A close friend pointed out in my April 21st blog post My Journey…that I did not provide any detail on the way we created our ownership group at Counsilman – Hunsaker.
I knew from the beginning that to carry the firm to the next level I needed an engaged team with a shared risk / reward. A professional marriage of sorts that had the team members committed to the long term success of the firm. While my father was not comfortable with partners, I realized that to attract the best, they would want to participate in a meaningful way. Looking at the legal and accounting fields, if you are not a partner, you have not arrived. The same is true, although less prevalent, in the other professional service firms like architecture and engineering.
The agreement with my father prevented me from adding partners until his note was paid in full. However, we started the process almost immediately of laying the ground work for what ownership would look like by discussing all of the various expectations, issues, concerns, and “what if’s”. We created a white paper outlining the issues and collective expectations on how to deal with them. We then retained legal counsel to memorialize our goals and objectives.
This was more difficult than one might think. The legal team wrote the first version one sided focusing on providing every protection and benefit for me. Our goal was to create working documents that could support multiple transactions over the life of the firm. We used 100 years as a guide. On the fifth draft we had a solid structure that was well documented. The next question was how to fund it?
It is my belief that stock has real value and should be purchased at that value. We did not favor other stock strategies like phantom stock or different classes of stock. The stock was not to be given away or discounted. So how to finance the purchase? On the first purchase, I provided my personal guarantee to the bank. Call it priming the pump. It allowed the bank time to get comfortable with the ownership team. This was the only time I provided this level of support. These new owners were taking a leap of faith on me and on a good but untested ownership plan.
A good business decision requires that all parties have all of the information and understand it. To invest in this success, we provided a budget for each perspective owner to get outside legal advice. The goal was not to modify or negotiate but to understand the terms of the commitment. This process served us well. Our ownership documents and process supported multiple transactions including the purchase of my majority ownership.
The guiding principle that I used in working through all of the questions, issues and challenges was “What’s good for the goose is good for the gander”.