“It depends on two things: on a very fine affection in the heart,
and of great accuracy in understanding”.
Madame de Lambert
(probably addressed to all partners of a partnership)
Following my participation the other day in a breakfast meeting on conflicts between partners (and I would like to take this opportunity to thank the organizers for continuing to hold this type of event), as well as reviewing the various topics discussed and analyzed at this meeting, it would seem appropriate to reflect once again, albeit briefly, on some of the most common aspects that arise in relation to conflicts between partners and the usefulness of having a good partners’ agreement. Here are some of them:
The human factor always counts:
When we deal with partners, whether they are individuals, institutions, companies or any other type of entity, we are always interacting with people and as such, the “human factor” is present and we must take it into account when making decisions and establishing relationships between partners. Buero Vallejo said that ” you have to be right, but not wrong“, which is another way of saying that you can’t compete against the “human factor”, you have to understand it.
Conflict is human:
Conflict is inherent in human relationships and it is inevitable that disagreements will arise in the relationship between partners. Thus, conflicts are not avoided; they are managed, addressed or transformed.
The partners believe they own the Company:
And they are. Not all of them in the same proportion, but all of them in part, because this is what it means to be partners and therefore, they deserve to be treated as such. The majority shareholder, by the fact of being so, tends to forget this reality and to think that by having the largest share he is more of an “owner” than the rest. This is true in proportion, but not necessarily in feeling or in belonging. It is essential not to forget that the company belongs to all the partners (even to the investment partners, even if their eyes are primarily directed towards their investment) and that ownership implies rights as well as obligations. The majority shareholder or the manager (when they do not coincide) must respect these rights as a fundamental pillar of the growth of the company or project. Without this continuous “encouragement” it is difficult for anything to grow or to grow properly.
The Partners Pact can help in this task:
A Partnership Pact does not prevent conflicts, but it is certainly a good tool to manage them in the best possible way. It is therefore advisable to have a Partnership Pact in place.
There is a moment to reflect:
A Partners’ Pact, when it is not simply the signature of a pre-existing model but the result of a discussion and reflection among those involved, allows to assess what each partner thinks of a particular project. It allows to understand why one partner thinks one thing and another one another, it allows to know how each partner contemplates the future and what he expects (and is expected) from his participation in the project, what reasons have pushed him to participate and what reasons could push him to disengage. Knowing this, conflicts can be foreseen and solutions agreed upon. Although they cannot be avoided, as mentioned above, their negative effects can be minimized; in fact, in some cases, they can even be turned into opportunities.
It is not always possible to contemplate all the casuistry:
It is a vain ambition to pretend that a Partnership Pact contemplates all the multitude of situations. We have to be aware that something will always arise that we had not contemplated, but if the bases are well elaborated, we will be able to devote our energy to solve this specific case and not to discuss or contest everything. Putting out a small fire is not the same as discovering that the whole house is on fire and there is no fire escape.
The obsolescence of the agreements must be taken into account:
By definition, any document becomes obsolete after a certain period of time by its very nature. Just as people and projects evolve, so do the premises on which we build the Partnership Pact and the way we read and interpret them. Experience, new developments, unforeseen events and the development of events in general influence not only the content of the agreements but also their application. Reviewing them from time to time and making the appropriate amendments is sometimes a good exercise.
A Partnership Agreement should be structured primarily as a dispute resolution mechanism. To be effective, it should not only address common issues such as transfer of shares, drag-along rights and confidentiality, but should also clarify the original intent of the partners and mechanisms for dealing with problems. This includes partnership valuation, indemnities, penalties, and deadlock management.
Despite efforts to avoid conflicts, sometimes it is unavoidable to go to court. However, before this instance, it is crucial to explore alternative avenues such as negotiation, mediation and other mechanisms. A well-drafted Partner Pact serves as a solid basis for these negotiations and solutions.
A lawyer can be a key ally in drafting, reviewing and validating the Pact, ensuring that it is well structured and prepared for any eventuality. At The Lighthouse Team, we offer expert advice in the drafting of Partners’ Agreements and in the resolution of conflicts. Contact us to resolve any questions or needs you may have.
