Showbiz, Social Media & Small Print
Sean McGahan is a business owner, his business is the provision of legal services. Nine years ago Sean made a change to be a better lawyer by acquiring a new skill set of risk management and gained a qualification in this area. Sean’s view is that you can deal with anything if you know your objective and you know how to deal change. Sean uses a recognised risk management process as a way to plan for and deal with change. Risk management works for business and you can apply a simple risk model to legal issues you will encounter. Here a simple process to apply:
Know your objectives and then look upon contractual terms as either risks to your objectives or opportunities, which are either within or outside your risk appetite. So know how much risk you want to take then view contractual as simply a vehicle to take the level of risk you are comfortable with.
An example of contractual risk can be seen in the 1963, 20th Century Fox film Cleopatra. You may already know that the film was famous for its production troubles. What you may not know is that it is the film that almost bankrupt 20th Century Fox. Despite being originally budgeted at around $4 million, that number eventually ballooned to approximately $40 million and it was only as recently as 2003 the film made a profit for 20th Century Fox.
Referring back to Sean’s simple risk model let’s look at where 20th Century Fox went wrong. Looking at objectives-if their objective was to make an epic piece of cinema history, seen by millions across the globe, they probably achieved this objective. If on the other hand they wanted to make money from the film, over a reasonable period of time, this objective failed as up to that point Cleopatra was the most expensive film ever made.
20th Century Fox enter into contracts that meant they haemorrhaged money once production was delayed. Elizabeth Taylor was initially approached in October 1959 regarding playing the role of Cleopatra with a salary of $750K. However, when she actually signed a contract in August 1960 her contract stipulated that she be paid $125K for 16 weeks work and $50K a week thereafter. Had 20th Century Fox looked at the risk this project was doomed to overrun and thus the contracts were totally out of sync with the risk. Production massively overran.
Elizabeth Taylor made financial demands, dictating the move of production overseas and her choice of director. During the epic 228 day shooting on location Taylor was late on 99 days. A step 20th Century Fox could have taken to mitigate this risk was to put a clause in the Contract that meant Elizabeth Taylor would share the risk or buy into it meaning that if she was going to be late or not work on a particular day she would bare the risk financially.
What is the learn from that example.
1. Be clear of your objectives.
2. Be clear of level of risk you want to run. You might not want to run the risk therefore you need a Contract that is “belt and braces” On the other hand if your happy to run high levels of risk, which sometimes you need to get high reward, “belt and braces” contracts get in the way.
3. Make certain that lawyers understand your business! This is an objective we ourselves follow for example, in order to understand Co-Op objectives – at our request the team received full employee induction training. So we know their business!!
Another example from the world of showbiz! The band Van Halen- one the biggest acts in the world in 1983 - buried a clause in their standard contract that stipulated there was to be a bowl full of M&M’s containing no brown M&M’s in their dressing room before each show. When Dave Lee Roth/Van Halen’s front man found as much as one brown M&M all hell would break loose. That one Brown M&M gave Van Halen grounds under the contract to cancel the event sue for huge damages like 1.9 million for 90 minutes on stage.
This contractual term may appear idiocy, but in fact it was sheer genius. The contractual term was designed to ensure the promoter had read the entire contract, which contained detailed specifications that had to be followed for very serious health and safety reasons. Whenever brown M&M’s were found an entire line check was completed and all equipment inspected. The M&M’s clause is a brilliant example of contractual risk control. Those guys knew their objective to be the biggest grossing band in the world. One of their biggest risks was serious injury or a fatality at a show. Finding a brown M&M told the band that the venue had not looked at all the detailed specification, which set out things like the weight the staging had to be able to take. The weird contact term ensured the specifications had been read.
What I would like you to take form this story is make sure you know your objectives and your risks before you draw up a contract. Don’t be afraid to ask your lawyer do you know my objectives and my keys risk.
The final example we will give today is in relation to the prophetically named Target Corporation. In late 2013 Target Corp was the target of a cyber- hack, whereby around 70 million customer’s credit card details were stolen. This breach of private information was initiated not through Targets systems but through an air conditioning contractor who was connected to Targets systems. By allowing the contractor to connect to its internal networks, Target introduced a means by which it could itself be attacked.
Target Corp now find themselves in litigation as a result of the breach many consumer plaintiffs and a growing number of small banks are suing Target for consequential damages. Consequential loss is considered an indirect loss that occurs naturally a breach of contract or is a loss that was within the parties reasonable contemplation when the contract was entered into. It remains to be seen whether Target sufficiently protected itself from consequential loss but there are certain steps you yourself can take to mitigate this type loss.
A danger here is that often businesses think they are protected by a simple clause like this. Check your T&C’s you probably have one. This may look familiar
“‘Neither party shall in any event be liable for any indirect or consequential loss”.
This is exactly the clause Hotel Services Ltd had in a contract when they got sued for what they thought was consequential loss by Hilton International. Hilton won the case and recovered for consequential loss. If you are exposed to fatal consequential losses as a result of something going wrong you might need to look at your T&C’s as you might be way outside your risk appetite and you don’t know it.
Another emerging cyber risk is reputational risk. Within our own business we sometimes have to sue people on behalf of our clients and we have won national awards for our skill in this area. Sometimes this really annoys our opponents clients. This runs the risk of our business appearing on rating sites which provide a forum to complain about solicitors. As litigators this may not necessary be a bad thing for us however, if your business is a restaurant you may be subject to a campaign of malicious bad reviews and multiple appearances on a websites such as trip advisor and diners from hell can be fatal! It is therefore essential to have a strategy in place to mitigate this as it can quickly get out of hand. There are legal remedies available which our band 1 media law team are happy to assist with.
To conclude in order to avoid fatal mistakes make sure you know your objectives and then look upon contractual terms as either risks or opportunities that are either within or outside your risk appetite.
The content of this article is provided for information purposes only and does not constitute professional or other advice.
Why not have a look at previous articles from McKinty & Wright...