Time of trial brings out our litigious side
By Luke Johnson
Published: May 19 2009 20:05 | Last updated: May 19 2009 20:05
A lawyer acquaintance told me last week that his firm was surviving the slump in corporate work thanks to a sharp rise in litigation. It seems that whenever the economy gets difficult, people start falling out with each other, and often the row ends up in court.
Sometimes this is because we want someone to blame for the problems. And one means of getting back at those we think are responsible for the mess is to sue: bank directors, mortgage lenders, investment managers, real estate valuers, rating agencies – whoever. These sorts of claims are highly unlikely to generate any cash proceeds, but I suppose they may bring the plaintiffs a small measure of moral satisfaction. My view is that such actions are a waste of time and money, and only the legal profession wins. As Luke, Chapter 11, verse 46, says: “Woe unto you also, ye lawyers: for ye lade men with burdens grievous to be borne, and ye yourselves touch not the burdens with one of your fingers.”
Of course, those lawsuits are not the really nasty ones. The truly vicious types are those where professional partners have a dispute. Plenty of team-mates at hedge fund firms, private equity shops, law practices, accountancy firms and suchlike are now busy serving writs on each other.
The causes of the quarrels are varied: usually money is at least a factor. With the spoils of business much shrunken there is less to go round, and some partners are finding that adjustment hard to take. They decide to shaft colleagues so they can have their piece of the pie too, rather than accept the pie is smaller. In many cases, the partners are of an age and level of wealth that a pay-off and a period of semi-retirement are not too much of a hardship. Nevertheless, their egos can take a while to recover. In some cases partners who make a mistake are cut adrift, to save the firm. And occasionally partners steal, lie, defraud or go mad – and so they too have to walk the plank.
Plenty of team-mates at hedge fund firms, private equity shops, law practices, accountancy firms and suchlike are now busy serving writs on each other
Such break-ups are invariably bitter. For those who previously worked together, to become enemies is a painful affair. A lot of sacked executives never recover their self-confidence when the board turns against them. Even if they are merely a scapegoat, their CV looks suspect and the outside world assumes the worst. One wonders what the world of commerce will make of all the disgraced bank executives in years to come.
Very often ownership arguments can trigger an opportunity for investors. I was able to take control of PizzaExpress with partners in 1992 because the founders disagreed about the direction of the business. Similarly, a few years later I was able to buy a significant stake in Topps Tiles because one of the trio of shareholder-managers could no longer work with his partners. Divorce and family disputes are common reasons for the sale of a business – even if the timing is poor from the perspective of maximising the valuation.
And great talents who have been sacked often possess a burning desire to get back at their old company. Think of Jeffrey Katzenberg and Disney, or Mickey Drexler and Gap. Both were terminated, and each has enjoyed a comeback at rival organisations – with DreamWorks and J Crew respectively – no doubt partly fired by anger. So ruptures are not by any means always bad news: they can stimulate fresh success.
Falling out can arise through envy, through desperation, through honour, and a feeling that some are not pulling their weight. Writs are being served all over the place for non-payment of debts, warranty claims over failed acquisitions, unfair dismissal and who knows what. The air is thick with recriminations and resentment, as the Great Recession leaves lots of people broke, unemployed or looking stupid and out for revenge.
Compromise and arbitration invariably lead to a better outcome, but testosterone, pride and high emotion can form a dangerous cocktail. All this litigation and fighting can be depressing, expensive and exhausting. It rarely pays, and usually destroys rather than creates wealth. I hope we can quickly move on from the errors and setbacks, learn the tough lessons and look forward to a more positive future.
lukej@riskcapitalpartners.co.uk
The writer is chairman of Channel 4 and runs Risk Capital Partners, a private equity firm
Copyright The Financial Times Limited 2009
Recent Comments