How to Nurture and Meet the Responsibility to Stakeholders

Getting the investment to start your adult beverage production is only half the battle. We talk a lot about investment opportunities for distillers who need capital to get their project started. What is often overlooked is the importance of nurturing relationships with stakeholders who are supporting you. Accepting investment money, the entrepreneur in question has a duty to the investor to provide and meet obligations to move the business forward. Indirectly, these responsibilities are also supporting the investor.

For the purpose of the example of caring for the stakeholder, we are going to assume the entrepreneur of the business in question is the director or officer of a corporation. Maybe the investment came from a venture firm, or perhaps an angel donor. Either way, once the entrepreneur accepts the cash, they now have a fiduciary responsibility. The fiduciary is the highest legal duty of one partner to another. A bank officer, financial advisor, board manager or corporate officer are examples of the different roles that accept the responsibility. Under jurisprudence, there are two main aspects of fiduciary responsibility: duty of care and duty of loyalty.

Duty of Care

Continuing with the same example of a hypothetical entrepreneur, let's articulate what duty of care would mean to them and the investor. As the director, duty of care would require them to put forth the time and attention to help the business succeed. In no knowing terms should this individual try to run the company to the ground. Sounds insane to say, but it is essentially ensuring that the director will take steps to create a business plan, manage cash flow, and develop appropriate strategies for success.

The entrepreneur in question should have answers to menial tasks and possess analytical skills to understand what is happening with the business and where it is going. However, it's not their responsibility to be a single entity completing all of these tasks. The director can (and should) hire "experts" in areas that might be considered a weakness. An example would include hiring an accountant, who the director believes to the best of their ability, holds qualifying skills that would satisfy those obligations.

Duty of care also extends into operations and handling prudent tasks that require corrective action.

Duty of Loyalty

The duty of loyalty is multi-faceted. The first facet includes the director or entrepreneur to put the interest of the company first. Setting their own salary isn't in good practice. Other directors and key players in the business should help identify the appropriate compensation of the entrepreneur.

Similarly, the individual can't use the business to their benefit. We could use the example of the entrepreneur conceiving the idea for a new beverage. Instead of taking the concept and capitalizing on it by establishing a new brand, the entrepreneur should run the plan by the board. Only in the instance that the members decide not to act on this idea would the entrepreneur be free to explore ways of bringing it to fruition outside the company.

Additionally, the member shouldn't participate in voting on matters which are of conflicting interest. The business needs are put ahead of the entrepreneur. We could use an example of business expansion. Maybe the entrepreneur knows of a great spot for the expansion, but the entrepreneur's marital partner manages the listing. If the company were to agree to the terms and the entrepreneur could take on additional financial benefits from the deal, they should articulate the conflict of interest and abstain from the vote. Holding business secrets close to the chest is another obligation. The distilling process is all about sharing. Some information about recipes, finances, or production methods that could benefit competitors should be kept confidential. Failing to adhere to confidentiality could have dire consequences on the company's success.

The Importance of Meeting Fiduciary Responsibility

We should first begin by saying we are not lawyers and are not equipped to deliver legal advice. However, we can say that legal action might be taken against directors or owners of the company if any of the stakeholders believe they have not met their fiduciary responsibility. Even if the entrepreneur made decisions that ran the business into the ground, as long as they satisfied the duties set forth it will be hard to bring judgment against them.

Corporate decision making can be challenging. At Brindiamo Group, our members have experienced every stage of the entrepreneurial world. From private to public sectors, our team has the experience to help you no matter where you are in your company journey. For more information on our strategy and advisory services in the adult beverage sector, visit our website.

Article Resource:

Defoe, Brian B. “The Care and Feeding of Stakeholders (How You Meet Your Legal Duties to Your Mother).” Artisan Spirit. Fall 2017: 69 - 72. Print.

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