Agreements: Written? Oral? What?

“Wrong must not win by technicalities.” – Aeschylus (The Eumenides, 458 B.C.)

A very common question among businessmen: Is it prudent to “paper” deals?

During the 25 years I’ve been in business, more than 90% of the deals I’ve made have been oral. Usually, the process is some version of this: I’m talking with a colleague/competitor about what I’m doing/he’s doing, and some common interest pops up. One of us says, “Hey, would you like to do this together?” The other says, “Sure.” Then it’s “What do you think is a fair deal?” An obvious suggestion is made. And that’s it.

And it’s not just me. Most of the successful businessmen I know operate this way.

That said, I’m very much in favor of written agreements. Not the big, lengthy back-and-forth kind that run up legal fees and slow projects down, but the faster two-page memos that identify (1) the fundamental idea of the agreement and (2) the key provisions.

I’m reminded of this today because I’m in the middle of straightening out a mess that came from confusion about a deal made two years ago. With partners of good will, the biggest reason to write down an agreement is to document what you thought was fair at the time. Things can change, and you don’t want your memory changing with them.

I also believe that you should run your deals by a few well-intentioned critics, including a lawyer. Don’t let them clog up the deal with arcane contingencies. Use them only to identify any major problems or obstacles you might have overlooked.

Rule of thumb: If the agreement is more than two pages long, it’s too cumbersome.

The bottom line on deals is this: Paper won’t usually keep a bad deal from falling apart, and neither will it keep bad partners from honoring a good deal. You document a deal because you want to document the memory of what you thought was fair at the time and because you want to give yourself a moment’s reflection to consider major contingencies.

[Ed. Note.  Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]