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Transfers of Corporate Securities

The Business Transactions Solution chapter on Transfers of Corporate Securities (BTS §§ 38:1 et seq.) covers routine changes in the composition of the ownership group of a corporation which occur as a result of transfers of corporate securities. Each sale and transfer of shares should be memorialized in a stock purchase or transfer agreement that addresses the following key terms: 

  • The identity of the parties to the agreement (e.g., the seller and the purchaser and perhaps the corporation and/or the remaining owners, when consent of those parties is required), including full names and addresses;
  • A description of the specific shares being sold (i.e., the entire interest of the seller in the business or some portion of the interest);
  • Desired changes in any shareholders' agreement which are deemed necessary in connection with the admission of the new shareholder (e.g., amendments to reflect the rights of the new shareholder to participate in the management of the business); and
  • The purchase price for the shares being purchased and sold, the terms of payment, and the creation of any security interest in favor of the seller in the event that the purchase price is to be paid in installments. Typically, the security takes the form of a security interest in the shares being sold.

In some cases, one or both of the parties may also be required to deliver certifications or legal opinions regarding issues such as their legal status to enter into the agreement; good and clean title to the shares; and the enforceability of the agreement.

A sale and transfer of a large block of securities may be conditioned upon satisfaction of certain conditions. If so, the parties may provide for escrow of a portion of the purchase price and for delay of the closing until the escrow agent has received appropriate evidence that the condition for the transaction has been satisfied. See BTS Specialty Form at § 38:70.  Conditions may vary depending on the situation. For example, the sale may be made subject to approval by the corporation's board of directors. See BTS Specialty Form at § 38:71. Or, the transaction may be subject to compliance with a co-sale agreement involving other shareholders, in which case the agreement should include procedures for purchasing shares from other shareholders electing to exercise their co-sale rights. See BTS Specialty Form at § 38:72.

The parties may also include restrictions on the ability of the purchaser to attempt subsequent sales and other transfers of the shares covered by the agreement without complying with the procedures included in the agreement such as a right of first refusal in favor of the corporation that has issued the shares.  The issuing corporation is also a party to this agreement in order to enforce its rights with respect to the right of first refusal and the covenants made the purchaser not to transfer the shares in a manner that will violate applicable securities laws and/or impair any public market for the corporation’s securities.  See BTS Specialty Form at § 38:71.50.

All BTS materials are available to Westlaw Next users.


Assigning Contract Rights in Business Sales Transactions

While business sales transactions can be completed using a variety of formats, including a merger or a sale of ownership interests, it is common for the parties to agree on an asset purchase structure.  In that situation, the seller will need to deliver various transfer documents to complete the change of ownership including a bill of sale to transfer ownership of personal property, deeds of trust to transfer real property, and assignments for transfers of leases, contract rights, and intangible property. A separate assumption of liabilities also may be needed in appropriate cases.

Sale of a business often involves a transition period during which the seller will remain involved in certain aspects of the business.  For example, the parties may use an assignment of the rights, obligations, interests and liabilities associated with an identified contract in the context of a purchase and sale of business with the caveat that the assignor (i.e., seller) will continue to provide invoice and collection services under the contract for the benefit of the assignee (i.e., the buyer) until such time as the assignee elects to terminate such services and take on those activities on its own.  If necessary, the form should also include the consent of the beneficiary of the contract, the “customer”, to the assignment and to ongoing arrangement with respect to invoicing and collection.

A template for assigning contract rights in business sales transactions is available in Business Transactions Solutions (see Specialty Form § 291:242) for Westlaw Next users.  


Be Aware of Myths about Millennials in the Workplace

As “millennials”, workers born between 1980 and 2000 (sometimes referred to as “Generation Y”), have become the largest group in the US workforce, consultants and pundits have built a cottage industry on providing advice on why and how millennials need to be treated differently in the workplace.  Books, articles and speeches paint a picture of a generation disgusted and disenchanted with the old ways of doing things and the perceived career aspirations and paths of their parents.  An article in The Economist discussing “Myths about Millennials” in the workplace reported that we are being continuously told that because of the way they were educated and their participation in social media, millennials are natural collaborators (“team players”) who reject mindless competition and striving to get ahead.  Other important things that companies are supposed to take as truisms about Generation Y include their antipathy to careerism and “being managed” and their need to sure that the work they are doing is meaningful, interesting, challenging and socially responsible. 

All of this noise has pushed companies to consider new ways of enticing job candidates and treating workers once they have arrived and the upturn in emphasis on and funding for corporate social responsibility initiatives is not necessarily a bad thing.  However, The Economist urged companies to be wary of what the newspaper referred to as “dubious generalizations about younger workers” and described the results of surveys conducted by CEB, a consulting firm that asked questions of 90,000 US workers each quarter, and Deal and Levenson, who studied 25,000 people in 22 countries.  Noting that the data collected by Deal and Levenson led them to argue that generalizations about millennials are “inconsistent at best and destructive at worst”, The Economist article suggested that a more realistic picture of Generation Y might include the following:    

  • Competitive: The responses from millennials themselves indicated that as a group they were more competitive than the baby-boomers (workers born from 1946 to the mid-1960s).  59% of the millennials (as opposed to 50% of the baby boomers) agreed that competition was “what gets them up in the morning” and 58% of them (as opposed to 48% for other generations) compared their performance with their peers.
  • Individualists, not collaborators: A lifetime of continuous communication with other millennials on their smartphones did not prevent millennials from being much more distrustful of their peers’ input at work than other generations.
  • Seeking career opportunities:  Rather than being anti-careerists, millennials outpolled other generations by a margin of 33% to 21% when asked whether “future career opportunity” was among their top five reasons for selecting a particular job.
  • Not that hot on corporate responsibility:  35% of the millennials did indicate that corporate social responsibility (“CSR”) was very important to them; however, the issue resonated more deeply with the baby-boomers (41% of which said that CSR was very important to them).
  • Not really so difficult to manage: 41% of the millennials in a survey of 5,000 workers done by Deal and Levenson agreed that “employees should do what their manager tells them, even when they can’t see the reason for it,” compared with 30% of the respondents from other generations.
  • Preference for face-to-face feedback:  While millennials were adept at and comfortable with conducting many types of communications digitally, more than 90% of those surveyed were clear that they wanted “face time” with their managers when the subject was evaluation of their performance and their career plans.

The article also pointed out that reports that millennials were more eager and willing to change jobs did not necessarily mean that they were different from their parents since younger people have always been more likely to move around more frequently as they learned more about their interests and continued their search for a position that was right for them and their skills.  In addition, the apparent willingness uncovered in the surveys of millennials to take guidance from their managers and the hunger of millennials to get face-to-face feedback might also be an indication that millennials, like most workers who have passed through the same age group in the past, are aware that they still need help from others with more experience on “learning the ropes”.  In fact, The Economist summed it all up as follows: “The most striking thing about the research data compiled by the likes of CEB and the Centre for Creative Leadership is how much workers of different generations have in common. They want roughly the same things regardless of when they were born: to be given interesting work to do, to be rewarded on the basis of their contributions and to be given the chance to work hard and get ahead.”  Organizations and their managers would do well to take notice of hard data before throwing away all of the motivational tools they have used in the past and should sit down with the millennials in their workplace and talk with them to sort out myths, understand their expectations and explain the needs of the organization.

Sources: “Schumpeter: Myths about Millenials—Businesses should beware of dubious generalizations about younger workers”, The Economist (August 1, 2015), 60 (also available online).  Among the commentaries and other sources cited in the article were Tamara Erickson, Plugged In” The Generation Y Guide to Thriving at Work (Harvard Business Review Press, 2008), CEB, Jennifer Deal of the Center for Creative Leadership and Alec Levenson of the University of Southern California.  See also C. Marston, Myths about Millennials: Tips for Managers about Retaining Millennials.



New Chapter on Leadership Styles & Practices in Business Transactions Solution

Leadership is a universal phenomenon that has preoccupied scholars, politicians and others for centuries.  In the management context leadership has been consistently identified as playing a critical role in the success or failure of organizations and some surveys have pegged up to 45% of an organization’s performance on the quality and effectiveness of its leadership team. Apart from organizational performance, researchers have consistently found a strong correlation between leadership styles and behaviors and the job satisfaction and performance of subordinates. 

In practice, leadership is more than just personal traits and attributes or issuing directives from a list and, in fact, the reality is that leaders must be able to mix creative visioning with the often difficult and time-consuming tasks that must be completed to engage followers and enlist their support to move their organizations, and themselves, through turbulent changes.  Practicing leadership begins by recognizing that four primary factors must be considered: the “leader”, who must understand who he or she is and what he or she knows and realize that his or her success is dependent on the leader’s ability to build trust and confidence among the followers and convince them to follow the leader’s directives; the “followers”, who all have their own needs and require different styles of leadership that can only be identified if a leader is attuned to understanding human nature and the factors behind the needs, emotions and motivations of the followers; the form and content of “communications” between the leader and his or her followers, which is interactive (i.e., two-way), frequently non-verbal and central to the development and maintenance of effective relationships; and the “situation” or “context”, which determines the actions that should be taken by the leader and the style that the leader should employ.

Each of these factors is subject to a variety of forces that may impact the choices that a leader makes regarding his or her behaviors.  For example, while the idea that a person must have certain inherited traits in order to be a leader has fallen into disrepute, the personality characteristics of the leader will invariably come into play as he or she assesses problems and opportunities and decides what steps need to be taken in working with followers.  Other forces that will likely be relevant include the skills and experiences of the followers and how they interact with one another; the history, internal culture and structure of the organization; the societal culture in which the organization operates; and competitive conditions, particularly the strategies being used by peer organizations to motivate their employees.  Leaders must approach these factors, and the forces that influence them, with a solid analytical framework that can be referenced from time-to-time to ensure that they are paying attention to the things that really matter.  A framework suggested by surveying the literature on leadership might include several elements: the requisite “skill set”, which should be constructed and nurtured by reference to the appropriate performance imperatives for executive leadership; the roles and activities expected from an effective leader; personality traits and attributes which can be learned and perfected by persons aspiring to leadership positions; and styles of leadership, which encompass the strategies used by leaders to engage with their followers. 

This month we've added a new chapter to Business Transactions Solution (§§ 23:1 et seq.) that will provide lawyers with an introduction to definitions and conceptions of leadership and a basic understanding of leadership functions and activities, leadership traits and attributes, leadership styles and performance imperatives for organizational leaders. The chapter also covers the history and evolution of leadership studies, cross-cultural leadership studies and leadership practices and styles in developing countries.  The chapter includes checklists performance imperatives for organizational leaders, core leadership roles and activities, functions and activities of transformational leaders and leadership traits and attributes.  The chapter also includes a slide deck presentation on leadership to be used for law firm training purposes and several guides relating to various aspects of practicing leadership from the Business Counselor's Mini-MBA Program. 


Must-Have Skills for a Startup CEO

Writing for Forbes, Deeb argued that being a “startup CEO” was one of the hardest jobs in the business world given the wide range of skills that were needed in order to be successful and the enormous odds against the new company surviving, and the lack of resources relative to a CEO at a Fortune 500 company.  He noted that there is no universal profile for “the best startup CEO” and that people differ in terms of skills, style and personality and companies face different challenges with respect to market conditions; however, in his view there were a handful of “must-have” skills for increasing the chances of being a successful startup CEO that included the following:

  • “A clear vision of where the ship is sailing”, which means the ability to articulate and execute a plan for creating a unique and competitive solution to a real world problem for potential customers
  • “A finger on the pulse of the industry and competitive trends”, which involves staying on top of trends and collecting information that can be used to steer the company in the direction it needs to stay afloat once the journey has been launched
  • “Solid team management skills to keep all employees sailing in the same direction”, which includes articulating the vision to employees, building a consensus for the vision among employees and listening to and implementing ideas from employees about how to improve and achieve the vision
  • “Impeccable sales and motivational skills, while maintaining credibility with clients, investors and employees”, which means acting as the “Chief Evangelist” for the new business and generating excitement for the vision while simultaneously demonstrating business judgment, intelligence and credibility
  • “Keep the business on plan and budget”, which involves setting and pursuing “achievable proof-of-concept points”, creating strategies for the key drivers of success and putting the right people in place to manage them and relentless tracking progress to spot and address problems quickly
  • “Keep the company liquid”, which starts with setting the right proof-of-concept points and then establishing a reasonable timetable to achieve those points and making sure that the company has enough capital, including a cushion, to achieve those goals 

Deeb’s suggestions obviously overlap and the startup CEO has to keep each of them in mind as he or she runs the business and interacts with employees, customers and investors.  For example, as a practical matter the most important concern of the CEO at the beginning is to “keep the company liquid and in business” and the best way to do this is to be sure that the launch phase business plan is focused on attainment of proof-of-concept points that prospective investors have accepted as reasonable triggers for providing additional funding.  At the same time, when budgeting for the pursuit of the initial goals the CEO must be realistic and anticipate the problems will inevitably arise as they usually do for startups.  This means that the CEO must have a “Plan B” in mind and must be prepared to make difficult decisions, including salary reductions and even layoffs, in order to keep the company going long enough to find smoother waters.

Source: G. Deeb, “The 6 Must-Have Skills For A Startup CEO”, Forbes (February 12, 2014),  [accessed June 24, 2015] 


Law Firm Leadership in the 21st Century

The various traits and attributes of effective leaders identified by researchers must be practiced in a manner that is aligned with the organizational context and external environment in which the leader is operating.  The legal profession has typically been averse to seeing the practice of law as a business; however, as law firms have gotten larger and competition for clients and skilled legal talent has intensified, the need for firms to select and follow strong leaders has become apparent. 

In an article about some of the changes in law firm leadership since the beginning of the 2000s, Cunningham observed that law firm leaders are become more and more involved with the same types of issues as the CEOs of their clients and moving away from their long-standing comfort zones of practicing law and building and maintaining a “book of business”.  Law firms now look to experienced lawyers who have achieved credibility as rainmakers and subject matter experts to lead the ship and people with these qualifications are willing to turn over the details of managing their hard-earned clients to others and focus their skills and attention on managing the firm’s lawyers and non-legal personnel, administration, overall firm business development and long-term strategic planning.  However, in order for this to be effective the law firm leader needs to be grounded in the skills and practices common to successful leaders in other types of organizations.  In addition, he or she should be prepared to build an enthusiastic consensus for implementation of the following initiatives based on ideas suggested by Cunningham in his article:

  • Quarterly meetings of the firm’s executive or management committee that follow the lead of client board meetings and launch with marketing presentations on what clients want from their law firms, business intelligence on what clients are doing for their outside legal services and why, client retention and defection reports, and information from regular client satisfaction and needs surveys;
  • Statements of the mission and values of the law firm that are centered on clients and client service and wide disseminated and incorporated into personnel development practices and firm human resources practices (i.e., lawyers and non-lawyer staff are recruited, assessed and rewarded based on their adherence to the mission and values of the firm;
  • Expanded and improved training in client service for all firm personnel, both lawyers and non-lawyers, with constant attention to improvement of results of client satisfaction surveys;
    Expanded and improved training of personnel engaged in providing internal support services since such services make it easier for others to provide excellent direct services to the firm’s clients;
  • Creation and expanded reliance on client service teams and industry service groups and training of members of such teams and groups on best practices relating to team and project management;
  • Increased use of sophisticated sales strategies based on explicitly expressed desires and demands of clients and their behaviors and more sophisticated sales training for personnel involved in client outreach;
  • Increased involvement of, and delegation of authority to, non-legal professionals trained in marketing, service and sales and integration of such persons into client teams, practice and industry groups, and other levels of the firm’s organizational hierarchy.

While all these ideas sound good, the reality is that it remains rare for law firms to be able to find a lawyer in their midst with extensive training and experience in leadership.  While law firms have begun to follow the path already taken long before by their clients and implement development programs, the effectiveness of such programs requires overcoming certain special challenges such as the following described by Petrie:

  • “Most leadership programs are designed for corporate clients and don’t take into account the different psychology, culture or economic model of law firms
  • Lawyers must assess the ‘value proposition’ of spending time developing leadership using skills as opposed to doing billable work or developing new clients
  • The decentralized nature of a larger law firm means that it is difficult to mandate that partners take part in any leadership development efforts that they choose not to
  • Many partners are left to choose their own development methods, but are often the people least aware of what they need to get better at, or the methods that would help them to improve
  • The word ‘leadership’ in law firms is sometimes seen as a fuzzy concept
  • Rewards and status in a law firm tends to go to those who bring in clients, rather than those who ‘lead’”

While each of the issues described above are very real and have long been a part of the organizational culture among law firms, Petrie argued that law firms could nonetheless make significant progress toward developing “lawyer-leaders” by adopting elements of the an approach recommended by faculty members of the legal practice at the Center for Creative Leadership:

  • Develop a “leadership strategy” that supports and compliments the overall business and financial strategy of the firm and which includes the number of leaders needed to implement the firm’s strategy within a given time frame and the required skills, abilities and experiences of each of those leaders
  • Conduct a formal assessment of the gap between the firm’s current leadership capabilities and those required to implement the firm’s leadership strategy and approve investment necessary to close that gap
  • Mandate personal participation of the firm’s senior leaders in mentoring of younger potential leaders, presentations of content in leadership development programs, review of talent and selection of future leaders
  • Engage senior leaders to serve as the principle chain agents for needed transformations in the systems, policies, technologies and business practices of the firm that support the development of firm leaders

For more on law firm leadership see the recent post on Effective Law Firm Leadership Styles on the Growth-Oriented Entrepreneurship Blog maintained by the Growth-Oriented Entrepreneurship Project.

Sources: J. Cunningham, “Law Firm Leadership in the 21st Century: Say Hello to the Law Firm CEO”, Legal Marketing Reader (blog), February 2012, [accessed June 16, 2015]. N. Petrie, Leadership Development in Law Firms: Current and Future Practice (Cambridge MA: Harvard Law School, August 2011).  Petrie included several interesting illustrative studies of innovative practices relating to leadership development in the law firm context.


Simple Assessment Tools for Managers

In order for their skills training to be effective and properly focused, managers must have some means to assess how they are doing.  Mintzberg was clear in his belief that the managerial position was extremely complex and urged managers to take the time to be “introspective about their work” by reviewing and answering a lengthy list of 14 sets of “self-study questions”.  The following list of the initial questions from each set provides an insight into the type of assessment that Mintzberg recommended:

  • Where do I get my information, and how?
  • What information do I disseminate?
  • Do I tend to act before information is in?
  • What pace of change am I asking my organization to tolerate?
  • Am I sufficiently well-informed to pass judgment on subordinate’s proposals?
  • What is my vision for this organization?
  • How do my subordinates react to my managerial style?
  • What kind of external relationships do I maintain, and how?
  • Is there any system to my time scheduling, or am I just reacting to the pressures of the moment?
  • Do I overwork?
  • Am I too superficial in what I do?
  • Do I spend too much time on current, tangible activities?
  • Do I use the different media appropriately?
  • How did I blend my personal rights and duties?

Each of the initial questions was supported by ideas for additional assessment.  For example, the last question regarding blending of personal rights and duties was accompanied by suggestions that managers analyze whether their obligations consumed all their time and create opportunities to free themselves from some of those obligations so that they are able to focus on softer, yet quite important, topics such as their unique role as the organizational “entrepreneur”.  The meaning of each of the questions obviously evolves over time.  Consider that the question regarding appropriate use of different media was first posed in 1990, well before e-mail and the other social media tools that predominate today were introduced and widely available.  At that time, Mintzberg emphasized the amount and quality of face-to-face communications engaged in by managers, including participation in meetings.  The situation has changed significantly since then and managers now face new challenges in sifting through the flood of information that is now available and incorporate new technological tools into their roles as “liaison”, “disseminator” and “spokesperson”.

The list above includes only the initial question in the set of questions that Mintzberg created for the 14 topics and reference should be made to the full list of a better understanding of the issues he observed in a particular topical area.  For example, a manager concerned about how well he or she is carrying out the informational role associated with the managerial position should carefully consider the following questions:

  • Where do I get my information and how?
  • Can I make greater use of my contacts?
  • Can other people do some of my scanning?
  • In what areas is my knowledge weakest, and how can I get others to provide me with the information I need?
  • Do I have sufficiently powerful mental models of those things I must understand within the organization and in its environment?
  • What information do I disseminate?
  • How important is that information to my subordinates?
  • Do I keep too much information to myself because disseminating it is time consuming or inconvenient?
  • How can I get more information to others so they can make better decisions?
  • Do I tend to act before information is in or do I wait so long for all the information that opportunities pass me by?

Mintzberg’s questions are just one of many tools that managers can use to assess their skills.  Online tests are available to provide insights into what type of management style a manager is likely to demonstrate to his or her subordinates and Griffin has created a library of questionnaires for use in assessing management skills in a number of areas including self-awareness, beliefs and values, goal setting, enhancing motivation, managing diversity, mental abilities and using and managing teams.  For example, Griffin’s assessment of "skills of effective managers" asks respondents to consider how they see themselves with respect to the following statements:

  • I am at ease in written and oral communication including listening
  • I handle stress well and seldom have time management problems
  • I have no trouble making decisions that affect me and/or others
  • I can identify, analyze and solve problems effectively
  • I am effective at getting others to perform at high levels
  • I delegate tasks to others to help them learn and to involve them in the activity at hand
  • I set goals and establish a long-term vision for everything I do and can help others do the same
  • I am keenly aware of my own strengths and weaknesses
  • I work well with groups and can help others develop into effective teams
  • I handle conflict well and am able to help others resolve their difference

While this type of assessment obviously does not delve into details it nonetheless can be used by managers to identify roles and skills they may have neglected and such information can be used for development of training and self-improvement plans.

Sources: H. Mintzberg, “The Manager’s Job: Folklore and Fact”, Harvard Business Review, March/April 1990, 163-176; R. Griffin, Fundamentals of Management (3rd Ed.), Independence, KY: Cengage Learning, 2002) ; “What is Your Management Style” ; and “Test Your Management Style with this 6 Point Quiz”.