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Todd R. Southwell is a Partner in the Corporate Law Practice Group of Freeborn & Peters and his areas of focus include: Business Counseling, Insurance Industry Transactions, Portfolio Company Representation, Private Company Mergers and Acquisitions, Private Equity and Venture Capital, Private Placements and Securities Law. He has represented acquirors, sellers and targets in a large number of mergers, acquisitions, takeovers, leveraged buyouts, joint ventures and general corporate matters in a variety of industries including the airline, container, defense, energy and utilities, financial institution, food and beverage, insurance, medical device, plastics/synthetic materials, processing and software/computer.
Freeborn & Peters is a Chicago-based law firm comprised of more than 120 attorneys dedicated to a single purpose: providing boardroom level counsel to top executives on a wide range of business and legal matters while maintaining a high level of responsiveness and individual attention.
MO: Can you share an example of how you bring practical business decision making into your legal analysis?
Todd: My clients are looking for a corporate attorney that is more than just a hired gun for a single transaction or project. Owners, Board members and company executives are business savvy people that engage me as their corporate attorney because I am experienced, understand business and can lead a transaction team on a multi-million dollar deal but also assist the company and its management with other complex business matters. A company may hire me to handle a $75 million acquisition of a new subsidiary but then need to discuss how to address issues at their next Board meeting or terms of a prospective supplier arrangement or review information related to the company’s pending audit, etc. Executives and business owners in today’s business environment are looking for more than just legal counsel, they are looking for someone that provides sound advice, and independent voice that can assist the internal leaders of a company in guiding the company to success. I am currently representing a company that I initially represented on an acquisition but have been further retained to assist the company with post-closing integration issues, new customer contracts negotiations, strategy issues and information gathering for the Company’s Board and equity holders. Clients want to be comfortable with the fact that they can engage legal counsel that can talk with the Board and C-level executives but also the hands on management and staff all the while guide them through a wide array of issues. By no means do I handle all of a client’s legal needs, but I have the legal and business acumen to understand the issues confronting management and owners and then pull in the various experts in certain areas of need, for example, tax, ERISA, environmental or intellectual property. Also, while I do not take the place of an accountant, a CEO and CFO can sleep much better at night when they call me up and we collectively discuss with the companies’ financial situation with the companies accountant.
MO: What are some common misunderstandings that directors have about their obligations to their staff members and company in general?
Todd: I am frequently engaged by Boards of Directors and individual Board members (I am including Managers and Board of Managers in my description) that ask me, what should we/I be doing to make sure we are managing the company properly. This is the sign of a good Board, as they want make sure they are to do the right thing for the company and its equity holders. A member of a Board of Directors is entrusted with decision-making and oversight duties. They must make decisions related to framing (with management) the policies and objectives of the company, while approving or denying material corporate actions. A director must monitor how management is conducting the business of the company. When making decisions, the director must be sure to exercise his/her duty of care and loyalty as well as a duty of good faith, fair dealing, confidentiality, full disclosure, among others. Exercising these fiduciary duties, however, does not require the directors to take over the management of the company. The directors, in their role on a Board, are there to guide the business down the correct path, while management is there to execute the plan. Directors need to make sure they are receiving information from management regarding the operations of the company so that the directors can make independent, sound and well reasoned Board decisions. It is a bit of a balancing act for a director to make sure they are exercising their fiduciary obligations in decision making while allowing management to run the company.
Another misunderstanding directors have with respect their obligations is to whom they owe their fiduciary obligations. While a state’s general corporate law generally drives the obligations of a director, the director must keep in mind that his/her fiduciary obligations are generally owed to all of the equity holders of the company and to the company itself, not one equity holder or limited set of equity holders. Thus, the director must (i) act on an informed basis and (ii) in good faith with an honest belief that the decisions being made are in the best interest of the corporation. Companies that are subject to Sarbanes-Oxley and stock exchange rules, may also have additional obligations to consider. Always keep in mind, even if a director was appointed by one equity holder or is the key equity holder, that director is entrusted with representing the interests of all equity holders and the company. What may be a good decision for one equity holder, may be a bad decision for the company as a whole.
I am frequently engaged by clients to represent the Board of Directors or managers with respect to their fiduciary obligations and duties. I will work with them closely to ensure they are following their required duties and make decisions in line with the business judgment rule and other rules. To do this, I assist Boards and companies (regardless if public or private) with the following, among other many other items:
-Evaluate all issues through a fiduciary duty lens;
-Consider whether decisions are fair to all and maximize value for the company;
-Require regular updates from management;
-Retain outside experts to assist and advise;
-Avoid conflicts of interest;
-Closely scrutinize transactions;
-Monitor a corporations solvency; and
-Make decisions with all equity holders and the company (or creditors where warranted) in mind.
MO: What advice would you pass onto a company that is considering a merger?
Todd: The first thing is to make sure it is the right decision for the company and its equity holders. Take the time to map out the short term and long term pluses and minuses of a merger or any corporate transaction. Engage experts early in the decision making process as they can help the company thoroughly assess if a merger or transaction is the right decision for the company and its equity holders. These experts can also assist the company in preparing for a transaction which will usually save the company money as opposed to getting them involved late in a transaction. I am often engaged by clients to work with them in this decision making process. As discussed above, clients like that I possess practical business sense and decision making skills along with my legal skills and that I employ all of these in order to help clients determine the best course of action.
Be sure to engage the proper counsel and advisors. A company may have very good and competent lawyer representing them with their basic needs, however, when doing a merger or other transaction, experience and the proper team of advisors (tax, IP, labor, benefits, etc.) is key. Understand the impact the multitude of provisions in a deal document may have on the parties in the deal is extremely important. In addition, many of the deal terms impact the parties in the future, and not having a solid understanding of those terms can create unexpected future liability. Seasoned transaction counsel is able to efficiently and competently negotiate and draft the terms of deal, while pulling in specialized tax, ERISA, IP and other counsel to assist in those specific areas so that the client is protected and gets the best deal.
Additionally, if a company anticipates entering into a merger or other strategic transaction at some point in the future, the company should start to review its internal records, policies and operations before it decides to start a transaction. I have seen many deals either slowed way down or even killed because of surprises discovered as a buyer conducts diligence, because a company is not organized or a target is simply perceived as being in disarray due to poor internal housekeeping. I recently had a client engage me to work with its management team to conduct a pre-transaction company review and internal reorganization. As we were going through this process, the company’s management team was able to discover and correct several issues that would have significantly reduced the overall purchase price.
MO: What important considerations need to be made when selling a successful company?
Todd: The first consideration is whether a seller is ready to sell. Sometimes the best decision a seller can make is not to sell a company at that time. Has the seller considered all options before it agreed to sell? For example, have the owners talked to multiple potential buyers about buying the company (I would suggest entering into confidentiality agreements before having serious discussions). As a director or member of management, just be sure not to violate your fiduciary obligations as you talk to prospective buyers. Be sure to discuss any sale or other transaction with a corporate attorney, accountant and tax attorney familiar with transactions to ensure the sale is structured in a tax advantageous manner. The sale of a business can create adverse tax consequences if not property analyzed in advance.
If there is going to be sale, is the seller receiving the best price for the company? If the seller is not sure, they can talk to a valuation company or investment banker to help them value the business and market the company to multiple buyers to maximize value. Engage competent counsel familiar with these types of transactions so that they can prepare the seller for a sale of the company, guide the seller through the seller diligence part of a deal, negotiate the deal, advise the company and its equity holders about the terms of the deal, close the deal and minimize post-closing risk and liability. Be aware that a buyer will ask the seller to make representations and warranties with respect to the business that could cause the seller post-closing liability since the seller will have to indemnify or reimburse the buyer if those representations and warranties are not true.
MO: How have alternative energy sources becoming a major national priority created a unique set of legal challenges?
Todd: The legal challenges facing the alternative energy field are actually many of the same challenges facing those in the existing energy field as well as the general business field. A developer of a wind farm for example will encounter many of the same legal challenges facing a company wanting to build a coal power plant, screw manufacturing business or even a Walmart store. Companies and people involved in the alternative energy sector face zoning regulation issues, sight obstruction issues, permitting issues, community members claiming NIMBY (Not In My Back Yard), landlord issues, etc. In addition to the general legal challenges, you also have cooling water discharge issues (solar and biomass), avian pathway issues (wind), groundwater protection issues (geothermal), environmental impact of waste or siting (biomass and hydro) just to name a few. The biggest challenges to those involved the alternative energy sector right now or those trying to get into the alternative energy sector may not even be legal challenges, but are financing challenges. With many of the governmental subsidies ending/not being renewed and lenders/investors hesitant to lend/invest money to alternative energy projects, the alternative energy sector is having difficulty advancing projects.
Information contained in the above interview is not legal advice and is for informational purposes only. Any questions regarding the above can be directed to Todd R. Southwell at Freeborn & Peters LLP at (312) 360-6565 or firstname.lastname@example.org.