David Jacobson's External Insights

Re-opening a deal: when renegotiation is better than no deal and a day in court

Lawyers will tell you that a formal contract is needed to protect you when your rosy honeymoon with your business partner is over. Businessmen will reply that it's all about the relationship.

The different points of view will be tested when one party to a contract wants it renegotiated because of changed circumstances or because it didn't reflect what was intended. Is a deal, a deal fixed in concrete or should it be renegotiated?

Jeswald Salacuse's You Cut a Bad Deal. Now What? analyses the dynamics of renegotiating an existing agreement. He makes a number of suggestions of what to do before the deal breaks down including one that renegotiation be specifically provided for:

Rather than viewing a long-term transaction as frozen in the detailed provisions of a lengthy document, try viewing the deal organically, as a continuing negotiation in which you seek to adjust your relationship with the other side to your rapidly changing work environment. Accordingly, your long-term contract might provide that at specified times or upon specified events, you will renegotiate or at least review certain provisions. Through this approach, you confront the problem of contract violations in advance and establish a clear framework for renegotiation.

If the deal does break down, Salacuse argues "Weigh your claim against the value of the relationship":

Willingness to renegotiate a contract typically corresponds to the value one side attaches to a potential future relationship with the other side. If the relationship is worth more than your claim for breach of contract, you ordinarily will be willing to engage in renegotiation. If, on the other hand, you conclude that your claim is worth more than the benefits from a continuing relationship, you may insist on your contractual rights to the point of resorting to litigation.

You may not be able to accurately evaluate the worth of a claim or the value of a renegotiated contract without first engaging in discussions with the other side. Moreover, satisfaction of a claim through litigation is almost always a lengthy and expensive process, a further motivation for choosing to renegotiate.

Australian Counter-Terrorism

The  Council of Australian Governments' Special Meeting on Counter-Terrorism on 27 September 2005 has issued a communique which details the breadth of the measures agreed on.

As well as national emergency measures the new laws will cover:

• Security of Mass Passenger Transport
• A National Approach to Closed-Circuit Television
• Aviation Security and Policing at Australian Airports
• Identity Security
• National Standards for the Security Industry
• A Strategy for Chemical, Biological, Radiological and Nuclear Security

The area that has received most public attention is the strenghtening of counter-terrorism laws. Whilst the details are still emerging the communique says:

• the Commonwealth Criminal Code   will be amended to enable Australia better to deter   and prevent potential acts of terrorism and prosecute   where these occur. This includes amendments to   provide for control orders and preventative detention   for up to 48 hours to restrict the movement   of those who pose a terrorist risk to the community.   The Commonwealth's ability to proscribe terrorist   organisations will be expanded to include organisations   that advocate terrorism. Other improvements will   be made, including to the financing of terrorism   offence (including by the use non-profit or     charitable organisations).
• Queensland would continue   to use the Public Interest Monitor for control   orders and preventative detention.
• State and Territory leaders agreed to enact legislation   to give effect to measures which, because of constitutional   constraints, the Commonwealth could not enact,   including preventative detention for up to 14   days and stop, question and search powers in areas   such as transport hubs and places of mass gatherings.   COAG noted that most States and Territories already   had or had announced stop, question and search   powers.
• The NCTC will settle the amendments to the Commonwealth   Criminal Code by the end October 2005   and consider options for harmonising State and   Territory legislative provisions.

It will be interesting to see the impact of these laws on everday life and business.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 has been the subject of much debate in that country with many unintended consequences.

The beSpacific archives on the Patriot Act cover a range of issues including debate on access to anyone's financial, medical, employment and even library records in the name of national security.

If you manage a business, then these new laws will affect you.

Why we don't share stuff

Recently I looked at whether you can force someone to change.

In The Psychology of Information, or Why We Don't Share Stuff Dave Pollard suggests that " what impedes the sharing of information in most organizations is our personal and shared culture, rather than inadequacies in technology, knowledge management, or learning programs."

He gives 16 cultural factors which cause knowledge failures including "People know more than they can tell, and tell more than they can write down".  That remark is credited to David Snowden.

David Snowden, with the Institute for Knowledge Management, uses three principles to test if technology will work to help spread knowledge: One, knowledge can only be volunteered; it can't be conscripted. Two, people always know more than they can tell and can tell more than they can write. And three, people only know what they know when they need to know it.

The key is to find systems or technology which make the telling easy.

This Fast Company article discusses the topic in more detail.

Government assistance for doing business in Queensland

You're interested in doing business in Queensland. What government financial and information help can you get?

The Queensland Government's Department of State Development, Trade and Innovation is the place to start.

GOBiS can help you find a range of business assistance programs offered by both the State and Commonwealth governments.

It also offers an online business licence information service: SmartLicence.

Ausindustry is the principal Commonwealth agency to speak to. Its programs include:

automotive competitiveness and investment scheme (acis)

certain inputs to manufacture (cim)

enhanced project by-laws scheme (epbs)

commercialising emerging technologies (comet)

If you're particularly interested in Brisbane, talk to Velocity Brisbane.

Shareholder Friendly Annual Report

The Australian Institute of Company Directors (AICD) has launched an illustrative guide to reporting that companies can offer shareholders, entitled 'The Shareholder Friendly Report'. (pdf)

The Shareholder Friendly Report is a plain English, easy to digest document to communicate financial and non-financial performance goals and results from a company's directors to everyday shareholders.

The key features of the report are:

• Tables and graphs are easy to read and are accompanied by thorough explanations;
• Financial information is understandable and in a more informative form than statutory layouts;
• Describes company performance against stated corporate strategy;
• Written specifically to inform as a performance report from the stewards of the business (board and management) to the shareholders;
• The report is endorsed by the auditor as consistent with the full financial statements contained in the annual report;
• Summarised divisional reports are included to show what is happening within the company. They are still performance reports, and in a format consistent with the CEO’s report;
• Does not require interpretation by finance experts to be meaningful to the broad base of Australian shareholders;
• Designed to provide an understanding of the business rather than act as a list of how a company complies to regulatory requirements;
• Includes overview statements preceding each section;
• Defines financial and non-financial measures used.

The report is sectionalised so that there is a:

• Chairman’s review of strategy and governance, and a CEO’s review of operations and risk management – including an evaluation of past performance, current direction and an outline of quantified future targets, key assumptions and sensitivities;
• Summarised financial statements – presented in a more user-friendly format to statutory layouts;
• Directors’ declaration – assures shareholders that in the board’s opinion, the report is presenting a true financial picture of the company and that the company is not at risk of insolvent trading;
• Auditors’ report – assures shareholders from an independent perspective that the summarised financial statements give an accurate reflection of the company’s financial affairs as presented in the fully compliant annual report; and
• Summarised divisional reports – gives shareholders insight into what is occurring within key areas of the company.

Can you force someone to change?

Many businesses have used change agents or change management techniques. But we all know that threats to employees will not change ingrained habits.

In Forced to change Eric Mankin argues that innovative products will be more successful if they do not require the learning of new skills by potential customers eg the Toyota Prius has had a better response than the Segway. He also argues that significant changes in purchasing occur because of supply disruptions which benefit other suppliers who are in the right place at the right time.

Ron Friedmann looks at change in the context of knowledge management. What does it take for colleagues to share information with each other? He says an automated approach will work better than a manual approach which requires individuals to consciously change their habits. He says " change is hard and behavior follows external incentives."

Measuring corporate governance

Whislt corporate governance is usually expressed in principles, Governance Metrics International (GMI), a corporate governance research and ratings agency, has announced new ratings on more than 3,200 global companies.

So how does it assess corporate governance?

GMI argues that there are performance patterns associated with poor corporate governance:

Companies that were consistently poorly rated were far more likely to have restated earnings, been subject to accounting investigations by regulatory authorities or found guilty of accounting fraud. As a group they reported more related-party transactions involving senior officers or directors, they were more likely to have multiple classes of voting stock and their boards had fewer independent directors than companies with consistently good ratings. Perhaps most telling is that the average three-year total shareholder return for the consistently poorly rated companies was 8.73% versus 15.93% for the well governed companies through September 1, 2005. During the same period the S&P500 had an average return of 11.91%.

Australian companies BHP Billiton and Westpac were among the companies that received the top rating.

Queensland Public Hospitals Commission of Inquiry

The evidence received by the terminated Bundaberg Hospital Commission of Inquiry will be admitted by the new Queensland Public Hospitals Commission of Inquiry.

After a slight delay, the new Inquiry has established a website with the features of the old Inquiry's site.

Leadership and passion

The publishing industry is making a fortune out of books that try to answer the questions: What are the essential qualities of an effective leader? Can these be recognized in young people? Can they be developed?

In The Essence of Leadership Jonathan Byrnes is refreshing in his honest approach:
Leaders are "people who leave their footprints in their areas of passion."

Can you be a good leader without being a good manager? In my experience, the best leaders are also great managers, and the best managers have strong leadership capabilities. To be successful, you must have both a passion for improving your organization and the capability to drive your efforts through to completion...

Most importantly, to be a great leader, you need to find what you really like. That's where the passion, commitment, and integrity come from. In my experience, the most important underlying factor in leadership is whether a person has searched out and found a great match between what's in his or her heart, which is what he or she really enjoys, and the work situation.

via Adam Smith Esq

Hurricane Katrina and the legal system

How do you plan for a catastrophe where a  city's inhabitants are either dead or re-distributed over a number of other cities, where buildings are destroyed and their contents damaged?

If you run a professional service firm (like a legal office) and you can''t find your clients and your office and files and computers are damaged, then you start again.

A Legal System in Shambles (NY Times)