Deal With the Devil - Again? Walk Away!

A friend of mine told me about a recent business negotiation that made me think about my judgment and risk tolerance. My friend, Kathryn, is a business broker. She helps clients buy and sell mid-size companies with revenues in excess of $100 million dollars. I view her to be an excellent, experienced negotiator and a good judge of character.

She worked for a client; we'll call Ralph, helping him acquire another company. Ralph is on a buying spree. He's purchased two industry related companies over the past 4-years.

While working with Ralph over a 2-year period, she introduced him to a number of sellers. One of Kathryn's introductions led Ralph to a company he eventually acquired. Without going into the practical details of the transaction, when the sale was executed, Ralph got out of paying Kathryn a commission. The commission at stake was in the 7-figure range.

Maybe it was a glitch in the fine print. I don't know. Kathryn retained an attorney and was prepared to sue Ralph for her commissions. As a last resort, prior to filing a lawsuit, Kathryn and Ralph met without their lawyers. She spoke from the heart. She didn't talk about legal terms, contract details and loopholes that had led to their adversarial situation.

Kathryn shared with him, the hardship her family had faced during the dispute. Not only had the family gone through financial distress, they faced emotional and health challenges with their daughter. At first, Ralph was in disbelief that his actions had caused such turmoil and adversity.

He told Kathryn that he respected her and wished to retain her services again in another acquisition. He agreed to pay her a small commission for her past work and held out the carrot of a new opportunity to earn even bigger commissions on the next deal.

Would you sign another contract with Ralph? I referred to my credit analysis skills for guidance here.

As a former credit reviewer, I scored the possibility of doing another deal with Ralph.

Mary's Modified 5-C's of Credit.

    Character: Score zero there.
    Cash Flow: Ralph has plenty of money to pay commissions.
    Counsel: Crafty legal advisors get him out of contracts.
    Capacity: Ralph's business is growing rapidly. He needs Kathryn's contacts and expertise.
    Chutzpah: Can be a bad or good trait. My favorite explanation of chutzpah is "A sense of shame that prevents you from acting with chutzpah to do the wrong thing, and a sense of chutzpah that prevents you from being ashamed to do the right thing." From Rabbi Tzvi Freeman, a senior editor at Chabad.org.

Kathryn signed a new deal with Ralph using a tougher contract attorney. She negotiated a monthly, non-refundable retainer. Would that be enough to keep her safe, sane and financially secure?

Would I sign another agreement with Ralph? My gut screams NO! "Fool me once shame on you. Fool me twice, shame on me," but my bank balance says yes. How about you?

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