There's a new requirement in Wall Street business dealings: the "Weinstein clause," as Bloomberg reported yesterday.

In big deals, these are provisions that "legally vouch for the behavior of a company's leadership." There should be little wonder, after #MeToo and the realization that Harvey Weinstein's contract allowed him to survive charges of pretty much any behavior, including sexual assault and harassment. Just a reminder that his collection of heinous acts almost killed his eponymous company. (It only survived after a private equity firm bought it.)

A so-called morals or morality clause, in which a contract is valid only so long as a given individual does nothing to cause enough bad publicity, is an old story in entertainment or sports.

Two things make the Weinstein clause unusual. One is that it makes a contract conditional on the good behavior of a group of people in a company. This is a morals clause for a management, which companies frequently protect from legal problems.

The other is that the testosterone-infused Wall Street mergers and acquisitions market, where no deal has been bad if it made enough money, now insists on implementing such a clause.

Greed is good. Making our investment look bad and lose value isn't.

When it comes to buying and selling companies--something that might interest any entrepreneur--some sellers find that they must put some part of the deal money (Bloomberg says 10 percent) into an escrow fund. If the buyers find out about behavior that would affect the value of the company, they get to recoup their loss.

It's not just Weinstein, although he's become the touchstone for ick. Les Moonves, long-time head of CBS, and the network just faced detailed harsh charges of sexual misconduct, according to the latest Ronan Farrow piece in The New Yorker. That's on top of previous stories about Charlie Rose and others. That's going to play big in legal wrangles over whether the company should merge once again with Viacom.

In various industries, buyers of companies want assurances that no one above a certain level in management (apparently that has been as low as having eight direct reports) has faced a sexual harassment charge in some number of years.

This shouldn't be surprising. When it comes to one company purchasing another, the buyer is going to perform due diligence. In the past half year, this has extended to corporate culture and personal behavior. When the numbers at stake are big, people want to know that the value of what they buy won't suddenly drop.

If you're on the selling side, you won't want to be surprised. It's becoming a must that you get an unbiased report on your culture, potential legal entanglements, and the character of your managers before you consider an exit strategy.

And it would be a damned smart thing to do even if you aren't considering one. Maybe you "know" your company culture and the people in management. Then again, maybe not. It shouldn't be surprising if more businesses demand a way out of any type of deal should someone's behavior taint them. Or that customers turn their backs.

Create a clean, supportive, and effective workplace where employees can get profitable things done without spending their time fending off monsters.

Published on: Aug 2, 2018
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