You Might Just Lose It All!

Not only is ignorance not bliss, it isn't a legal defense. The call began like this: “Let me tell you what I've been dealing with; I need some perspective...” A 30-year industry veteran had sold a firm when the economy tanked to another entity as part of its vertical acquisition strategy. The deal sounded good on the surface: it was to have brought the firm the capacity to play on a larger scale, and the owner the ability to step back into sales, which he enjoyed.

Fast forward to the present, with the honeymoon over. The new firm's Board of Directors have met only three times in two years. This board member has little (if any) knowledge as to the fiduciary responsibilities and liabilities of the company. My questions begin: "Is your license on the line? If so, where? Have vendors and those with whom you have relationships been paid?" I could have gone on, but my queries stop when I learn that the firm does not carry Directors and Officers Insurance. D&O is liability insurance payable to the directors and officers of a company, or to the organization(s) itself, as indemnification (reimbursement) for losses or advancement of defense costs in the event an insured suffers such a loss as a result of a legal action brought for alleged wrongful acts in their capacity as directors and officers.

Ignorance is not an excuse for a board member responsible for the goings on in their company. I point out that the upside potential in the form of a leadership role with "exposure to play on a broader scale" comes with what appears to be a downside, calling into question the sustainability of this relationship. In this case, the best news is that the one year employment agreement has already been completed and a decision is pending on whether to extend it or leave. My advice to this former firm owner, and to anyone else in this situation? Seek legal counsel. Otherwise, you might just lose it all!

Karen Compton, CPSM. Karen Compton is principal of A3K Consulting (Glendale, CA), a business development and strategic planning firm specializing in the architecture, engineering and construction industries. Ms. Compton is also the founder of Industry Speaks™, a web-based business-to-business portal that connects AEC firms with experienced consultants, provides peer reviews of consultants, reports on key industry trends, and publishes expert reviews of professional courses and books. Contact her at kcompton@a3kconsulting.com.