Reference no: EM133301021

Topic: Stephen is the managing partner at a private equity firm. Private equity involves large transactions, generally millions of dollars at a time. With such high stakes, negotiations are typically extensive. Stephen's firm recently ended a negotiation with Peter, the CEO of Volo Financial. The deal involved a routine transaction fee, which Would cost Volo Financial $1.5 million. Volo said the tee was too high for them, so Stephen's firm ultimately agreed to eat the jee to make the deal happen. With the major points hammered out, Stephen and Peter left their junior partners to finalize the details of the contract. A few days later, both companies signed Everything was going smoothly until Stephen received a phone call from Peter, who was angry. "Stephen," he explained, "I'm just now hinding out that the agreement we signed included the transaction Fee we had agreed to toss out. What's going on here? This mistake is going to get me fired by the board." Stephen hadn't looked at the agreement for months, so he asked for some time to figure out what happened. He called the junior partner, Liza, who had drafted the final version of the agreement. To Stephen's surprise, Liza seemed proud of the outcome. "I thought they might not read the agreement closely enough. I put the transaction fee back in, thinking nobody would notice. Sounds like they didn't," she said with a grin. Stephen knew the contract had an integration clause, a provision which says the final, written version of an agreement trumps any prior discussions. This clause gave the fee full legal force. Peter wouldn't be able to argue they had agreed to different terms. A judge would just tell him to read his contracts more closely before signing.

Stephen had to decide what to do next. The payment in question would certainly be a nice, added profit. But it wasn't part of the intended agreement, and Peter's job might be on the line. Then again, Peter should have read the final agreement. At this point, he was basically asking Stephen's firm to hand over $1.5 million. Should Stephen work out a solution with Peter, or go with the agreement as signed?

Question 1: What makes the advantage unfair?

Fairness can be hard to define, especially because people often disagree strongly about what is fair. Our definition of fairness asks if the advantage comes at someone's expense without good reason A good reason could be hard work, creative strategy, substantial investment, or even simple luck. Bad reasons for an advantage obviously include things like deceit, coercion, promise-breaking and illegal activities. If you are unsure whether your advantage comes from a good reason, consider if others would call the reason good. For example, you might have inside information in a sales competition because your high school friend is on the competition committee. Would you consider your advantage to be fair if the roles were reversed? Would you trust someone who claimed the same advantage you are claiming? If you answer no to either question, your advantage is most likely unfair. In the opening example, Liza would argue that the other company lack of attention is their own fault, Stephen might feel otherwise

Question 2: Who else stands to benefit from or be hurt by the unfair advantage? What obligation do you owe them?

because we rarely act solely in out own interest consider how the advantage you enjoy might benefit others-besides your self. For example, you might win a bid because you unfairly found out what the competitor was bidding and so you changed your bid. In this case, your employer could stand to gain from the advantage, too. Consider all those who might come out better because of your position.

You also need to consider the other parties who could be hurt by your advantage. Innocent people, like families or communities, could be hurt if you exercise your power. Remember there are people on both sides of the situation, not just on your side. If your advantage hurts others, you may need to balance justice by helping them in some way Stephen's business could be at risk if he decides to enforce the contract, because he could get a reputation of being untrustworthy the company suffers because of the bad reputation he would earn. then more people than Stephen would pay the price

Question 3: Did you contribute to the unfair advantage?

Some advantages come purely from luck others from hard work and ingenuity, But some advantages comes from putting your thumb on the scale If your unethical behaviour leads to an unfair advantage , you do not deserve to keep it. Keep in mind that good behaviour, not just dishonest behaviour, can lead to an unfair advantage What reasonable expectations do others have of you? Have you made promises or conveyed information in a way that earned their trust? If you have invited others to rely on you and their reliance gives you unfair influence , fairness may sacrificing your position. Liza clearly contributed to the unfair advantage in this case by slipping in the contract term last minute, hoping no one would notice . She has a much harder case to make that enforcing it now would be fair.

Question 4: Did the other party play a role in the advantage you have?

Everyone trips up from time to time. What matters is how handle the errors of others. Of course, you can't bear the cost of every mistake someone else makes. You may need to let especially irresponsible behavior bring consequences to the person who peresisted in that behavior. But innocent mistakes, the kind we might make ourselves, probably don't justify taking advantage of others. Stephen's dilemma is tricky for this reason. In such a big business deal, both sides have the obligation to be thorough in their agreements. Stephen has to decide if he's going to capitalize on their mistake.

Question 5: Can you make the advantage fair?

This last question is the most valuable. You don't need to give up an advantage, just because it is unfair. Instead, keep the advantage by making it fair Disclosure usually comes first. You need to reveal your advantage and where it came from. Second, Invite the other party to help solve the dilemma with you. This collaboration gives everyone a chance to voice concerns and represent their interests. People commonly make concessions in these moments, either out of gratitude or because they recognize your integrity and choose to reciprocate. A disclosure conversation might diminish your advantage in the moment, but will most likely boost your reputation and future opportunities. A trustworthy reputation only comes from the worthy decisions. As we've noted before, trust makes business faster and cheaper in dozens of ways. Being trustworthy is a hard win advantage that no one can call unfair. Stephen would needs consider all of this before he decides whether or not to enforce the contract.