More than ever, business is now populated with lawyers. And no business deal seams to take place without a contract being written by an army of law firms. As such, some may sigh for the good old days when business was “done on a handshake."
On the other hand, business schools teach that even the best-intentioned people can have misunderstandings and failures to communicate, and that a contract is often the best way to unambiguously express what is expected from each participant and what rewards or payments can be expected.
Yet while it may be true that a “handshake deal” offers opportunities for misunderstandings, it can also provide positive opportunities, one of which being the ability to keep deals secret, at the benefit of all parties. That’s why we still see (and still can expect to see in the future) this type of deal taking place nowadays.
For instance, in January the Guardian revealed a deal agreed upon by Kraft’s chief executive Irene Rosenfeld and Cadbury’s chairman Roger Carr. The pair met in a five star hotel (the Lanesborough Hotel, near London’s Hyde Park), during a secret meeting arranged by Ms. Rosenfeld. They shook hands on a £12 billion deal regarding the sale of Cadbury to Kraft.
Also in the UK, a lawsuit concerning Europe’s largest leveraged buyout reveals the uncertainty faced when conducting business via these kinds of deals. The lawsuit was tried in the High Court in 2009 and will be heard by the Court of Appeal in July 2010. The case is simple: the LBO (acquisition of Italian telecom company Wind by Egyptian tycoon Naguib Sawiris) was conceived and developed by a businessman who was offered a 30 percent stake in the investment vehicle used during the acquisition in exchange for making the deal possible: in other words, by serving as a business partner. But since this promise was made with no clear written agreement, the plaintive had a hard time getting any evidence to support the significance of his role. Naguib Sawiris got out of paying his partner what he agreed to by saying he was "bad with dates" and that certain meetings with his business partner did not take place. Luckily for his partner, the judge found evidence sufficient to be satisfied that at least one key “meeting did take place” between Naguib Sawiris and his partner, as Naguib Sawiris’ passport entries and the manifests of his private jet indicated that he was indeed Cannes on 22nd April, when the handshake was supposed to have happened and Naguib Sawiris claimed no meeting took place. Betrayed by his own private jet, one might say . . .