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July 16th, 2005
Bringing on a New Director?
Last month’s LegalEase discussed some of the mistakes that directors make when joining a production company. When negotiating with directors, production companies can make many missteps as well. There’s tough competition to bring on – and retain – high billing directors. There’s lots of risk when investing in "build" directors. In a difficult and competitive market, managing directors’ expectations about profit participations and other contract terms isn’t easy. If you’re planning on bringing on a new director, here are some common traps to avoid.
Get a Written Agreement
It’s doesn’t matter how good your relationship is with the director. If you’re going into business with someone, it’s almost always going to be better for both of you if you have a written agreement. Putting the agreement down on paper often leads to important discussions about what each side expects – and helps to avoid disputes later on about what was promised.
First Impressions Count
Chances are, if a director is planning on joining your company, you already have a great relationship. Don’t mess it up by presenting the director with a ridiculous contract. Think about how you’d feel if the director presented you with a twenty-page contract that is full of fine print that you can’t understand and that contains obviously unfair terms. If you’re truly interested in a director, send the contract quickly, and make sure that the document is clear, simple, and fair – and that it reflects your (and not your lawyer’s) personality. Also, think twice about negotiating the contract yourself. It’s hard to take care of a new relationship, and negotiate the contract, at the same time.
It’s the Relationship
Although a contract is important, it’s the relationship, not the contract, that is your single best protection. Make sure you really know whom you are going into business with. Do your research. If there’s an issue you’re concerned about, then you should address it in the contract. On the other hand, be careful about turning your contract into a list of your past bad experiences. If every time something bad happens you add a new clause to your contract, you’re going to end up with a long and unfriendly contract that clearly communicates that you don’t trust the director at all. When a director is considering which company to join, this may not be the message you want to send.
Don’t Give Too Much
Although the competition for directors is sometimes fierce, don’t give too much. You’ll regret it later. If you rely on unrealistic hopes of high billings and huge underages, you’ll end up with an unprofitable deal and a bad relationship. Make sure you communicate to the director what is important to you – and explain why. You need to make money, too.
Be Clear on Profits
Think carefully about how you calculate profit participations. Make sure that you, your lawyer, and your accountant all agree how they are calculated, and then make sure that it is clearly explained in the contract. You don’t want there to be problems about how (what are often small amounts of) profits were calculated. Be up front about what goes into the calculation, so that the director doesn’t feel taken advantage of later on.
Finally, don’t be surprised when the director wants to make changes to the contract you have presented. Chances are there are some things that are important to the director as well. And remember that this may be a stressful time for the director too. Don’t take it personally. Just be reasonable. When it’s appropriate, make some concessions. You may have to give a little, but if you end up with a fair contract that the director is happy with, it should only help build a relationship that far outlasts the term of the contract.
This article first appeared in the July 2005 issue of SHOOT magazine. It presents a general discussion of legal issues, but is not legal advice, and may not be applicable in all situations. Consult your attorney for legal advice.
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