Family Businesses and the Harbert Family Conflict

Posted on February 4, 2007

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I do not know anything about the Harbert scandal other than what is reported in the papers. (See article linked to below.) But as I read the stories, I think myself and every corporate lawyer in the city gets a little nervous. Knowing the large-scale amounts of money involved, I have no doubt that the best lawyers assisted in the negotiation of this transaction. Yet even with all the legal firepower brought to the table, the transaction still ended in two factions of the family going to war with one another.

There are several points that I can take away from this ugly episode:

First, even the best laid plans and most well documented transaction can end in litigation.

Second, family situations always complicate matters. Family businesses are a tough nut to crack, and books have been written about how to manage a family business. This is a classic example of a transition from the first generation to the second generation, and given the financial success of Harbert currently it is somewhat unique in that the transition happened as well as it did. However, a conflict always exists between family members who were working in the business and family members who are out of the business. To what extent should the family member working in the business bring value to the family members who are out of the business. There is no easy answer to this question, and perhaps each situation is different.

Finally, always consider getting a lawyer. These documents that we ask you to sign do have consequences. I have had people sign documents in all sorts of situations, as apparently the documents were signed by the sister. Quite frankly as a transactional attorney when I get to the table while you are free to read the document, it is my hope and expectation that you have already familiarize yourself with the documents, had questions answered, and prepare to sign them. Otherwise, I’m going to be at the table for very long time, and this usually is not the best and most efficient use of my time. Often I perform a transaction “for the deal". I can do this (see rule below), but the ethical obligations make such representation difficult. A lot of times you need to do it, otherwise you are going to over burden what should be a simple deal. Nonetheless, I think people – particularly business people – bear some of the burden of realizing the competing loyalties in any transaction.

I expect the clients to know what they’re signing. If they do not understand that I do expect that they will take up their disclaimer and get their own lawyer. If I’m working with a lawyer on the other side of the transaction, I have much more confidence that their representation in the transaction will help complete the deal in a much more professional manner and frankly much more enforceable as there is no discussion about whether the parties understood what they were signing. In short, I always encourage people (assuming that they are not going to charge my client) to get their own lawyer.

From a lawyer’s perspective, I think we as a profession need to do a better job to get the knowledge of the representation down, understand this fundamental deal points in the transaction, and review the deal in an efficient manner which does not cause undue cost, but also adequately represent the interest of the client. I think that is the challenge for me, but also think it is a challenge that our profession (if we want to remain relevant in the business world) needs to address.

Mike Goodrich, Goodrich Law Firm, LLC

LINKS:
"Harbert Heiress Sues Brother Over Family Cash," Birmingnam Business Journal (12/22/06)

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