My wife and I finally got around to watching The Social Network last Saturday. It was a good movie and we enjoyed it, but it brought to mind some lessons that I thought might be useful to business owners and entrepreneurs.
Lesson 1: Get It In Writing
One of the plot lines was the dispute between Mark Zuckerberg and the Winklevoss twins over their claim that Zuckerberg stole the idea for Facebook from them. Zuckerberg had orally agreed to write the code for the Winklevoss' proposed social networking site HarvardConnection (now known as ConnectU).
After settling their claims against Facebook and Zuckerberg, the Winklevoss twins have now come back to argue that the settlement was unfair and their claims are worth $100 million more after Goldman Sach's recent $500 million investment in Facebook. (http://latimesblogs.latimes.com/technology/2011/01/facebooks-winklevoss-settlement-should-be-undone-lawyer-says-mark-zuckerberg.html)
Had Zuckerberg insisted on a written agreement with the twins and their business partner, then he may not have later had to pay out $65 million (or $165 million) to settle their claims against him. As Sam Goldwyn of Metro Goldwyn Mayer Studies once said, "a verbal contract isn't worth the paper it's written on."
Lesson 2: Have Your Own Attorney
Another underlying message in The Social Network concerns the "freeze out" of Zuckerberg's original business partner (and Facebook's original CFO), Eduardo Saverin, who had provided the original startup capital for the business.(http://selmark.blogspot.com/2010/10/eduardo-saverin-facebook-net-worth.html)
According to the movie, Facebook reduced Saverin's stake in the company by creating a new Delaware corporation to acquire the old company and then distribute new shares in the new company to everybody but Saverin. The first mistake made by Saverin in this deal was assuming that Facebook's attorneys represented him, too.
There is an inherent conflict of interest when attorneys represent a corporation and its officers/shareholders. While it may be possible for the conflict to be waived, it may also lead to circumstances where the officer can say – as Saverin says in the movie – "I thought they were MY attorneys, too." The best way to safeguard against this is to make sure you are represented by your own attorney who represents your best interests and not those of the corporation.
Lesson 3: Have Your Attorney Review All Documents
The final lesson from The Social Network is to have your attorney review any documents before you sign them. While this lesson is a corollary to Lesson 2, it nonetheless needs to be stated separately, because although people may have an attorney, they do not always utilize that attorney to review important documents.
If I represent you and you do not ask me to review a document before you sign it, I may later have to give you bad news. Had Eduardo Saverin had an independent attorney review the documents he signed – as a 30 percent shareholder and CFO of the original Facebook LLC – he might not have had his shares diluted from 30 percent to less than 1 percent. Do not assume that because you have a business degree or business experience, you are able to parse important legal documents. That is why you hire us – to read and dissect the documents so that you have an independent opinion as to what they mean.
Conclusion? Two thumbs up for The Social Network; two thumbs down for the choices made by the principals.
Now what movie is next in my Netflix queue?
Lee Keller King
The Vethan Law Firm