Recently all-star shoe designers Kari Sigerson and Miranda Morrison were fired from the celebrity-loved shoe company they started. To add insult to that injury, they were hit almost immediately thereafter with a lawsuit from their former business partner, Marc Fisher Footwear. Sigerson and Morrison have countersued, alleging a number of business violations and less-than-stellar personal conduct charges against their former partner, with the latter getting a good amount of blog coverage. What lessons can a business owner take away from this saga?
In the early ‘90s, Sigerson and Morrison joined forces and began designing and selling high-end ladies shoes, and had a lot of critical and commercial success. By mid 2006, the duo sought some working capital, and joined forces with Marc Fisher Footwear, who invested about $2.5M and in exchange took a majority position in Sigerson and Morrison’s company and acquired ownership of the intellectual property rights in their brand. It appears the wheels of this relationship began to come off around 2010, and the founding partners’ employment was terminated in 2011.
While being fired and then sued by a partner whom you brought onboard doesn’t happen every day, the scenario isn’t uncommon. How can a business owner protect herself from being pushed out? Some basic tips:
- Take your time and focus on all key terms on the investment. No doubt that the capital infusion is one of the main deal terms when bringing in an investor, or transitioning through a merger or acquisition. But who retains what voting rights, which day-to-day business and larger corporate decisions do and do not require your approval, and the express definitions of how and when an employee/partner can be fired are just as critical. Posing these questions and determining the answers can take considerable time and effort. If the potential investor or partner pushes you to sign any agreement or document quickly, or doesn’t afford you some reasonable controls over your business, you may need to rethink the transaction.
- The amount of capital investment is not more important than the person or people with whom you’re partnering. Famous names or successful brands in your industry or sector do not always coincide with reputable business histories. Pull back from the excitement of the deal, the implications of having that name attached to yours, what the cash infusion may mean to your business and your success, etc.; ask trusted colleagues about your would-be investor or partner, do your background research, and ask some direct, worst-case scenario questions of that investor/partner. Often this can give you invaluable insight into how this person or that group will handle their dealings with you.
- Hire an experienced transactional lawyer. Look for counsel who will challenge some your assumptions of the deal and will present you with less-than-rosy possible sequences of events if you move forward with the investor or partner. Of course you will want an attorney who handles these types of transactions regularly, but an objective analysis of the deal is just as important as knowing how to negotiate the terms and how to properly draft and review the contracts.
Of course, no deal is perfect, and it’s impossible to prevent even the best of intentions from failing. But with some perspective, dedicated time to research and hard analysis of the deal, many problematic ventures can be stopped—or at least identified—before they start.