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Travails of the unexpected

With the UK economy recovering, Matthew Brandis, partner in the Litigation and Dispute Resolution practice at B P Collins LLP, examines how partnering with a trusted law firm can help companies prepare for growth by mitigating risk throughout the business lifecycle

Oscar Wilde once claimed that ‘to expect the unexpected shows a thoroughly modern intellect’. Well, as UK businesses prepare for growth and the green shoots of recovery begin to take hold, it’s perhaps time for some modern thinking.
 
The business lifecycle encompasses numerous legal challenges – some of them predictable, some unexpected. But failing to prepare for, or at the very least protect against, the unexpected can have damaging repercussions for UK companies. And it can knock even the best growth plans way off course.
 
Poor legal protection can be costly to business continuity, productivity and, ultimately, profitability. Yet despite this, many companies remain inadequately protected against some of the most common challenges. Insufficient attention to key aspects such as shareholder arrangements, standard terms and conditions and environmental obligations can have sudden and sometimes irrecoverable repercussions for any business. Moreover, the continued reliance on outdated processes, policies and documentation will almost certainly leave companies vulnerable to risks that could damage competitiveness and hinder growth.
 
However, with a little forethought, and the ongoing support of a trusted legal partner, companies can do much to safeguard themselves against the unwelcome or the apparently unexpected. By understanding their organisation’s legal requirements and regularly reviewing their existing operations, businesses can develop a robust yet flexible framework to minimise risk, improve resilience and optimise opportunities. Companies that routinely assess the challenges they face and proactively identify the challenges they may encounter will ultimately be well placed to grow through the recovery and well beyond it.
 
The question for senior executives is: are your operations fit for purpose? Are your processes, policies and documentation aligned with the strategic challenges of your current business environment? Or could outdated paperwork and practices leave you exposed to unnecessary risk tomorrow? The marketplace is dynamic – but are you prepared for it?
 

Changing landscape


The business landscape has changed irretrievably. The combination of time, technological development and the frugal necessities of recession, has led to a wholesale shift in attitudes, approaches and expectations. The ramifications for commercial law have been far-reaching. For example, the continued development of technology is giving businesses greater and more immediate access to information, increasing knowledge and extending choice across the business lifecycle. Alongside this, operational flexibility has become an essential business requirement – with implications for aspects as diverse as employment, supply chain relationships, customer loyalty, bank loans, leases and contracts. Increasingly, companies are moving away from making long-term commitments and instead seeking shorter terms that enable them to make a quick and painless exit.
 
The legislative environment continues to evolve too. Regulation around all types of discrimination has been strengthened significantly, while the recent Enterprise and Regulatory Reform Bill is giving shareholders greater say on directors’ pay and placing renewed pressures on businesses to strengthen employment terms and conditions.
 
The changing landscape has affected the legal profession. The most proactive practices are developing relationship models whereby legal services move away from the reactive bespoke approach, to one based on a trusted partnership. The relationship model is built around anticipating clients’ needs and matching them with appropriate services at competitive prices – right across the business lifecycle.
 

Expect the unexpected


The partnership approach is ideally suited to the dynamic modern business environment. Companies’ ability to manage business risk proactively is far more effective and much more cost-efficient; time spent on legal planning earlier in the cycle can prevent more damaging problems occurring at a later stage. Equally, an ongoing relationship with a trusted legal partner can help businesses respond to changing circumstances in a timely fashion as they move along the maturity curve.
 
So where are the potential risks? In reality, they exist across all stages of a business, but the most common challenges remain in traditional areas.
 
The first challenge comes right at the start of a business; the shareholder agreement. Business ownership is often a source of complication and conflict, with disputes between shareholders ranging from disagreements over personal financial returns, potential liabilities or a business’s general direction. Inadequate shareholder agreements can leave parties vulnerable to avoidable risk. Key aspects such as future financing, income and capital value, authorities and responsibilities, and succession planning should all be provided for in a shareholder agreement. Combining this with tailored Articles of Association can significantly minimise risk. Moreover, it can help companies proactively identify likely challenges at a time when shareholders are not in dispute – and prepare for them in an orderly manner.
 
The shareholder or partnership agreement doesn’t have to be complicated – it could start with just a few simple principles. Once in place, however, it can act as an enabler as you set about strengthening your legal arrangements to reflect what’s happening in the business.
 
For example, ensuring organisations are adequately protected in employment contracts is a commonly overlooked area. When working relationships turn sour or valuable employees leave, safeguarding key company information such as client lists, pricing structures, order books or IP rights is vitally important. The most effective way to protect against valuable trade secrets disappearing out the door is to draw up personalised restrictive covenants for key employees – and review them on a regular basis.
 
Managing risk in this way is crucial – companies need to ensure that they not only have adequate short term protection, but also that their systems and processes are agile enough to be able to respond to the demands of the evolving business environment in the long-term.
 
As companies grow and mature, the nature of your business challenges will change – and the need to review and adapt your legal arrangements will grow. These longer-term challenges can encompass a wide variety of issues. For example, commercial contracts and property leases each require a considered, customised and flexible approach. Businesses negotiating a lease need to ensure that terms such as rent, duration and break clauses provide precisely what they need. Weak agreements around alterations, dilapidations, maintenance and repair obligations can have damaging downstream implications.
 
Similarly, commercial contracts – including trading terms, supply contracts, licensing models and distribution agreements – need regular appraisal. This can not only ensure products and services deliver revenue to businesses, it can also protect companies by limiting their liabilities.
 
Likewise, day-to-day challenges such as debt management, disaster recovery, brand protection and anti-bribery policies all require robust processes and up to date documentation to protect against the unexpected. Further, as business channels and practices evolve, issues such as social media policy, online contracts and third party supplier agreements will routinely require due attention.

 
Be prepared


In a modern, post-recession business, proactivity is critical. The most effective companies will be those that are aware of the challenges their competitive environment may present and ensure they are well-placed to protect themselves against the dynamics of a changing marketplace. To succeed, businesses should develop a continual, long-term relationship with a strong legal partner. A trusted law firm can help prepare organisations for the common challenges of modern business, as well as providing guidance and protection against the unexpected.
 
The best partnerships will begin with a comprehensive review of companies’ existing conditions – a legal ‘health check’ – and an assessment of whether current operations are both fit for purpose and future proof. The development of a sustainable and proactive partnership can help businesses ensure their operational infrastructure is appropriate, robust and current.
 
With the economy recovering, the need for that health check is more immediate. It’s time for UK businesses to build on Oscar Wilde’s advice – and not only expect the unexpected, but prepare for it too. There are many common challenges along the business lifecycle, but through preparation and partnership, companies really can avoid the travails of the unexpected.
 

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