Business ethics question (how upset should I be) – a poll

In My Humble Opinion
1

I was recently asked by an acquaintance of many years to help him with his business. Basically he was in financial trouble and needed urgent advice and assistance. The business is essentially strong but they had made some bad decisions and found themselves in a cash flow crunch. They had over invested in equipment and premises and also the owners had spent money on new cars, houses etc.

I analyzed his business and financials and it looked like he essentially had a good business with lots of potential. He has also recently signed a contract that is worth quite a bit (although he needed cash flow to fulfil this contract as well). On the strength of our past relationship and the business’s potential I agreed to help him. I drew up a business plan and approached a few people to secure him funding. Through my contacts I secured him enough money to get him out of trouble from a potential investor who was really interested in the business.

In all ways it was an excellent deal. The investor did not demand shareholding in the company, he had the money immediately available and could add a lot of value through his own (non-competing but associated industry) business that would grow the business even more. His requirements were essentially that he was involved in the financial decision making until his money had been repaid and that the directors commit personal sureties.

All this was done in 3 weeks. All this time I had been dealing with him as the CEO of the company. The investor had been to their offices a few times and we were all introduced to the staff. I spent many days there gathering information for the business plan. At the end of the 3 weeks he introduces me to his father (who I had never met before) and asks me to explain the deal to him. I explained my findings and then he asks me to explain it to his wife and the accountant (who turns out to be a family friend). I essentially explain to them that I have an investor who is willing to pledge the money to help them out of trouble and under the circumstances it is a very good deal (win/win all around).

After getting a bit of flack from them I leave thinking I’ve explained myself properly and the deal will continue. I meet with the CEO again the next morning and he tells me to go ahead. The next day I suddenly get an email thanking me for my input, telling me that they do not want to do the deal and that my mandate to secure funding for them is ended – no explanation and no offer to pay me for my time and effort… Since then (about 2 weeks) I have not been able to get in touch with the CEO despite numerous emails and phone calls.

Obviously what he did was wrong and in poor taste. He should at least have the guts to call me and explain what happened, and at least offer me some compensation for my time. (I think the problem is that his parents are shareholders and he never discussed anything with them and they vetoed the whole idea). I wasted a lot of time and effort and was left in a very embarrassed position.

Now on to the question:
Without going into the details of the matter I am in a position to bankrupt his business (100% legally). My lawyer and the investor have told me that we can essentially bankrupt the guy, transfer his contracts to a new company and continue running the business (but without the debt). He (the CEO) would however lose substantially in his personal capacity as would his parents. Now I am pissed at him but I’m not sure if I’m that pissed. It’s a really strong reaction (over reaction?) to him pissing me off.
I can just invoice him for my time spent although I suspect I will never get the money (or at least not for a while).

To put things in perspective I spent about 40 hours (excluding travel) on the project and my hourly rate is substantial (equivalent to about $300/hour). He would still be able to stay on in the business and earn a salary and he has a very real chance of losing the business anyway.

There’s also a part of me that would like to do it just to see how it can be done (a la Gordon Gecko or Other People’s Money - it’s a type of “hostile takeover”).

Should I do it or should I just let it go.

2

Not sure what anyone else will come into say, but my reaction is that both your billing him, and the takeover, seem to be motivated more by revenge than anything. If you went in expecting to be paid, given you do this for a living it would seem likely you would have discussed payment, drawn up a contract or something like that? Depending on the discussion, it may be that you volunteered your time, and I understand that you’d like to get paid now, but would that be his expectation?

Re the takeover - yeah, does sound like you want to prove to him that you were right all along, and he should have listened to you. And perhaps he should! But he didn’t, and I would say, walk away from this, and realise that some times deals fall though, and that’s just the way it goes. The only caveat to this (also from Wall Street!) would be if you took over the business for the good of the employees etc. I don’t think that’s what you’d be doing, and you may get yourself a bad rep in the meantime.

3

DYM,

Did you have an initial agreement with him on your compensation ??

I own a business, and I think it is highly unethical for your friend to dump you like this .

But I will let it go , in my career I did let go on a similar occasion.

4

Don’t choose a course of action based on being pissed off. It can occasionally be a good idea to choose based on goodwill, where you give a good business contact a break. I think these folks have burned up whatever goodwill they may have had with you.

If the takeover is a good business deal for you, go for it. If you normally invoice businesses for your efforts, even if they don’t take the final deal, invoice them. Do everything by the book, and do what is best for you and your business. I would feel perfectly justified in ignoring their personal losses in any decision I made.

5

I think your choice should reflect what kind of a person and businessperson you want to be. As I understand it, you already know that walking away from it all and doing a hostile takeover would both be within the realm of legitimate choices. Interestingly, there isn’t much middle ground (except perhaps billing him and using the threat of takeover as leverage in getting your time compensated).

You might very well want to grow your business experience, as you suggest, and of course grow your assets too. Or you might prefer to see yourself as a safe and helpful person that others generally won’t regret approaching, whether they eventually engage or not. So, I’m left suggesting you should picture who you want to be in a year or in ten years, and judging which action is more consistent with that.

You’re not sure you’re pissed enough to do the takeover. This is an interesting point. I think a takeover would be a big enough project, with a big enough impact on all sorts of other people, that you probably shouldn’t do it out of anger. There are other perfectly good reasons to do it, so I’d vote for choosing on the basis of those.

6

Here are the questions I would be asking:[ol][li]Is the good relationship you had with this guy salvageable?[]Is it worth salvaging?[]If you didn’t know this guy from Adam, would taking over his business still seem like a good idea?[/ol]The answer to the last one is crucial–if it’s “no”, you’ll be committing yourself pretty strongly just to get revenge on an acquaintance. Otherwise, the takeover might be a good idea.[/li]
If you decide to go through with it, can you give him any win? That might make the whole thing a lot easier.

7

I don’t see how you can ethically claim he owes you for your time, unless you had an agreement that you would be paid. Yes, he should have offered you compensation but if you went into it without an agreement then that is your own fault.

Ethically, you should let it go. But then again ethics and business rarely have anything in common.

8

Wait- were you going to bill him for $12,000? ($300/hr, 40 hours total) That sounds like an absurdly high amount of money.

9

Not that high if his services will both save this guys business and make it prosperous.

10

First, did this guy think you were helping out of friendship or in a professional capacity. Did you tell him your hourly rate? Would you have billed him if the deal went through? If not, I don’t think it is ethical to bill him.

Second, is any part of your ability to bankrupt him based on your examination of his books? If so, then it is definitely unethical for you to use this information against him. I’d check with a lawyer about the legality of it.

Third, if I were the potential investor, I’d consider myself lucky to be out of the deal.

11

There once was a time when I would’ve agreed with this. But I’ve seen enough stupid people get rich in spite of themselves that I see things like this altogether differently now. I think it’s just as possible the OP’s friend wanted his parents to bail him out, and he used the OP to work up a feasible and convincing spiel for their benefit. If his business does succeed now, it will be on the back of the OP’s graciousness. (And no, $12,000 for business consulting is not that much.)

I say take this ignorant prick for the whole package. Hell, I’d do it just for the satisfaction of firing him. There’s no such thing as luck, and he sounds like just the sort of dishonest, incompetent “friend” who deserves his comeuppance.

Okay, okay, that’s a bit harsh. If you’re not that angry, then bill him, give him a month to pay, and if he doesn’t, THEN deep-six the idiot.

12

You’re going to have to explain to me how you are going to use confidential business information to ethically and legally bankrupt a company and steal their business.

How many employees does the company have? It sounds like a small family run business. If that’s the case, 300 bucks an hour is excessive by a factor of 10 or so. How much financing did you arrange?

13

I’m going to have to agree with others here who said that if you had an agreement with the business owner to pay you for your services, bill him for all services rendered without batting an eye. If you didn’t have an agreement, learn from your mistake and don’t do it again. I wouldn’t go ahead with bankrupting him out of revenge; I don’t roll that way.

14

The agreement was that I would take a comission of 7.5% of money raised. I raised $400 000. That would have been $30 000 which is much more than my hourly rate would have been but then again to raise that amount of money when the banks won’t even look at you is quite difficult. I did discuss my hourly rate with him for future consulting work but as I got the go ahead to raise the money I did not bill him hourly. By him cancelling the agreement at the last minute I essentially get nothing unless I bill him something for time spent.

I am not using his confidential financial information against him beyond the fact that I know he’s in trouble. The takeover hinges on the fact that he needs to fulfil contracts which he doesn’t have the ability to do and also outstanding debt that he cannot service. He is in imminent danger of being bankrupted by other people and the idea is essentially to jump ahead of the others and do it first - which allows us to take over most of the assets (contracts) without losing too much. In effect we are actually saving the business to a certain extent because if it is done by someone else he will lose everything and there will be no business to salvage at all.

This is probable the best advice here. I guess I just don’t feel comfortable screwing someone over just because I can. I’ve also been in trouble and I found that a lot of “friends” dissapear but many also helped out. And at least no one kicked me when I was down. (Except the ex but I think that’s their job)
I’ll bill him for my time and leave it up to him whether he regards the relationship worth salvaging.

15

Sounds like a choice you’ll have no reason to regret.

16

I think you’ve made a reasonable decision, and one that you can live with holding your head high.

Of all the things you’ve related, this is the one that bothers me the most: “Since then (about 2 weeks) I have not been able to get in touch with the CEO despite numerous emails and phone calls.” I don’t know what the character and extent of your relationship has been so far, but for me this would leave precious little to salvage.