In Writing, Please

I’m not sure how far Dan Ariely would go with the idea that we should do more hand-shake contracts, but I’m somewhat wary of them. For me, it greatly depends on the existing relationship that I have with the other party. If there is no existing relationship, I think it would be wise to take a more defensive (some would say adversarial) approach i.e. require that the terms be explicitly laid out in writing.

I once worked for a company as an independent contractor. Before I started, I told them that I was looking for full-time employment. To entice me, they said that if they liked my work, they’d hire me on full-time later. They also explained that as a startup, they were running on limited funding, and didn’t want to take on too many full-time employees. After renewing my contract twice, and an $8M infusion of investment, they were still not willing to convert me (or other excellent contractors) to full-time employees.

When I left the company, I’d concluded that they were leading me on the whole time, and that I should have never taken their promise of full-time employment on good faith. In my conversations with others at the company, I sensed similar resentment among the other independent contractors, who were also given verbal promises supposedly based on performance and available funding. Since then, I’ve decided that in business, “promises” mean nothing, unless they are in writing.

Perhaps my story is an example of why the US has become such a litigious society. When people get burned, they learn that it’s just a dog eat dog world out there. Even if we ourselves take contracts on good-faith, that doesn’t mean that the people we are dealing with are willing to join us on the high road. In that case, we do things to cover our own butts, like insist on contracts that specify everything in excruciating detail, resulting in a more hostile society.

To relate my story to what I said at the beginning, if my relationship with the other party is purely a business relationship, I’m going to assume that the other party is not going to give me anything more than what’s specified in writing; conversely, I’m not going to feel obligated to do anything beyond what the contract explicitly requires from me.

On the other hand, if I make an agreement with a close friend, I’m not going to feel the need to put it in writing. To the contrary, doing so might be highly inappropriate. Similar to Dan’s “Thanksgiving with the in-laws” example, creating a contract would replace the friendship with something more transactional. Unlike a contractual relationship, friendship is not premised on doing a specific thing for the other person in exchange for some other specific thing. This is why a functional friendship is not only more pleasant, it is are more valuable. Unfortunately, not all of our relationships are like this. When they’re not, I think it’s natural that we default to more business-like behaviors.

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2 Responses to In Writing, Please

  1. Alon Nir says:

    The thing with handshakes is the possibility of repeated interactions and the value of reputation. It takes a wise businessman to realize he better keep to his word, even at a steep cost, rather than get a reputation of someone not to go into business with.

    I know a few examples for businessmen who understand that. Alas, I know more who do not.

    • allyourcode says:

      True, building relationships is also an incentive that helps people to act in good faith. As you point out, the problem is that people often don’t consider how valuable a relationship may be in the future. That being the case, I’m not going to count on people wanting to have a better relationship with me to motivate them to act on good faith when it comes to business deals; instead, I’d prefer to rely on a detailed written agreement.

      Again, this comes down to a matter of trust. When trust is low, you need stronger assurances. Trust in a typical business deal is low (to the extent that hand-shake deals are not sufficient), because there are plenty of jerks out there who are going to honor the letter of an agreement, while taking advantage of your goodwill.

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