization, incorporated or not, without there being adequate D&O insurance in place. You never know these days who or why someone will sue your organization and you as a Director, and the cost of litigation will make the D&O insurance premiums look like chump change.

This general topic of governance is huge, and it can be arcane. I will offering further pieces on governance, especially in respect of who can do what to whom, when & why (the “W5”) – Directors, Officers, employees, Shareholders, and the corporation itself. Understanding the legal rights, powers, and obligations of each party in the government of a corporation, partnership or other organization of people.

Grant Buchan-Terrell

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