DOING BUSINESS IN THE “NEW” ECONOMY

Have you ever thought about the agreements that you use in dealing with your partners, co-workers, customers and suppliers?  Most of the agreements we use are “boilerplate” agreements, with only a few terms left open for negotiation.  Usually, the party drafting the agreement is considered to have the superior bargaining position and presents the agreement to the other side with a “take it or leave it” attitude. This type of agreement often creates conscious or unconscious feelings of animosity between the parties, which can cause the relationship to break down quickly if conflict arises.

The ways we are doing business, and our relationships with those that we are doing business with, are changing for many individuals who are part of the new “sharing” or “collaborative” economy. These individuals or groups embrace the idea that assets don’t need to owned outright; they can be shared and owned by several people. This concept is found in food cooperatives, housing cooperatives, car-sharing, and so on.

These types of arrangements do not fit the old business model. The new arrangements involve parties that want to treat each other as equals and provide incentives to create long-term relationships based on mutual respect and shared values. These arrangements call for new types of business agreements. These agreements are discussed in the book   “Practicing Law in the Sharing Economy: Helping People Build Cooperatives, Social Enterprise, and Local Sustainable Economies” by Janelle Orsi. The book can be purchased at: http://apps.americanbar.org/abastore/index.cfm?section=main&fm= Product.AddToCart&pid=1620513.

In her book, Ms. Orsi describes unique qualities to these collaborative agreements, four of which are discussed here. Sentences in quotes are directly from the book.

1.         They are agreements that all parties have a hand in creating   “Many of the agreements  we make in modern society have become quite standardized, and the majority of the terms are not intended to be negotiable.  Generally, one party (a store, service provider, employer, or landlord) offers a set of relatively fixed terms to public, and we, (as consumers, employees, or tenants) accept those terms.  In contrast, the sharing economy is built on agreements that we make with each other, uniquely tailored to our individual needs”.  When two or three neighbors get together and agree to share the use of a car, “there are innumerable ways to work out the logistics and finances of such an arrangement, and all parties will need to give their input to shape the agreement.”

2.         They are agreements that deal with ongoing relationships   Rather than business agreements that are designed to cover one-time transactions, agreements made in the collaborative economy are likely intended to establish long term relationships. “Agreements to co-own a house, share use of a car, exchange child care, or cooperatively purchase food require something more akin to an operating agreement, meant to govern various aspects of a long term relationship and multiple transactions over time”. As Ms. Orsi explains “Agreements are like roadmaps to relationships”.

3.         Agreements that are highly collaborative       “In modern society, we have become accustomed to asymmetrical agreements, where parties divide rights and responsibilities between landlord/tenant, employer/employee and between service provider and customer, and so on.  Many agreements of the sharing economy will be highly collaborative, meaning the parties may share decisions, share responsibilities and costs, share the benefits, and rights, and so on”.  When a business relationship really works for everyone involved, the “parties” view each other as “partners”.

4.         They are agreements governed by both social expectation and legal contract   “Many of the agreements people make in the sharing economy derive from pre-exisiting personal and community connections. People will increasingly enter into agreements with housemates, neighbors, friends and co-workers, and the success of the agreements will depend as much on the health of the relationships as on the thoroughness of the legal documents. Rather than reduce every contingency and condition to written contract, parties may wish for certain conditions or changed circumstances to be managed cooperatively when they arise. Legalese-filled contracts with adversarial language will not be appropriate to the relationships our clients envision. The tone and approach we take in writing agreements will seek to nourish clients’ cooperative attitudes and human relationships.”

Existing relationships

This model can be applied to existing business relationships. A couple of examples include:

Employment agreements

When a new position is created in your business, the employee is given a list of responsibilities and expectations (job description) for the position. The employer agrees to meet with the employee in 30 days and discuss if the job description should be changed, encouraging the employee to suggest improvements.  The employer can also encourage the employee to advise the employer of any talents or “gifts” that the employee brings to the position that could be used to help the organization in any way, even if unrelated to the position. At the 30-day meeting, both parties discuss what changes would improve the functionality of the position. When this employee is promoted, the replacement employee is given a copy of the working agreement that has been previously established and asked to sign the agreement, with the understanding that further modifications may be necessary due to changed conditions.

This approach can also be used for existing employees to make certain the job description is still appropriate for the position. It encourages employees to “take ownership” of their job and lets them know that the employer values their input and talents. It brings a sense of fairness to the relationship, which results in a higher level of job satisfaction and a sense of loyalty to the employer.

Manufacturing supply or joint-venture agreements

When preparing to enter into an agreement with a manufacturer, supplier, or joint-venturer, one party presents their standard agreement or terms to other party, have them read it, and ask if they recommend any changes. The parties can then discuss changes that make the agreement easier to perform, eliminates unnecessary terms, or provides more incentive to perform well. For example, shipping terms, etc. could be modified with eye to reducing adverse environmental effects.

Again, this approach considers the needs of both parties and encourages long term relationships, as discussed above.

New types of relationships

In addition to the traditional types of business contracts discussed above that can be modified, most of the agreements in the new economy call for this type of collaboration. Some examples include:

Co-ownership agreements

·        Tenancy-in-common agreements for co-ownership of a house or multiplex:

·        Shared studio, workshop, and office agreements;

·        Agreements for co-ownership of other items, such as cars, recreational equipment and electronics;

Leases

·        Shared workspace agreements

·        Leases for shared housing

Licenses

·        Licenses to share  a yard for food growing

·        Licenses for short term home stays, also known as peer-to-peer hotels, such as AirBnB;

·        Licenses for the use of intellectual property

Operating agreements and bylaws for organizations

·        Operating agreements for cohousing communities

·        Bylaws for  cooperatives

Membership and use agreements

·        Member agreements for cooperatives

·        Agreements that describe rights and responsibilities for members of community-supported agriculture (CSA) programs

·        Terms of use and terms of service for services that broker sharing relationships

Investment contracts and promissory notes

·        Promissory notes for peer-to-peer loans to enterprises and homebuyers

·        Sharing agreements and term sheets for local investing initiatives

Although this type of agreement may take longer to prepare, the results are worth it.  The parties will treat each other with more respect, be more willing to work together to resolve issues as they arise to preserve the relationship, foster an environment of working together as partners, and generally leave both sides feeling more satisfied with the relationship that has been created.

If you, or anyone you know, are part of the sharing economy or want to change the way you structure your existing business relationships, please contact my office for a free consultation as to how I can assist you in preparing agreements that suit your particular needs.

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