Vic,

Have you looked at employment agreements? I just had a conversation with a colleague who is doing a paper on contracts for head football coaches, and my impression (from her descriptions) is that "internal branding" or organizational identity is quite common in those contracts.

I just signed an offer letter from BYU, and that certainly has identity provisions of the sort you are describing.

By the way, I wouldn't assume that every rep, warranty, and covenant is designed to police opportunism. They may not be about branding/identity, but that doesn't mean they are about opportunism, either.

Oh, about merger agreements, are provisions about CEO succession and board representation part of "internal branding"? How about provisions regarding the location of jobs, especially the headquarters of the combined company? The decision about which corporation will be the surviving corporation? The name of the surviving corporation? I am not claiming that all of these are identity provisions, but I am claiming that they might be.

Thanks for the comments, Gordon.

1. I wholeheartedly agree that there is a lot more than opportunism addressed in the contracts. Didn't mean to suggest otherwise.

2. I've looked at both employment agreements and merger agreements, and I think it's safe to say that these provisions do sometimes speak to the culture question, but only indirectly, not in proportion to the importance of culture as a business matter.

The law school offer letter is a nice example. Maybe your BYU letter is more direct (esp given the unique mission of the school). But most law school offer letters speak to specifically negotiated details -- teaching load, sabbatical, the provision of resources to support research, and maybe even a colloquium series or something like that -- but they don't typically make an explicit promise about providing a vibrant intellectual community, providing mentorship, acting with generosity of spirit, etc. Why not? Is it too hard to agree on what matters? Would it give rise to too many controversies over enforcement/implementation? Fear of opportunistic litigation?

I agree that the provisions you cite affect branding/identity. I'm just surprised we don't see more.

Vic, This conversation reminds me a little of of my first venture capital article, where I talked about why VC agreements don't include provisions relating to value-added services, even though those services are an important part of the deal. As you suggest with reference to corporate culture, those sorts of activities are hard to define in a contract. In lieu of contracting, the parties may be relying on reputation ... though that has its own set of challenges.

I guess the question I have is why should culture be part of the agreement? Where would the provision be - in the reps and warranties?

In my (admittedly limited) experience, corporate culture is a very important (if the buyer is smart) part of the due diligence process as conflicting cultures are a common cause of failed mergers.

Finally, why put internal culture and branding into an agreement? Once the merger is complete, the buying company can install whatever internal culture and branding changes it wants. Of course, if they are incompatible with the acquired company, the changes will lead to problems, but see the due diligence point above.

Michael - thanks for the comment -

It could work in either direction - a buyer seeking reps about a target's culture, so it knows what it's buying, or a seller seeking warranties about what the buyer will do with the company culture once it's acquired. The latter concern seems to come up a fair amount in both the start-up and family business context.

This wouldn't be an interesting problem, I think, if it was easy for the buyer to "install whatever internal culture" it wants. It's really hard to create or change corporate culture - otherwise the merger problem you note wouldn't be such a big deal. The empirical evidence suggests that there's a lot of value getting destroyed because cultures aren't being managed well, and I'd normally expect contracts to try to step in and do something about it. Isn't that what deal lawyering is all about?

"The empirical evidence suggests that there's a lot of value getting destroyed because cultures aren't being managed well, and I'd normally expect contracts to try to step in and do something about it. Isn't that what deal lawyering is all about?"

I think this goes back to my point on diligence. If a small company is worried about culture getting ruined, then it had better do its diligence, because after the merger it will have no legal recourse to enforce the promise -SmallCo management will not have the authority (or legal standing) to sue BigCo - it's all one company! And if SmallCo management tried to sue an affiliate, they would all be fired, I suspect, and new management would dismiss the suit.

If we broaden the question to contractual promises for post merger operations - the only time you see them is when it is for the benefit of third party beneficiaries - namely the owners of SmallCo.

Thus, you see many post-merger promises about operations when there is an earnout, an escrow, or a purchase price trigger. And in those cases, you can see "quasi" culture based promises - I litigated one where the buyer promised to keep a number of salespeople on to support an earnout, and then they failed to do so. SmallCo couldn't sue, but the selling investors could. Even those provisions have a sunset - selling investors can't control the merged company's operations forever.

SketchUp, by the way, is a very cool program, that is the best I've seen at addressing the problem of trying to draw three dimensional shapes on a two dimensional screen with a pointing device. Not a bad learning curve, either.