1. Offer, Acceptance, Consideration  Contract formation requires mutual asset to the same terms supported by valid consideration.  The law favors an objective standard for determining a party’s intent to be contractually bound.  Thus, general communications are given the meaning that the recipient of the communication would have reasonably understood.  The nature of the contract dictates whether an offer can be accepted by a return promise or by performance.  Consideration requires a bargained exchange in which each party incurs a legal detriment  (engages in an act that the party was not previously obligated to perform, or refrains from exercising a legal right).
2. Promissory Estoppel and Parol Evidence  When a party foreseeably relies to his detriment on the promisor’s promise, even in the absence of an enforceable contract, the doctrine of promissory estoppel may be invoked to make such promise binding in order to prevent injustice.  The remedy in such cases is based on the extent of the promisee’s reliance, not his expectation.  The parol evidence rule governs whether parties may introduce evidence of extrinsic agreements to prove the existence of additional or modified terms.
3. The Theory of Your Case  One of the reasons counsel is often retained is to determine the likely outcome of a potential litigated dispute.  A business owner typically seeks advice on potential causes of action that arise from the facts they feel the legal system can address.  Facts can dictate action (whether injunctive or other emergency relief).  The theme or “theory of your case” communicates how the case should be viewed by the jury from the outset of the trial presentation.
4. The Budget  Everyone wants to know what their costs will be.  A litigation budget is essential for assessing the settlement value of the case.  Budget estimates are subject to possible alternate scenarios and participants must understand that their own actions, or the actions of the adverse party, or the court, will have impacts on litigation costs which are not directly under your attorney’s control.
5. Pleadings and Motion Practice  A well prepared complaint has enormous advantages in the impression given the judge upon first reading and in the framing of issues for discovery and motions.  Pre-Trial motion practice covers a wide range of topics meant to prepare the case for Trial and covers both issues of law and discovery mechanics.
6. Discovery  Litigators know what the law requires and will tailor discovery to meet required elements of proof.  The purposes of litigation are best served when each party knows as much about the controversy as is practical.  Expect opposing counsel will want to see every tangible, relevant document in the opponent’s possession. The fundamental purpose of a lawsuit is to determine the truth of the matter and so the scope of discovery is broad and includes all matters that are admissible in evidence or that could lead to admissible evidence.
7. Settlement?  Many disputes that result in litigation are resolved without trial.  Many time parties will explore settlement before filing.  In those cases in which suit has been filed settlement can be broached at any time during a pending dispute.  Maximum factual information must be available to determine the relevant issues and damages sustained.  Entering into settlement negotiations prior to obtaining the necessary factual information can result in  substantial risk of not obtaining an adequate settlement.
8. Trial   Trials, like trial judges, can be unpredictable.  Trial strategy is formed once the law has been determined and evidence on the various issues which need to be proved/disproved has been mapped out.    Backup plans are necessary.  Knowing your case and your evidence in the event something happens that could adversely affect your desired outcome is important.  Focus on the issues at hand, connect with the jury and make a record to preserve issues for appeal..  Remember that trials involve real people who have made real decisions and are meant to promote the resolution of disputes in a civilized manner.

Here are two acronyms to use as memory tools to help your analysis.  The first, “F.I.R.M.”, an acronym for four key exposure areas to organize an exposure analysis (Financials, Industry, Relationships with others, and Management background analysis); and the second “MOR”, an acronym that will help you remember to analyze management Motivations, Opportunity and Rationalizations.

1. Financials  Financial statement fraud often starts with high expectations that cannot be met without some form of earnings manipulation.  As a result, financial results and operating characteristics often exhibit symptoms of possible manipulation.  Use of financial ratios, common size statement analysis, and trend analysis can help understand the nature of the business, and uncover the symptoms of fraud that might be be occurring.  One of the best ways is to analyze organizational activities and cycles and identify where frauds could be perpetrated.  By analyzing accounts involved in each type of  transaction areas of potential internal control breakdowns can be identified and assessed for potential manipulation.  A sudden dramatic increase in the size or direction of change in financial statement balances, amounts, or ratios is often a signal that something is wrong.
2. Industry  Benchmarking or comparing operating results with other organizations in the same business is a basic analytical tool.  Is the business in a declining industry with increasing business failures and significant declines in customer demand?  Some industries are more risky than others.  Assessing fraud exposure through financial statements and operating characteristics involves comparing statement balances and amounts with those of similar organizations in the same industry.  Perhaps something as simple as comparing financial results with real-world non-financial referents can expose anomalies that require further explanation.
3. Relationships  Top management always has the ability to override internal controls.  Collusion with outsiders or with related parties is one of the easiest ways to perpetrate financial statement fraud.  Financial statement fraud is often perpetrated with the help of other real or fictitious organizations.  Although relationships with all parties should be examined to determine if they present fraud opportunities, relationships with related organizations and individuals, external auditors, lawyers, investors, and regulators should always be considered.
4. Management  Gaining an understanding of management and what motivates each individual is as important as understanding the financial statements.  Is management compensation primarily performance based (bonuses, stock options, etc.?).  Three aspects of management should be reviewed; backgrounds, motivations, and the amount of control any single individual may have in making decisions for the organization. Review the kinds of organizations and activities management and directors have been associated with in the past.  It doesn’t cost very much to hire a private investigator to get a clear picture of management’s past activities.
5. Motivation  Is management’s personal wealth tied up in the organization?  Are they under pressure to deliver unrealistic results.  Is compensation primarily performance based?  Are management jobs at risk?  Many financial statement frauds have been perpetrated because management needed to report positive or high income to support stock prices, or to support a public offering, or to meet regulatory or loan covenants.
6. Opportunity  Fraud perpetrators must have a perceived opportunity or they will not commit fraud.  If they believe they might  be caught and punished they are less likely to commit fraud than if they believe they have an opportunity to successfully avoid detection.  Opportunities such as a weak board of directors, a lack of internal controls, an ability to obfuscate frauds behind complex transactions or related third party structures often result enough opportunity to allow a fraud to go forward.
7. Rationalizations   Every perpetrator must have a way to rationalize their actions as acceptable.   For corporate executives such rationalizations include the need protect shareholder investment by keeping stock prices high, or “all companies use aggressive accounting practices.”  In many instances, it is simply the thought that the problem is temporary and can be offset by future results.
8. Can it Happen Here?  Management fraud often starts as simply an attempt to “window dress” the numbers.  There is a “slippery slope” that follows.  Misplaced incentives often lead to a continuing pattern of managing the numbers in order to manage the stock price.

Here are some practical steps to better define and resolve ethical problems:

1. Learn to Think About Ethics in Rational Terms  Use ideas such as universal application, reversibility, utility, and proportionality.  Use of such ideas will enhance your ability to see ethical problems clearly and create acceptable solutions.
2. Use Simple Decision Making Tactics  Bertrand Russell advocated imaginary conversations with a hypothetical devil’s advocate.  You might use a two column work sheet to enter the pros and cons of various alternatives.  The process of entering relevant factors sometimes brings new or unconscious considerations to light.  Ask yourself a series of critical questions, consider key policies, principles and relationships.  Are your actions legal?  Are they fair and honest?  Consider your fiduciary obligations.  Will your actions stand the test of time?
3. Sort Out Your Ethical Priorities  Serious ethical dilemmas can generate paralyzing stress.  Clear values reduce stress by reducing temptation and easing your conscience as a source of anxiety.  For example, when being honest means sacrificing a sale, it helps to clarify in advance that that integrity is more important than money.
4. Be Publicly Committed  Examine your workplace to find sources of ethical conflict.  Set the “tone at the top.”  Tell your employees and co-managers about your opposition to actions that compromise company policies.  Public commitment will force you to maintain your standards.
5. Set an Example  This a managerial function.  An ethical leader creates a morally uplifting workplace.  An unethical manager may make money, but he or she (or the company) will pay the price; and the price is an immediate loss of integrity and a future loss of business.  Say what you mean and do what you say.  You are never without the ability to choose.  Trust is essential for our interconnected Global economic network to work successfully.
6. Translate Your Thoughts into Action  Ethical deeds often require courage.  Reaching a judgment is easier than acting.  Ethical positions may cost your company business.  Holding principles above personal benefit is the essence of integrity and honor.  Integrity is the essence of long term business success.
7. Cultivate Sympathy and Charity towards Others  The question, “What is ethical?” is one on which well-intentioned people may differ.  Marcus Aurelius wrote:  “When you are offended by any man’s fault, turn to yourself and reflect in what like manner you err yourself; for example, in thinking that money is a good thing, or pleasure, or reputation.”

Find out more by calling Paul Lechner at 708.460.6686.

                          Scenario Planning

To get in the proper frame of mind consider some of following broad historical forces; how should you prepare?

1. Technology  Throughout history new technologies and devices have fueled commerce and reshaped societies;  the printing press, the steam engine, electricity, the automobile, aviation, Microsoft, Apple, outsourcing.
2. Knowledge  Have we become a society where ideas and application of those ideas are more important than capital, than labor?
3. Globalization  With improvement in communication and transportation, networks of economic, political, social, military and environmental interdependence have grown to span worldwide distances.  Nations have additionally opened themselves to foreign trade and investment creating world markets for goods, services, and capital.
4. Ideologies  Thought shapes history.  An ideology is a set of reinforcing beliefs and values that construct a world view.
• The “Arab Spring” and fall of Dictatorships/ Monarchies,
• Theocracy and the rise of militant Islam,
• Market Capitalism and Democracy,
• Government Regulation or a “laissez-faire” environment where transactions are free from government intervention?
5. Chance   Machiavelli observed that chance determines half the course of human events and human beings the other half.  If we cannot predict the future we can be prepared.