The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.
Have you ever wondered why Delaware is the place for Incorporation and Dispute Resolution? Read this excerpt from an interview with The Honorable Myron T. Steele, Chief Justice, Supreme Court of Delaware, published in The Metropolitan Corporate Counsel, to find out the answers.
Editor: What makes Delaware such an attractive jurisdiction for incorporation and venue for litigation?
Steele: People tend to look for three ingredients: the quality of the court system, a supportive legislative climate and an efficient secretary of state’s office. Delaware excels in all three.
In regard to the court system, Delaware offers trial courts of distinction that resolve business disputes expeditiously and efficiently. On request, expedited appeal is available directly to the Supreme Court, which has five members, four of whom are former members of the trial court that I just described. The judges are well informed and familiar with business law and cases. Unlike some other jurisdictions, they’re not transferred every three years from the family court division to sit on business law cases.
If your case is one where you want a knowledgeable court, Delaware is certainly a place you want to be. If you’re going to be a defendant in an action, presumably you want to be removed from the vagaries of jury fact-finding. You want to have a judge who is well versed in the law so you’re not subject to wide unpredictable swings in outcome. Our courts are organized to provide as fast a service as can be provided anywhere.
In our Court of Chancery, there is no option for punitive damages. That business court also has equity jurisdiction, which means you can get equitable remedies that are often sought rather than money damages in order to resolve a dispute or move a deal along.
The second ingredient is that the Delaware Bar Association’s Corporate Counsel Section works closely with the General Assembly to fine tune the General Corporation Law and the alternative business organization statutes to make sure that there is client or constituent input into whether those statutes should be updated. On corporate issues, the General Assembly is completely apolitical. Unlike the U.S. Congress, there is never partisan gridlock on business law issues.
The third ingredient is our well-organized, well-funded and modern high-tech Secretary of State’s Division of Corporations. Expedited service is available when corporate paperwork is needed. It’s as efficient and up to date as any such system in the country.
Editor: In what types of cases is Delaware particularly to be preferred?
Steele: Two immediate categories come to mind. The first is the books and records cases. If you’re chartered in Delaware, Delaware has well-developed law about the extent to which stockholders can get access to business records for the purpose of determining whether they want to move forward with litigation. This helps expedite cases without the significant expense of voluminous discovery.
Those cases as well as challenges to elections are required by statute to be completed within 60 days, so you can get information that is helpful in determining whether you have a genuine basis for proceeding. Several of our cases have affirmed dismissals of actions in which people have failed to take the steps necessary to obtain information essential to going forward.
If you’re serious about litigation against a Delaware chartered corporation, you want to be in Delaware. Many people, particularly in M&A deals – and whether the parties are chartered in Delaware or not – will provide that their merger agreement is governed by Delaware law and that the venue for resolving any dispute about the merger agreement is Delaware.
Statistics from the American Bar Association’s M&A Committee bear out that Delaware is by far the preferred venue for M&A litigation. Delaware was the designated venue in 47 percent of the deals involving a billion dollars or more. New York was next with 19 percent, and the balance is scattered around the country. Most corporations would like to have derivative suits brought by shareholders litigated in Delaware. Plaintiffs agree when they have a good case, and when they have a bad case, they tend to want to go somewhere else.
We’ve got a big community here at HBS that runs the gamut from first-time business owners to serial entrepreneurs. And while some folks were definitely born with the entrepreneurial gene and have always been their own boss, a lot of us—myself included— have had to make the transition from working for others to working for ourselves. So with this group in mind, here is some advice on navigating the winding but rewarding road to professional independence.
One of the things I found most helpful to keep myself going when I got started—and something that I continue to practice today—is to set small, achievable goals for myself each week. Things like calling a specific client prospect, finishing a piece I’m working on, and getting started on a new project. Writing these goals down and looking at them each day may sound like a small thing, but it helps to ensure that you’ll actually complete them, and crossing them off your to-do list provides the sense of accomplishment and frees up the head space necessary to move on to the next set of goals.
Just because you’re working for yourself doesn’t mean that you don’t have anyone to turn to for advice or encouragement. When I set out on my own I connected with a few old colleagues whom I hadn’t seen in a long time but who had also left the corporate world for entrepreneurial ventures. All of them were more than happy to answer my questions and to provide guidance and mentorship that really helped underscore the fact that I was making the right choice for myself. I even wound up setting up a weekly meeting with one of them where we would compare notes, share ideas and just generally look out for one another.
In addition to reconnecting with these folks who’d decided to follow a similar path to my own, I also made the decision to stay in touch with some of my former colleagues who were still working for big firms. While this may seem a bit counter-intuitive when you’re looking to make a clean break, it actually served two important purposes. First, listening to their tales of doing the same old thing day after day made me feel better about my decision to embrace the unknown. Second, and more importantly, they turned out to be a great source of income. Some of my former employers and coworkers have turned into my best clients and sources for referrals.
The final piece of advice I have to offer isn’t particularly in genius but it will save you a great deal of time and headache: hire a good accountant who has experience working with entrepreneurs. The tax consequences of working for yourself are profound and can help inform nearly every decision you make, from where to open an office to whom to have lunch with today. I had an accountant who was great handling my affairs when I was in the corporate world but had very little experience working with entrepreneurs, so it made sense, and saved me money in the long run, to find additional help. Make sure your accountant has the expertise necessary to handle your changing needs.
I wish all of you currently making this big shift the best of luck, and if any of our readers has additional tips on making the transition to business owner that they’d like to share with the HBS community, we’d love to hear them.
Since 1996, Bruce Clay, Inc. has been the leader in the search marketing industry through SEO Code of Ethics, Search Engine Relationship Chart®, and SEO Training and Certification programs that promote ethical SEO practices. Headquartered in California, Bruce Clay, Inc. has global locations in Australia, Switzerland, India, Japan and Brazil. I recently met Bruce Clay at the SES Conference in San Francisco, California through a workshop I took called Introduction to SEO, which I found to be very eye-opening since I have just started learning about SEO and wanted to gain a better perspective of it. In order to gain a better understanding of the things I learned in the workshop, I had the great opportunity to present the following questions to Bruce to learn a few more details on Search Engine Optimization.
What advice do you give companies that want to do their own SEO?
Invest time to learn how to do SEO properly, right out of the gate. Your strategy and your site will have staying power if you take the time to learn the proper SEO tactics for your website. Take a course and read a book, attend conferences, and by all means, read each and every one of the top-ranked websites for search engine optimization.
Make sure you’re working within Google’s guidelines. Understand them and the SEO tactics that Google believes are actually helpful to its search engine. Remember that one of the search engine’s main priorities is to serve up the most relevant results to users. Work with the search engines to make your site relevant and help it to be found.
After you learn how to perform SEO in a quality way, your team needs to be able to stay current on trends, or they will quickly fall behind. SEO is not performed only once and then you are done, it’s an iterative cycle that goes on and on as long as you have competitors.
Being strategic means knowing where the digital world is headed, including where user behavior is shifting, and continuing to listen to what Google is saying (and what it’s not saying). Do this, and use your knowledge and experience to make proactive choices so your site can stay relevant.
What common mistakes do many companies make when they do their own SEO?
Too many companies think SEO is easy, cheap and that you can successfully fool Google. Clearly, Google is fighting deceptive tactics, and the penalties are severe. Take a shortcut to save time and money and you will be hurt by Google.
The opposite of strategic SEO is reactive SEO. And when companies chase algorithms rather than being proactive with their SEO, they will run into problems at some point.
Too often, we see businesses in a real mess because they tried to get rankings with gray area tactics. I’m not talking about those things that blatantly go against search engine guidelines; those are spam tactics. I’m talking about SEO tactics that are not fully acceptable to Google, yet do not immediately trip any spam alarms. Ultimately, these types of tactics don’t have the end user in mind. They are usually performed for the purposes of self-interest.
For instance, how you perform your linking practices can be an example of gray area tactics. Some companies may not know they’re doing anything wrong because they never learned that many link strategies end up in penalties. Or maybe the company that sold them the links, for example, told them “this is how you get rankings.” This goes back to learning how to do SEO properly, so you can protect your business, even when you outsource.
You know you’re performing gray area (or worse) SEO tactics when Google makes an algorithm change and the company’s entire SEO strategy shifts to find that next shiny thing that’s going to get your site visibility. This is reactive SEO.
Can you explain Siloing and how you utilize this concept from an SEO standpoint?
In its simplest form, siloing is about relevancy. It analyzes user behavior online and works to match your site as the authoritative source for the things people are searching for. On a more technical level, it starts with research about the business, then research about audience behavior online, then your website’s architecture. You build search engine optimized navigation when you use siloing, focusing on matching your site structure to how people search. From there you build a clear content hierarchy that emphasizes important links.
Then, when you create quality content around topics that stem from that keyword-rich site architecture, this does a couple things. First, it builds subject matter authority in the eyes of Google and your users, so you can be considered a relevant source of information. From a user’s perspective, you are creating an information-rich, relevant site that provides a great experience and answers user's queries online. But the site must first be found in the search engines. Siloing helps a site to be recognized for the queries that are most relevant to its audience.
There are a lot more technical concepts around siloing that I’m not diving into here. But just remember that the goal is relevancy. This also just so happens to be Google’s goal.
You can learn more about this topic in our siloing manual.
Last week we covered the topic of cash reserves and offered some advice on how to build an appropriately sized reserve for your business. We also alluded to the fact that in today’s extremely low interest rate environment it can be hard to find attractive places to invest those cash reserves. While some of you may be tempted to stuff cash underneath the mattress after taking a look at the rates on offer, there are better options out there that can help entrepreneurs earn a little something without compromising the safety of their investments.
While we’re not here to offer any specific advice about where to invest your cash—talk to your financial advisor about that—we can help to explain some of the options available in order to help you come up with a sensible overall approach to cash management.
The first step is to mentally divide your cash reserves into two buckets: one that you need to have immediately available and another that you can afford to have tied up for a certain period of time.
For the first bucket your options are going to be pretty straightforward, you’ll be looking at deposit accounts from FDIC-insured banks, which pay low rates but allow you immediate access to your funds. These include checking, savings, and money market deposit accounts. Note that money market deposit accounts are different from money market mutual funds, as the latter do not come with any FDIC guarantee. And with rates on money market funds currently as low or lower than those on savings accounts it may be best to avoid them. The FDIC currently provides savers with $250,000 in deposit insurance at each insured bank. If your reserves are greater than this, you should consider splitting them between two or more banks so that all of your funds are covered by the FDIC guarantee.
For the second bucket, the portion of your reserves that you are comfortable having tied up for a period of time, you might consider putting some money into certificates of deposit (C.D.’s). These typically offer higher interest rates than savings accounts, but you won’t have access to your money until the C.D. matures. C.D.’s come in maturities ranging from three months to five years—the longer the term the higher the yield—and are covered by FDIC insurance. You probably will want to split your money across C.D.’s of varying maturities, a process known as laddering. Laddering will ensure that you receive steady cash flows as the C.D.’s mature and will decrease the interest rate and reinvestment risks of your cash reserves. There are a number of good laddering calculators on the Web that can help you with the process.
You might also want to look at high-quality government and corporate bonds with similar maturities to the C.D.’s that you are interested in. These may offer slightly higher yields but are not FDIC insured (although U.S. Treasury securities are backed by the full faith and credit of the federal government). Keep in mind though that if you are forced to sell a bond before it matures you could realize a loss of some of your capital.
As with all of your investments, make sure that you understand any and all fees that financial institutions are charging before choosing where to invest. Especially in today’s low-rate environment where even small nominal fees can eat up a big chunk of returns.
And finally a world of caution on any investments being touted as “safe as cash” yet carrying higher interest rates than FDIC-insured deposits. If it seems to good to be true, or if you don’t understand what you are investing in, by all means stay away.
Telework is exploding in popularity: According to a recent Consumer Technologies survey, 34 million Americans work from home at least occasionally; by 2016, experts estimate that 63 million workers will work for companies remotely. Telecommuting is better for the environment, and is known to increase workers’ happiness and productivity—but how do businesses fare when many of their employees are out of sight?
If you’re willing to make the effort to set up a work environment that accommodates teleworkers, it can be a boon to your business. You can hire the best workers for the job, no matter where they live; reduce turnover; and save money on office expenses. Here are some steps for implementing a successful teleworking policy.
Set expectations from the start. Whether you’re hiring a purely remote worker or allowing an existing employee to work from home, it’s important to come up with a set of standard guidelines to ensure that your remote employees will perform their roles well. These policies will vary from organization to organization and role to role, but should answer questions such as when the worker must be present in the corporate office, if at all, and whether he’s expected to be available by phone at certain times each day. You may also wish to make the employee’s right to telecommute conditional on meeting set milestones.
Incorporate technology that makes it easy to communicate virtually. There are many web and mobile apps available that can help teams communicate no matter how far apart they are. Use project management software such as BaseCamp or one of the many available alternatives, which you can use to set and track employee milestones, share files, and send messages on a web-based platform. For instant communication, services like Skype and gChat allow you to talk through instant messaging, phone calls, or video chat.
Make sure each remote employee has the right technology to do the job effectively. If you’re hiring independent contractors, they’re responsible for providing their own equipment; however, if you’ve hired W2 employees, it’s your responsibility to provide them with adequate work spaces. Many employers will provide an expense budget so that workers can choose the office furniture and equipment that they prefer; others will purchase equipment directly for staff. Typical expenses might include a laptop computer, a cell phone, a printer, a desk, and a high-speed wireless Internet connection.
Focus on milestones, rather than hours worked. When you’re employing remote workers, it’s generally difficult to tell how much time they’re actually spending working on each project. Though time-tracking software is available to help you monitor employee performance, many managers prefer to shift the focus from time spent on a project to the results that have been achieved. To facilitate a results-focused work environment, make sure that each new project has a set of clear milestones with expected delivery dates—for instance, a website developer might be asked to complete wire frames for the site over the course of one week, and then complete a mock-up by the end of the following week . In order to incentivize employees to go above and beyond these goals, you might consider offering a bonus structure to reward employees who consistently meet their milestones ahead of time.
If possible, host occasional in-person events for all employees to attend. If all of your employees are local to the region, you may simply require that all employees attend a weekly meeting in person. If your staff is spread out geographically, consider hosting an annual summit, in which all employees will travel to a central location for a period of a few days to collaborate in person on existing projects and focus on the business’ future. Making the effort to encourage in-person communication may lead to new ideas and projects that employees wouldn’t have come up with in a purely virtual environment, and the experience can strengthen relationships among the entire workforce.