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3 Ways to Protect Your Business Against Corporate Phishing Attacks

Posted: 19 Oct 2019 07:17 PM PDT

We all know better. We've all seen the articles explaining that phishing is a real and persistent threat, and we've been warned ad nauseam not to click on suspicious links. Yet we also know just how easy it is to mess up and click on that link.

One type of phishing is growing explosively and targeting the people who pay bills and manage human resources in companies, government departments, and non-profit organizations. According to a report by the Better Business Bureau (BBB), the new attacks—sometimes called "spear phishing," "whaling," or "mandate fraud"—start with an email that appears to come from a high-ranking member of the organization. The scammers have either hacked into the email account of a specific person, the CEO, for example, or set up a bogus email that looks like the CEO's.

The email typically targets a specific person in the organization, too, like the CFO, the head of HR, or someone else with direct access to financial accounts or HR records. The email may look like a request from a senior staffer to have their paycheck deposited into a new bank account or from the CEO requesting updated personal tax records. Sometimes the email request may be as simple asking for a request for a gift card.

This type of scam is happening with alarming frequency, too. An astonishing 80% of businesses in the United States have been targeted with some kind of payment fraud or business email compromise (BEC) scam, according to a report by J.P. Morgan. The FBI says this spike has resulted in more losses that any other type of fraud in our country, the BBB report notes.

One source in the BBB report says when wire transfers are involved with spear phishing scams, the average loss to companies comes to $35,000. Arguably the most infamous corporate phishing attack in recent years is the one that Lithuanian national Evaldas Rimasauskas pleaded guilty for in March, which saw him raking in some $100 million from Google and Facebook before his arrest two years ago.

The BBB report is both fascinating and unnerving, and leaves organizations with a few major takeaways.

1. Implement technical barriers

Good training can go a long way toward helping stop BEC attacks before they start, but it's not foolproof. The BBB report makes a strong case that for impersonation emails to work, they have to appear to come from within the organization's email system, so it's imperative to add layers of protection there.

"The tricky part about BEC attacks is that they aren't detectable by conventional anti-virus solutions," notes Miriam Cihodariu of Heimdal Security. Like all social engineering attacks, she points out these attacks rely on human reaction to work.

As a first step, Cihodariu recommends requiring multifactor authentication, so potential scammers cannot log into the system. Also, add a warning message to emails originating from outside your organization. Email administrators also should be vigilant about unusual forwarding rules or autoresponders often set up by hackers to prevent the actual email owner of the account from noticing that anything is amiss.

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2. Typical security awareness training doesn't work

Clearly, being forewarned is important. But the type of conventional awareness training companies have been opting for, the BBB report demonstrates, isn't doing the job.

That's because hackers behind phishing attacks are becoming increasingly adept at tapping into people's emotions, explains Mika Aalto, co-founder and CEO of HoxHunt, a security training provider. "If you generate enough fear or threat, a person will easily do something irrational, like open a shady attachment, even though they know perfectly well they shouldn't."

This explains why senior citizens so easily fall prey to scams about their grandchildren needing money. It also explains why perfectly rational, highly-placed professional people will do odd things when they think it's their CEO asking.

The solution, according to Aalto, is to go beyond the typical e-learning style of threat awareness and implement a training program where employees learn in real time through practical exercises. His company provides staff security training that sends personalized phishing simulations based on the user’s role in the company. Progress is measured and results are displayed on a dashboard interface so the security team can spot potential trouble areas and less compliant employees.

3. Consider social engineering insurance

Even with the best training and solid technical barriers, it is possible to fall victim to these increasingly sophisticated attacks. And when it happens, the loss may not be covered under a business's general crime/fraud insurance policy.

"Insurers have denied coverage for social engineering claims under crime/fidelity policies on the grounds that no 'direct' fraud …has taken place," explains Bethan Moorcraft, a news editor at Insurance Business America. She explains that since scam transactions are often made by an employee acting on behalf of the scammers—even though that employee was tricked into it—many insurance policies won't cover it.

Moorcraft recommends protecting your business by procuring an additional endorsement to your crime/fidelity policy that specifically includes protection against social engineering claims, including phishing, BEC, and similar attacks. 

Final thoughts

BEC scams are a serious threat to any size business. The full BBB report is well worth a read, and will help you realize the need to get serious.

The takeaways: 

  • Lock down your email system to whatever extent you can.
  • Implement a real-time, personalized employee threat training program.
  • Consider social engineering insurance to help recoup any potential losses.

RELATED: Can Too Much Cybersecurity Be Bad for Your Small Business?

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Strategies to Beat Today’s Growing Backlink Competition

Posted: 19 Oct 2019 07:04 PM PDT

Need more page views? Better search engine visibility?

Okay, those are rhetorical questions—all of us do. But a recent trend could be making this more difficult than ever. Let me tell you about a conversation I had last week with a part-time blogger friend of mine.

He's had his website for more than a decade and it's always been a pretty low-key operation. In fact, he doesn't get a lot of page views; that's not the purpose of his site. But out of the blue over the last few months he's been inundated with random requests to place links within his published articles.

This has never happened to him before.

He's involved in internet marketing, so he knows why these people want to place links on his site: More backlinks to a site tend to increase its authority in the eyes of search engines, resulting in better search engine placement. It's one of the fundamental building blocks of a successful small (or large) business website. His comment to me was that if people are coming to him for backlinks, the competition for backlinks must be getting very fierce.

You need a backlink strategy

This puts a premium on devising a winning strategy to convince website owners—bloggers and other informational site owners—to agree to place a link to your site within content already published on their site. A variation of this is to actually take content created by you and publish it on their site. Then, within that content or within an introduction to the content you provide, you're able to place a link back to your site.

Outreachxpert, a company that specializes in this kind of marketing, outlines its general strategy, and it's a good starting point for anyone interested in DIY link placement:

  • Pull together a detailed brief about your project. What are your goals? Who are you targeting as prospects?
  • Analyze your industry influencers. Who are your prospects listening to in the social media? What blogs are they reading? What YouTube channels do they subscribe to?

With these two steps under your belt, according to Outreachxpert, it's time to start "the hard work: writing, pitching, and connecting … with the top influencers in your space."

Let me inject a word of warning here: While it's great to identify the top influencers, they may not be the first people you go to in DIY link placement. If I can rewind the tape for a second—if my part-time blogger friend is getting beaucoup requests for link placement, you can imagine how many requests the top influencers receive every day.

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However, if you want to try, go ahead but be persistent. I've discovered that the squeaky wheel gets the oil and that some influencers will place a link just to get a requester off his or her back for a little while. But this brings us to our next critical point: Your content must be undeniably superior. Let's look at a specific strategy to illustrate this.

Do thorough research

You should have a pretty good idea of who your successful competitors are, so scouring the web to discover backlinks to their sites is a good place to start. Free services like Ahrefs' backlink checker will help with this. As you uncover your competitors' links, analyze the content that is being linked to.

A financial advisor with a new website might discover that a competitor wrote a good article on how to buy and sell options and has earned a lot of backlinks across the internet. The job for the newbie financial advisor would be to write a demonstrably better article about buying and selling options. It could include points the competitor's article missed, better graphics, updated information, etc.

Compose an engaging email

The next step is to compose an email to pitch the new, improved article on options trading, and it's important that this be done properly. It should include:

  • A personal greeting that gives a compliment to the website owner
  • The article where you would like your link to be placed and which link it would replace
  • A short but powerful statement of why your article would be more valuable to readers
  • The actual link you want to place

An inquiry email might read something like this:

Dear Pat,

I've been following your blog for some time and really enjoyed last week's article on finding the best interest rates for savings accounts. We need to squeeze out every penny of income we can get today. I see that you have an overview of option trading (URL here). I've pulled together an updated in-depth article on this topic with some great charts. With its current information and better graphics, I think it would be more valuable to your readers than (URL here). What do you think? I'll follow up in a few days after you've had a chance to check out my article.

One more tip that will help with the important personal greeting. Don't simply send emails to "info@domainname.com." Try to discover a contact name. This may be published in the website's "about us" or "contact us" page, but if it isn't, head over to Hunter.io, enter the top level domain, and discover the various email addresses associated with the domain. It will usually be obvious where you should direct your inquiry.

RELATED: How to Optimize Your Small Business Website for Voice Search

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The Benefits of Coworking Spaces for Entrepreneurs

Posted: 19 Oct 2019 06:41 PM PDT

As work styles and agreements have evolved, so has the flexibility of work. Many professionals now have the freedom to work from anywhere they choose. Though some like to work from home, many entrepreneurs find it beneficial to get out of the house and used shared workspaces.

A shared workspace, also known as a coworking space, is a physical work environment in which freelancers, startups, and small teams utilize the same office to get work done. These environments combine the best of both worlds—independence and collaboration—by offering a range of offerings. These include dedicated desks, shared desks, private offices, and even private office suites. Membership dues typically cover the rent of the space, as well as bonus amenities (like access to printers, copiers, coffee, and boardrooms).

Coworking spaces are now more than just a hot trend, and because of everything they have to offer, they are likely to be around for many years. If you choose to work in a shared office space, you can expect to enjoy some of the following perks:

1. Collaboration

There's something powerful about rubbing shoulders with other people. In a coworking space, you'll have the opportunity to work alongside other entrepreneurs who will sharpen your skills. You'll also earn the right to interact with people from other specialties and professions. This will expand your ability to think outside the box (and may even allow you to pick up additional skills you wouldn't have acquired on your own).

2. Creativity

When working from home, it's easy for things to get stale. In a coworking space, you're given free rein to explore your creativity. It provides the perfect balance between working on your own and working with others.

3. Discipline

For many freelance entrepreneurs, self-discipline is the toughest part of the job. With nobody telling you to show up to work at a specific time or hand in a progress report by a particular date, it's easy to get lost in the shuffle. A shared workspace adds a degree of structure and discipline to your work routine. With other people expecting to see you, there's far greater accountability.

4. Resources

Shared workspaces almost always come with shared resources, amenities, and opportunities. This may include things like meeting spaces, copiers and printers, snacks and coffee, business mailing addresses, access to speakers, software, and office supplies. As an independent worker without access to the traditional perks that come with full-time employment, these resources are significant.

5. Networking

"A coworking space can only be what you make of it. And it can be so much more than just another place to get work done," writes entrepreneur Kate Swoboda. "The potential for networking within a coworking space is one of the major advantages. When done right, this networking can be low-key and feel as simple as having a conversation around the water cooler with new friends."

From casual conversations with the person at your shared workspace to formal networking events with speakers, there are countless opportunities to expand your network and make new connections. This benefit alone is worth the price of membership.

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Finding the right shared workspace

As the coworking movement has caught on, thousands of coworking spaces have popped up around the country. As you search for the right fit, here are some things to consider:

  • Location. Consider where the coworking space is located—both in terms of proximity to your home and proximity to your clients. The more convenient the location, the more value you'll extract from it.
  • Community. It's called a shared workspace for a reason. The community aspect is what makes this setup so great. When choosing between a couple of different coworking spaces, go with the one that has the best community.
  • Amenities. Look at amenities as cherries on top. For example, having access to a copier is nice, but it probably won't make or break you. Definitely consider bonus amenities, but make sure you're looking at the whole picture.

The beauty of a shared workspace is that it's a low-risk investment. Most coworking spaces allow you to go month-to-month with your membership. If you find that it's not a good fit for your work or lifestyle, you can easily try something else. But like most other entrepreneurs who've given it a go, you'll almost certainly enjoy the experience. Give it a try and see what you think!

RELATED: 4 Female-Focused Coworking Spaces Women Entrepreneurs Should Join

 

 

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Strategies to Overcome Mental Health Stigmas in the Workplace

Posted: 19 Oct 2019 06:36 PM PDT

By Corinna Cornejo

Leaving mental health conditions untreated is costly—both in terms of dollars and lives. U.S. businesses lose billions of dollars in lost earnings each year due to untreated mental health conditions. With one in five Americans living with a mental health condition, this problem is more common than most people realize.

Effective treatments are available for mental health concerns, and 75% of people with common mental health conditions reported that treatment reduced their symptoms.

Yet 80% of workers agree that stigma is a major barrier to getting mental health treatment. These workers fear that being open about having a mental health condition could compromise their reputation, relationships, and opportunities at work. They also fear becoming a target of bullying, rejection, or discrimination.

Mental health conditions should be approached in the same manner as a physical illness or disability. Having a mental health condition is not a personal failing or caused by being lazy or irresponsible. It is something that requires professional care. Yet, fear keeps many people from seeking the help and treatment they need for their mental health concerns.

Addressing these fears is everyone's responsibility. All of us can play a role in creating a company culture that is caring and engaged around mental health by breaking down the stigma and supporting better mental health for everyone.

Here is what a supportive company culture looks like:

Respectful policies and practices

Workplace policies that acknowledge the importance of mental health and encourage treatment, when needed, are the cornerstone for building a supportive company culture.

  • Handle mental health issues in the same manner as physical health issues. Both may require treatment and accommodations. Neither is a personal failing or the person's fault.
  • Acknowledge that people with serious mental health conditions are protected by the Americans with Disabilities Act (ADA) and may need reasonable accommodation. Train your managers to understand this and manage workers within these parameters.
  • Encourage everyone in the company to use respectful language and discourage language that is stigmatizing or discriminatory. There's no room in a supportive company culture for name calling or bullying.

Bottom line, these policies and procedures are aimed at encouraging respect, civility, empathy, and a general culture of well-being for everyone.

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Assistance programs

To be effective, assistance programs in the supportive company go beyond simply offering an Employee Assistance Program (EAP). Assistance includes helping the person get the care they need, successfully return to work, integrate with their group, and manage work tasks.

Flexible work practices and options are helpful for getting people back to work and supporting their ongoing work performance. These can include flexible work hours and having the option to work from home.

Increased awareness

Much of the stigma surrounding mental health comes from fear and misunderstanding. By raising awareness, you can help people to understand the truth and reality of living with a mental health condition. Chances are your workers already know someone who is living with a mental health condition. They need to understand that it's a condition that can be treated and they should not be afraid of or disgusted by the person affected.

Something as basic as actively including people in group activities and social situations in the office can help both the person affected and their colleagues become more comfortable with each other. Offer formal training about mental health, its treatments, and your company's policies and procedures. Welcome questions and discussion, and make sure people know how to access the mental health resources available to them.

Lead by example. Act the way you want others to act when it comes to mental health. Modeling openness, compassion, and acceptance is one of the most effective ways of normalizing mental health in the workplace.

Become an advocate

Unfortunately, misconceptions and prejudices don't change overnight. You may find yourself in situations where someone says something about mental health or about a person with a mental health condition that simply isn't true or is prejudicial.

In this situation, you have to speak up. Clearly and directly counter what that person is saying. Make it clear that what they said is not true and won't be tolerated or accepted in your company. If you stay silent, then that person (and anyone else within listening range) will simply accept that wrong information and stigmatizing behavior as okay. If this behavior goes unchallenged then nothing will improve when it comes to mental health in the workplace.

Eliminating stigma lets people see and work with the individual and not the condition. Ultimately, breaking down the stigma around mental health and building a supportive company culture will encourage people to get the care they need. This will lead to stronger relationships and a more satisfying work environment for everyone.

RELATED: Overcoming Founder's Blues: How Entrepreneurs Can Recognize and Treat Depression and Anxiety 

About the Author

Post by: Corinna Cornejo

Corinna Cornejo is a marketing content writer and strategist who specializes in digital health, healthcare, and related topics. She is a primary writer for WorkplaceTesting.com.

Company: WorkplaceTesting.Com
Website: www.workplacetesting.com

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Small Business Optimism Is Growing—Here’s How Your Business Can Contribute

Posted: 19 Oct 2019 06:18 PM PDT

The future of small business, even with concerns about a recession, remains bright for entrepreneurs. In Capital One's latest Small Business Growth Index (Fall 2019), 64% of business owners surveyed say that their current business conditions are good or excellent. Additionally, compared to six months ago, small business optimism increased five percentage points, and recession concerns decreased six percentage points.

Feeling slightly less concerned about a recession, however, doesn't mean business owners exist in a recession-free bubble. If the economy entered a recession in the next six months, 85% of small business owners say it would impact their business. The impact, for 65% of business owners surveyed say they “would be more conservative with inventory and supply management.” Regarding cash flow, while 61% say a recession “would negatively impact cash flow,” 74% of business owners “feel prepared for a recession from a cash flow perspective.”

As I reviewed the Small Business Growth Index, I found myself pleased to see so much positivity. As a business owner, I know that being in business has its ups and downs. Entrepreneurship is risky. It takes guts to make this kind of leap forward. Entrepreneurs may work hard and are passionate about what they do, but they still don't know what might happen tomorrow.

The future may consist of the great unknown, but small business optimism does continue to grow. Best of all, this optimistic outlook shows no signs of stopping. What can small business owners do to contribute to that growth and optimism? Let's take a look at simple ways entrepreneurs can strengthen small business optimism.

1. Surround yourself with a great team and emphasize outstanding company culture

A great team can make all the difference when you own and operate a small business. These team members will work hard to contribute to the success of the company. They believe in your mission and want to help you reach your goals.

As a business owner, I am excited to come to work every day because of my employees. I feel lucky to be surrounded by talented individuals, and grateful that they love what they do and feel part of the team.

Hiring and retaining great employees is a process that is easier said than done, though. You may want to hire talented employees, but you also need to look beyond skill sets. You need to consider new hires who have positive attitudes and want to grow within the business.

In order to for your business to be successful, you must surround yourself with a great team and create an incredible company culture. The Small Business Growth Index notes that 33% of business owners believe company culture has a major impact on their business’s success. To that end, two-thirds of business owners surveyed (69%) are making company culture a massive draw for talent. As part of their hiring and retention strategy, 31% of business owners say they are marketing their companies as a great place to work and thrive.

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2. Give back to the community with mission-driven initiatives

Sometimes all a small business has to do is look in their own backyard for customers and fans. Think about nationwide events like Small Business Saturday. These events are designed to increase small business awareness across communities. It's a win-win all around—entrepreneurs introduce themselves to the community, meet new customers and make new sales, and build positive word of mouth in the area.

The Small Business Growth Index notes that being active in the community helps build up small business optimism. While only a third of business owners have a community-impact initiative, 73% report having one helps boost the public's perception of their company; others say it helps draw in more customers and business. Still other entrepreneurs reveal that giving back actually helps keep them motivated and optimistic as business owners.

It's worth looking into ways your business can establish an initiative of its own to give back to the community. And the benefits of giving back are practically endless.

3. Look ahead and prepare accordingly

As I mentioned earlier, 74% of business owners feel prepared with their cash flow when faced with a potential recession. The possible negative impact of a recession is allowing business owners to reexamine their businesses. They may find themselves reviewing and editing business plans, paying more attention to their overall ROI, and cutting unnecessary costs where possible.

This kind of preparation is savvy for businesses to undertake now. It allows entrepreneurs to maintain their current positive business conditions and quietly prepare for worst-case scenarios. If business owners address their recession concerns now, they may still keep growing their companies without losing optimism about the future ahead.

RELATED: Does Your Business Have a Strategic Plan?

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Mergers and Acquisitions: What Management Teams Want to Know From a Prospective M&A Acquirer

Posted: 19 Oct 2019 04:34 PM PDT

By Richard D. Harroch and Richard V. Smith

In any merger and acquisition (M&A) transaction, the seller's senior management team is charged with maximizing the price and terms available to the shareholders of the selling company. Taking their direction from the Board of Directors—and with the assistance of the selling company's legal and financial advisors—the senior management team is instrumental in landing and negotiating a deal that's in the best interests of the company and its shareholders.

The management team should be aware of the key issues that will arise in attempting to get to a successful completion of an M&A deal.

If they are to continue on with the buyer, the members of the management team will also naturally have a number of questions as to how the buyer will treat the team post-closing with respect to compensation and employment incentive arrangements. Some of these questions will vary if the buyer is a private equity fund versus a strategic buyer. However, in order to avoid a potential conflict of interest claim, members of the management should be sensitive to the issue of when to ask some of their questions.

The following is a list of the key questions that the management team of a seller should consider in connection with a sale of their company.

1. Business Continuation and Strategic Plan Issues

The management team will want to understand the strategic plans the buyer is envisioning for the company, including:

  • What is your overall strategic reason for the acquisition?
  • How do you plan to support and grow the business?
  • How do you plan to integrate the business with your other businesses?
  • Do you envision any acquisitions to grow the business?
  • What synergies do you see with your existing lines of business?
  • How do you like to work with your management teams?
  • What existing or new lines of the business do you see as ripe for growth?
  • What areas of the business do you envision cutting back or eliminating?
  • How long do you plan to hold the business before contemplating reselling it or taking it public?
  • What layoffs do you envision, if any?
  • What additions to the management team do you envision?
  • Will you allow us to speak with the management teams of companies you previously acquired?

2. M&A Deal Issues

Senior members of management teams of selling companies want to obtain an early understanding of the deal dynamics and key issues involved in a potential acquisition. Some of the key questions that management will likely be interested in include:

  • What acquisition structure are you contemplating? (Stock acquisition, merger, asset purchase? There will be differing tax consequences)
  • What is the range of acquisition price you are considering?
  • How do you determine valuation for your acquisitions?
  • Are you envisioning any working capital or other adjustments to the purchase price? Debt-free/cash-free deal?
  • What will be the consideration? (Cash, stock, note, or earnout?)
  • Are you envisioning any escrow or holdback from the purchase price, or will you instead rely on M&A Representations and Warranties Insurance?
  • What are the key due diligence steps you will need to undertake?
  • How long will you need to complete your due diligence?
  • What are the key conditions to closing that you envision?
  • What employee interviews do you envision?
  • Do you envision any customer calls?
  • When do you anticipate issuing a letter of intent?
  • How long do you expect it to take between signing a definitive acquisition agreement and closing?
  • Will there be any particularly sensitive provisions to our shareholders in your acquisition agreement?
  • What will be the key steps for integration post-closing?
  • How will our employee workforce be treated? Will comparable compensation and benefits be available to them post-closing?
  • Do you have any key intellectual property or technology issues you will be focusing on?

3. Equity Incentive Arrangements

Smart strategic or private equity buyers know they have to put in place equity incentive arrangements for the management team and employees. The key questions management teams will have in this regard include:

  • What kind of equity incentive plans do you envision? Stock options? RSUs? Stock appreciation rights? Profits interests? Or something else? How will the plan work?
  • If the acquirer is a private equity fund, will the acquirer require a management rollover investment of a portion or all of the equity the management team holds in the selling company? Will the rollover be tax free? Will any of the rolled-over equity be subject to forfeiture?
  • In such a rollover, how will the new investment vehicle be governed? What type of rights will the rollover holders have with respect to important actions and transactions which affect their interests in the new investment vehicle?
  • If the equity grant consists of stock options, what will be the exercise price? How can this be as low as possible to give more upside to the option holder?
  • If there will be stock options, will the holder be able to exercise the options pursuant to a "cashless exercise" and avoid the need to come up with cash to exercise the option?
  • What percentage of the fully diluted capitalization of the company will be available for the equity incentive plan? (10% to 15% is typical)
  • What specific percentages of the equity incentive plan do you envision being allocated to individual key team members? Which key team members will be allocated equity?
  • How will vesting of the equity work? Over what period of time? (Three- or four-year vesting is typical, but performance vesting for a portion may also be built in).
  • Will the vesting be accelerated partially or in full on a change of control of the business?
  • Will the vesting be accelerated for some or all of the grant on termination of employment of an executive without cause?
  • What dilution to the team's equity could occur over time?
  • What tax treatment will be expected for the management team of the equity grant upon a sale? Can it be structured to get capital gains treatment, such as via a profits interest in an LLC?
  • How long does the executive have to exercise options after termination of employment? (The typical period is 90 days, but this is negotiable and can vary depending on whether the termination is for cause, not for cause, or voluntary quitting by the executive to accept another job.)
  • Are the shares obtained upon exercise of an option subject to repurchase on termination of employment? If so, at what price?
  • Are the shares obtained upon exercise of an option subject to a right of first refusal? If so, on what terms?
  • How can the executive get liquidity on the equity in the future, without necessarily waiting for an M&A exit? Will the executive have a right to "put" his or her shares at fair market value to the company for purchase, and, if so, when? How will the fair market value purchase price be determined? (The fair market value is often determined by an outside appraiser who is required to ignore any discount on fair market value because of lack of control, liquidity, or transferability for the shares.)
  • Will there be "drag-along" provisions forcing the executive to sell his or her shares in a subsequent M&A event? Will those shares be treated fairly along with other shares being sold?

4. Employment Agreement Issues

The buyer may want to put in place an employment agreement for the CEO and some members of the senior management team. From the perspective of such an executive, here are the key issues to be addressed. (It's beneficial for these executives to request to see the form of employment agreement early, and then have experienced employment counsel review and negotiate the agreement on their behalf.):

Scope of employment provisions

The scope of the employment and responsibilities raise a number of issues:

  • What is the title of the executive's job?
  • What are the executive's responsibilities?
  • Can the executive be demoted? Can the executive's responsibilities be substantially modified, decreased, or increased?
  • Is the executive guaranteed a seat on the Board of Directors while an executive? (Typically, this only applies to the CEO.)
  • Where is the place of employment?
  • Can the executive be relocated unilaterally to another city more than 25 miles away, or only with the executive's consent?
  • Is the executive allowed to be involved in other activities (e.g., a directorship on other Boards, involvement in community activities or non-profits)?

Compensation issues

  • What is the base salary?
  • Does the base salary increase each year of the contract?
  • What quarterly or annual bonus is available? Is the bonus guaranteed, dependent on achievement of milestones, or wholly discretionary with the Board of Directors?
  • Under what circumstances, if any, can the executive's base salary be reduced?

Benefits issues

The various employee benefits available to an executive can raise a number of issues, including:

  • Will the executive participate in all of the benefit plans of the company?
  • Which of these plans should be in place for the executive? Are all of the payments for the benefits the responsibility of the company?

(a) Health and medical (including spouse and dependent coverage)

(b) Disability

(c) 401(k)

(d) Pension

(e) Cafeteria Plan

(f) Life insurance

(g) Stock option/stock grant

(h) Vision

(i) Dental

(j) Executive financial counseling

  • How much vacation per year is the executive entitled to? Does unused vacation continue to accrue for the benefit of the executive and is payable on termination of employment?
  • How much accrued vacation can carry over to subsequent years?
  • Are there any special loans or forgiveness arrangements?
  • Are some of the benefits taxable to the executive? Should the executive be reimbursed for the tax? 

Term and termination issues

The circumstances in which the executive's employment can be terminated and the resulting consequences will raise the following issues:

  • How long is the employment term or is the employment "at will"?
  • What are the grounds on which the company can terminate the executive?
  • What are the circumstances that the executive can be fired "for cause," and how is "cause" defined? It is in the executive's best interest to have a narrow definition of "cause," such as:

– Felony conviction or any act involving moral turpitude;

– Material breach of the employment agreement after an opportunity to cure has been given

  • Is the executive entitled to severance pay on termination without cause? How much? Is it a lump sum or payable over time? (The typical arrangement for a senior executive is at least one year of severance, payable in a lump sum upon termination.)
  • If terminated without cause, is the company required to continue paying for benefits or COBRA benefits for some period of time?
  • May the executive terminate his or her employment (and receive severance payments) for "good reason," such as change in responsibilities, compensation, or location of employment?
  • If the executive is to receive a severance payment, the executive will typically be required to sign a release of liability for the benefit of the company, but the executive will want to negotiate this to be a mutual release.

Reimbursement of expenses

The issues regarding the right of the executive getting reimbursement of expenses include:

  • Will the executive's business expenses be reimbursed within a set time period?
  • Is there a car or car allowance, cell phone provided, or other such amenities?
  • Is there a relocation package available for the executive should relocation be necessary?
  • Will the executive be reimbursed for any attorney's fees incurred in negotiating the employment agreement, or will the company pay those fees directly?

Liability protection for the executive

The executive may want to negotiate certain liability protection mechanisms, covering the executive performing services within the scope of employment:

  • Will the company have Directors' and Officers' ("D&O") insurance coverage?
  • Will the company Bylaws provide for indemnification protection for officers and executives?
  • Will the company's corporate charter limit the liability of officers and directors to the maximum extent permitted by law?
  • Will there be an Indemnification Agreement that protects the executive, covering:

(a) Indemnification protection for claims

(b) Automatic advancement of legal expenses

(c) Protection even if the executive is no longer employed by the company? (Note statutory limitations on indemnification.)

Confidentiality restrictions

The employer will want confidentiality provisions in the Employment Agreement:

  • Many companies have a separate form of employer Confidentiality and Invention Assignment Agreement that can be incorporated by reference.
  • The executive must be careful not to use or divulge confidential information of a prior employer—the new employer will often want a covenant from the executive prohibiting such use or disclosure.
  • If there are confidentiality restrictions on the executive, are the following excluded from the definition of "confidential information"?:

(a) Information that is or was publicly known, or which becomes publicly known through no fault of executive

(b) Information that is or was obtained from a third party who had the right to disclose the information without restriction

(c) Information independently derived by the executive without reference to the confidential information

(d) Information that was already lawfully in executive's possession or knowledge prior to the disclosure of the confidential information

Invention Assignment issues

Companies expect that any inventions or business ideas developed by the executive related to the company's business during the employment period will be owned by the company:

  • What is the scope of the company's rights to the executive's development of new inventions, trade secrets, and ideas?
  • Do the invention assignment provisions comply with applicable laws? 

Disability and death issues

Various issues arise on the death or disability of the executive:

  • What is defined as a disability event?
  • What happens on disability? Does the executive continue to receive salary and benefits for some period of time?
  • What happens on death? Can medical and other benefits continue for some period for any spouse or children?

Post-employment limitations

The Employment Agreement can address various limitations on the executive after termination of employment:

  • Are there limitations on the executive soliciting company executives? For what period?
  • Is there a covenant not to compete after termination of employment? Many executives will strongly object to such a provision, on the theory that it adversely affects their future livelihood. If there is such an agreement, the terms are key, and executives should attempt to narrow the terms on the following issues:

(a) For what geographic regions?

(b) For what period?

(c) What is the scope of the covenant?

(d) Are the restrictions enforceable under applicable law? (Generally not permitted in California, but usually enforceable to the extent reasonable under the laws of certain other states such as New York and Delaware.)

Tax issues

Tax issues can materially impact the compensation and benefits available to an executive. Key questions to ask include:

  • How can tax consequences be minimized?
  • How can IRS 280G golden parachute issues be minimized?
  • Is there some appropriate tax-deferred compensation scheme that can be implemented?

Dispute resolution

Most Employment Agreements have provisions dealing with disputes between the company and the executive:

  • How are disputes resolved?
  • Should confidential binding arbitration be the exclusive way to resolve disputes? (This is the preferred mechanism from the executive's standpoint.)
  • In what city must disputes be brought if litigated or arbitrated?
  • What is the governing law?

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Copyright © by Richard D. Harroch. All Rights Reserved.

About the Authors

Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area. His focus is on Internet, digital media, and software companies, and he was the founder of several Internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the author of several books on startups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was also a corporate and M&A partner at the law firm of Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions, and venture capital. He has been involved in over 200 M&A transactions and 250 startup financings. He can be reached through LinkedIn.

Richard V. Smith is a partner in the Silicon Valley and San Francisco offices of Orrick, Herrington & Sutcliffe LLP, and a member of its Global Mergers & Acquisitions and Private Equity Group. He specializes in the areas of mergers and acquisitions, corporate governance and activist and takeover defense. Richard has advised on more than 500 M&A transactions and has represented clients in all aspects of mergers and acquisitions transactions involving public and private companies, corporate governance, and activist and takeover defense. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements and numerous articles on mergers and acquisitions and corporate governance matters. He can be reached through LinkedIn.

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