We’ve talked about deadlock before, and how to deal with it. While deadlock is never a great thing for Founders to deal with, today there is reason to celebrate. Why? A client chose the “Candy Land” method of breaking deadlock, and among the three of us, that makes a total of about 5 clients over a span of 15 years of practice! Read on for more details:
What is Deadlock?
In the context of a business, “Deadlock” means that a majority (i.e.
51%) of those shareholders with decision making power cannot come to an
agreement in regard to a choice that needs to be made for the Company.
This kind of situation doesn’t come up all that often in the totality of
business disputes, but, in the context of a new company, especially a
closely held company with few shareholders, the likelihood is pretty
How To Avoid Deadlock
There are various solutions to avoiding andor dealing with deadlock – here are a few to think about:
- Make someone the majority shareholder. If someone owns 51% of the Company, deadlock cannot occur (unless a Super Majority or Unanimous consent is needed for some actions of the Company.).
- Designate a Manager – To reduce deadlock, and to make decision making easier, the Company might consider appointing a “Manager” who is tasked with day to day decision making and has the power to do so. If only larger Company decisions are subject to Majority Consent (rather than ALL decisions), the likelihood of deadlock is reduced.
- Create A Deadlock Busing Process – Maybe 5050 ownership and not designating a Manager are right for your Company – if that’s the case, you should discuss what will happen in the event of (the inevitable) deadlock. The process can be as complicated or as simple as you wish. Sometimes, clients want to appoint a disinterested third person (like an accountant) to make the final decision. Sometimes, clients are happy with a coin flip, Rock – Paper – Scissors, or best of three Candy Land (see below).
- DISCUSS, DISCUSS, DISCUSS – The most important aspect of avoiding deadlock is TALKING about it, discussing what everyone’s roles and expectations are and realizing – early on – that disagreements will occur. When those disagreements happen, how will they be resolved – and by whom?
Why Would a Founder Choose The Candy Land Method? Isn’t this a joke?
Sure, its sort of a joke, but that’s also what makes the “Candy Land Method” so powerful.
- Candy Land is a horrible game for anyone over the age of 6 – and I shudder at the thought of having to play three games in one sitting (with only adults in the room) – so who really wants to play? Wouldn’t we rather just agree and move on with our lives?
- Can you imagine explaining this deadlock busting method to a third-party? It’d be pretty embarrassing to say, “Well, Peter is awesome at Candy Land, so he got to make the decisions. BLAST YOU GUMDROP MOUNTAIN!” Again, wouldn’t we rather just move on?
- Its quick and decisive. In the scheme of corporate decision-making timelines, the Candy Land Method is pretty quick. There aren’t buyout considerations, revaluations of the Company, or an easy way to cheat (or dispute the results).
- Does “Candy Land Method” sound as sexy as “Texas Shoot-Out Clause” or “Russian Roulette Clause” – no, it doesn’t. But, those methods are “take it or leave it” and involve buying out the disputing partner – so they are rarely used to actually break the deadlock. So…Candy Land may sound boring, or embarrassing, but its quick, easy, and can actually be used.
Candy Land isn’t just for kids anymore!