Professor Stephen Hendricks Of Western State College of Law On The Top 5 Mistakes Businesses Make Without Legal Counsel

An Interview With Chad Silverstein

Ignoring Regulatory Compliance: Without legal guidance, businesses may fail to comply with applicable laws and regulations, which can result in fines, penalties, or more severe legal consequences.

In today’s fast-paced business world, the complexity of legal matters can often be overlooked, leading to significant repercussions for businesses of all sizes. From startup ventures to established corporations, the absence of legal guidance can result in critical errors that affect growth, operations, and sustainability. These mistakes range from issues with contracts and intellectual property to compliance and employment law, each carrying the potential for financial loss and reputational damage. I had the pleasure of interviewing Stephen Hendricks.

Stephen Hendricks joined the full-time faculty at Western State College of Law in 2022, after four years as an adjunct professor. Hendricks teaches Contracts and Business Associations and directs both the Business Law Center and the Entrepreneurship Clinic. Previously, he served as General Counsel and Vice President of Legal Affairs at a leading financial services corporation for six years, focusing his practice on corporate governance and compliance.

Thank you for joining us. To start, could you share your “origin story” with our readers? How did you begin your career? What challenges did you face in the early days? How did you overcome them?

I began my career in the legal field with a bit of an unconventional path, transitioning from a diverse background in business. My interest in law was sparked by the intricate challenges and opportunities it presented, which I felt complemented my previous experiences. I pursued my law degree through part-time studies, which was a challenge in itself, balancing the rigors of attaining a legal education with personal and professional commitments.

After completing law school, I was fortunate to secure a position as in-house counsel for a financial services company. The early days were particularly challenging as I adapted to the steep learning curve, mastering the specific legal intricacies of financial services and aligning them with business strategies. The key to overcoming these challenges was leveraging my business experience, continuously learning on the job and maintaining resilience. This approach not only helped me manage the immediate hurdles but also laid a solid foundation for my subsequent endeavors.

Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?

Two books that have significantly shaped my outlook are, of course, ‘To Kill a Mockingbird’ and “Corporate Social Responsibility: Strategy, Communication, Governance” by Andreas Rasche and Jeremy Moon.

• To Kill a Mockingbird was instrumental in shaping my early views on justice and the role of lawyers in society.
• On the other hand, Corporate Social Responsibility: Strategy, Communication, Governance has guided my understanding of the impact businesses can have on society. Andreas Rasche and Jeremy Moon’s work has been crucial in developing my approach to business law, emphasizing that corporate actions must not only comply legally but also advance social and ethical standards.

Do you have a favorite “Life Lesson Quote” and a story about its relevance in your life or work?

“What lies behind us and what lies before us are tiny matters compared to what lies within us.” — Ralph Waldo Emerson.

How have you used your success to make the world a better place?

In my position as a law professor at Western State — an institution that prides itself as a school of opportunity — I have strived to use my success to open doors for others, particularly those who may not have easy access to legal education.

I’ve been particularly involved in developing a clinic on campus that provides practical legal experience through helping local small and start-up businesses. Western State’s Entrepreneurship Clinic not only helps students gain real-world skills but also serves our local, underserved business community, making the legal system more accessible and equitable.

What is the most common legal mistake you’ve seen businesses make due to the lack of proper legal counsel and what are its potential consequences?

One of the most common legal mistakes I see businesses make due to the lack of proper legal counsel is failing to properly draft and review contracts. This oversight can lead to ambiguous terms, unenforceable clauses and gaps in the agreements that might not cover all necessary legal protections or scenarios.

Can you share an example where early legal intervention could have significantly altered the outcome of a business dispute or challenge?

I helped a client who had failed to secure intellectual property (IP) rights to some financial products they had created, which caused competitors to gain traction and take business from my client. They came to me after the fact and I was able to help mitigate the issue, but had they sought legal advice sooner, they wouldn’t have been in a defensive position.

How do changes in digital technology and online business practices complicate legal issues for businesses without dedicated legal advice?

Rapidly changing digital technology and online business practices introduce complex legal issues for organizations, particularly those without dedicated legal counsel. Some of the key areas where problems can arise include data protection and privacy, e-commerce laws, IP in an ever-changing digital world (including advertising and marketing) and an increase in international operations.

In your experience, how does the absence of legal counsel impact a business’s approach to contracts and negotiations? What advice would you give to mitigate these risks?

The absence of legal counsel can lead to shortcomings in how a business handles contracts and negotiations, impacting its operations and potential for growth. Here’s how this typically unfolds and some advice to mitigate these risks:

Without proper legal guidance, businesses may draft contracts that are non-comprehensive, ambiguous or even legally unenforceable. This can result from a lack of understanding of the legal terms needed to protect interests or manage risks. Moreover, negotiations might be approached without a strategic understanding of legal entitlements or obligations, leading to agreements that could disadvantage the business in the long term.

Advice to Mitigate Risks:

1. Educate Yourself and Your Team
2. Use Standardized Contracts
3. Consult with Legal Professionals Periodically
4. Leverage Legal Technology Tools
5. Plan for Legal Expenses in Your Budget.

Long-Term Strategy:

As a business grows, the complexities and stakes of contracts and negotiations increase. At this stage, it becomes crucial to consider either hiring in-house legal counsel or having a retainer arrangement with a law firm to ensure continuous, tailored legal support.

What legal pitfalls do new businesses often overlook during their initial setup and growth phases and how can they proactively address these issues?

New businesses frequently encounter several legal pitfalls during their initial setup and growth phases, often due to a combination of excitement about the new venture and a lack of experience in legal matters. Here are some of the common legal issues that are overlooked, along with strategies to proactively address them:

1. Improper Business Structure: Choosing the wrong business structure can have long-term implications on liability, taxation and investment opportunities. Start-ups sometimes rush into a business structure without understanding which is best suited to the organization’s needs.
2. Proactive Strategy: Consult with a business attorney and a tax advisor to choose the most appropriate structure (e.g., sole proprietorship, partnership, LLC, corporation) that aligns with your business goals and provides adequate liability protection.
3. Lack of Formal Agreements: Many new businesses, especially those founded with friends or family, neglect the importance of formal agreements, assuming that mutual trust will manage any dispute.
4. Proactive Strategy: Draft and sign formal agreements that clearly define roles, responsibilities, equity shares, and what happens if a dispute arises or someone wants to exit the business. This is crucial for avoiding messy legal disputes down the road.
5. Intellectual Property Rights: Failing to secure intellectual property rights can lead to others exploiting your business ideas, brand or products without repercussions.
6. Proactive Strategy: Identify all potential IP assets (logos, business name, inventions, product designs and proprietary technology) early and take steps to protect them through trademarks, patents and copyrights.
7. Employment Law Issues: As businesses grow and start hiring, they often overlook employment laws, including those related to hiring practices, worker classifications and employee rights.
8. Proactive Strategy: Develop a set of HR policies compliant with local and federal employment laws and consider consulting an employment lawyer to verify these policies. This includes proper classification of employees vs. independent contractors, adherence to minimum wage laws and understanding anti-discrimination laws.
9. Regulatory Compliance: Depending on the industry, there may be numerous regulations to comply with — including health and safety, consumer protection and environmental regulations.
10. Proactive Strategy: Identify all relevant industry regulations and ensure compliance from the start. Engage with legal experts or consultants who specialize in your industry to stay informed about ongoing regulatory requirements.
11. Data Protection: With the increasing importance of online transactions and data collection, new businesses must understand their responsibilities in protecting consumer data.
12. Proactive Strategy: Implement strong data protection measures and ensure compliance with data protection laws like GDPR or CCPA, depending on your location and reach

Please list and briefly explain the “Top 5 Mistakes Businesses Make Without Legal Counsel” based on your experiences and insights. If you can, please share a story or example for each.

Here are my “Top 5 Mistakes Businesses Make Without Legal Counsel” based on personal experiences and my professional insights:

1. Neglecting to Properly Draft Contracts: Many businesses underestimate the importance of having detailed, well-drafted contracts. This can lead to ambiguities that cause disputes or leave the business exposed to unforeseen liabilities.

• Example: I once observed a small tech company that entered into a partnership agreement without defining the terms for IP rights. When the partnership ended, a dispute arose over who owned the developed technology, leading to a costly legal battle that could have been avoided with clearer contract terms.

2. Failing to Protect Intellectual Property: Businesses often overlook the need to secure their IP rights, risking imitation and loss of competitive advantage.

• Example: A client developed a unique financial services product for retirement funds but failed to secure the necessary IP protections. Shortly after achieving market success, competitors introduced similar products with minor modifications, significantly diminishing the client’s market share.

3. Ignoring Regulatory Compliance: Without legal guidance, businesses may fail to comply with applicable laws and regulations, which can result in fines, penalties, or more severe legal consequences.

• Example: A healthy juice startup expanded rapidly without consulting legal counsel on local health and safety regulations.

4. Misclassifying Employees and Contractors: Incorrectly classifying workers as independent contractors rather than employees can lead to significant legal repercussions including back taxes, penalties and liability for workplace injuries.

• Example: A startup misclassified their full-time developers as independent contractors to minimize payroll taxes and avoid providing benefits, leading to administrative inquiries.

5. Inadequate Succession Planning: Businesses often fail to plan for the future, particularly for events like the retirement, death, or incapacity of key figures.

• Example: The owner of a successful health club passed away suddenly without a succession plan. This led to a leadership void, operational disruptions and a prolonged dispute among family members, which hurt the business both operationally and financially.

If you could inspire a movement that would bring the most amount of good for the greatest number of people, what would that be?

This is a tough one! If I could inspire a movement, it would be to ensure universal access to quality education. Education is the cornerstone of personal and societal development and serves as a gateway to opportunities, empowering individuals to lift themselves out of poverty, contribute to their communities and stimulate economic growth.

This movement would not only aim to provide access to traditional academic education but also focus on vocational training and lifelong learning opportunities, ensuring that education adapts to changing societal needs and technological advancements. Moreover, it would emphasize inclusivity, reaching underserved populations such as women in patriarchal societies, children in rural areas and communities affected by conflict or economic hardship.

An example of the power of this can be seen in a project in Africa, called the “School for All” project where a community-driven approach, supported by global partners, brought educational resources and facilities to an area where literacy rates were very low. Within a decade, literacy rates soared. By championing universal education, we can ignite a cascade of positive changes, making it the movement that truly brings the most good to the greatest number of people.

And how can our readers follow your work?

https://www.linkedin.com/in/stephenhendricks/

https://www.wsulaw.edu/faculty-and-staff/full-time-faculty/

Thank you for these fantastic insights. We greatly appreciate the time you spent on this.

About the Interviewer: Chad Silverstein, a seasoned entrepreneur with over two decades of experience as the Founder and CEO of multiple companies. He launched Choice Recovery, Inc., a healthcare collection agency, while going to The Ohio State University, His team earned national recognition, twice being ranked as the #1 business to work for in Central Ohio. In 2018, Chad launched [re]start, a career development platform connecting thousands of individuals in collections with meaningful employment opportunities, He sold Choice Recovery on his 25th anniversary and in 2023, sold the majority interest in [re]start so he can focus his transition to Built to Lead as an Executive Leadership Coach. Learn more at www.chadsilverstein.com