What HR can learn from Stefanovic’s time in court

In light of the recent court battle between Karl Stefanovic and business partner Keshnee Ibrahim following a controversial podcast guest and resulting fallout, experts are reinforcing the non-negotiables when it comes to duty boundaries.

HR Leader spoke to employment lawyers to examine what the proceedings reveal about business partnerships, the risks of combining professional and personal relationships, and how employers can navigate disagreements in such situations.

According to employment lawyer at Swaab, Michael Byrnes, the case reinforces the importance of well-drafted partnership agreements, irrespective of previous and/or personal relationships.

He said: “This agreement should define the contributions each party is to make to the business venture, set out the equity each party will hold in the venture, and the responsibilities and authority limits of each partner or significant shareholder.

“It is also crucial that there be some mechanism to deal with deadlocks in decision-making processes and what happens in the event of a relationship breakdown.

“Careful consideration upfront to precisely what each party is bringing to the table, how it is to be valued, and how decisions will be made and disagreements resolved can avoid a lot of pain later on.”

In the same way, principal solicitor at Liquid Employment Lawyers, Patrick Will, noted that partnerships among friends tend to run on trust and goodwill, which can be great in the moment – until something goes wrong.

In this way, partnerships cannot rely on the personal relationship of the individuals, nor are friendships a substitute for governance. Further, disagreement can often become compounded by the factor of previous friendship, turning a commercial disagreement into something more personal.

To mitigate these risks, Will urged partners to agree to decision rights and exit terms early and while relationships are functioning, and to rely on pre-agreed mechanisms, such as a shotgun clause, should something go wrong.

“Address disagreements early. Put them in writing and use a neutral mediator before positions harden. Once lawyers are at ten paces, the friendship is usually already lost.”

In this way, Byrnes said: “Where there are two partners, perhaps consider a third party who is trusted by both parties be involved, even with a minor interest, to assist resolving any deadlocks or disputes and providing an impartial perspective that might keep the business operating and achieving its potential.”

Byrnes also disproved the common misconception that courts will undo or rewrite certain deals to administer a broad ideal of fairness, noting: “That is not the case absent some other circumstances warranting court intervention.”

In relation to the Stefanovic and Ibrahim case, whereby the latter holds a 45 per cent interest in the podcast’s company, 123 Podcast Limited, he said: “It is assumed by some to be a ‘bad’ deal for Mr Stefanovic because he is the titular talent of the podcast and clearly fundamental to its success … it is somewhat besides the point.

“If a shareholder has a 45 per cent interest they have certain rights by virtue of that which the court will recognise. The court will not be second-guessing the equity interests to which the parties themselves have agreed and allocated.”

In this way, any allocations of this nature should be carefully considered at the commencement of a business relationship.

In acknowledgement of allegations that Stefanovic “froze out” Ibrahim from her position, Byrnes noted that protection against such oppressive conduct towards any minority shareholder exists to prevent these exact situations.

Should there be a case of fiduciary duty breach, negligence or complete relation dysfunction, Will noted that removing a partner may be necessary; however, “it needs a fair, documented process and it doesn’t automatically end someone’s ownership stake”.

“Abruptly forcing someone out through a boardroom coup often triggers costly litigation, as seen here. The appropriate, legally sound remedy is an independent valuation and a formal buyout.”

With both Will and Byrnes anticipating a financial remedy, the case reinforces the cause for early and fair agreement terms that can operate no matter how or where the professional relationship goes.

Will said: “Ventures born from friendships require more contractual rigour, not less.”

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