Detail missing from this article (at least the article linked as I write this comment): Neil Dana was GoPro employee #1 and still works at the company. This detail is seemingly absent from a bunch of news articles, and that fact really surprises me. It's like the news wants to make this sound more controversial than it really should be; they clearly want to play up the "college roommate" aspect and describe the move as "generous", rather than the "employee #1" aspect.
Woodman and Dana reportedly had a contract that Dana would receive 10% on sales of Woodman's stock, as first employee and head of sales, and Woodman is honoring the contract. It's not just, as far as I can tell, some kind of donation or obscure college bet. Sure, the contract was verbal. I still don't think we should be /astonished/ that someone honors an employment contract that was made for equity. That's setting the bar rather low, isn't it?
Based upon my own experience, I would say that a founder honoring a very expensive agreement, made before the company was highly successful, isn't a low bar at all. It's an exception to the rule; look at what Zynga did as an example [1]. They'll agree to whatever they have to in order to get people to work, and then use any money, power, and influence they wind up with as a result of that work to try to unravel those agreements should the company succeed.
IMO this move makes Nick Woodman a decent guy in a sea of fairly greedy and unethical people (the kinds of people that seem to make it to billionaire status).
My experience is that the note at the end of the article-- that most issues like this one go to court or worse-- is the sad reality.
I fought my company's general counsel for an entire quarter to get them to honor a verbal promise of a stock bonus. The bonus was decent (+20% of my original grant, though they had lowballed me originally) though essentially worthless (<$10k over 4 years) at the time. I was a junior-level individual contributor. After a quarter of fighting, the general counsel denied me by having the board change my grant without my signed approval. By then, it was basically too late to sue, the grant didn't have any value anyways, and I wouldn't have had much of a chance of vesting the grant (over 4 years) had I sued anyways (as the management had been historically liberal with firing people). I eventually got the majority of the value of the stock awarded after bringing to light the experience of another employee who had been treated with a similar gross lack of integrity. They didn't fire me, but they aggressively managed me out of the team (into a role where I had essentially zero chance of further bonuses).
Oral stock contracts are tricky business. Sometimes a court will uphold them, sometimes not:
It's really, really appealing for companies to weasel out of unwritten contracts, especially if they feel there's little monetary risk and their legal team has reviewed what might be discovered in a potential case. While I agree we shouldn't set such a low bar, we've yet to engineer a solid mechanism to steer companies towards the better. The law expects businesses to keep good records. We shouldn't let them abuse the privilege of non-documentation.
Well in fairness, with the way companies treat their employees nowadays, or at least appear to, the bar is very low.
It would not surprise me at all if early employees get shafted when they dont have things down in writing. It doesn't even surprise me when employees get screwed even with things in writing.
Its not like people have low expectations of companies for no reason.
>The terms of this promise were even disclosed in GoPro’s S-1 filing with the Securities and Exchange Commission as the company was gearing up to go public last year
Agreed, seems like this is nothing out of the ordinary. 'GoPro CEO decides not to get sued for 229M by his employee #1' would be another way to put it. I would say that this was committed to 'in writing' at that time, if not before.
Edit: From the S1 "Share of proceeds from sale of equity securities
During our development stage, Nicholas Woodman, our CEO, entered into a verbal agreement with Neil Dana, an employee since October 2004, pursuant to which Mr. Woodman agreed to share 10% of any proceeds he received from the sale of our equity securities held by Mr. Woodman. Pursuant to Mr. Woodman’s agreement with Mr. Dana, in March 2011, we paid Mr. Dana a cash payment of $6.1 million, and Mr. Woodman reimbursed us in the amount of $6.1 million. We recorded the payment to Mr. Dana as compensation expense. In release of any claim Mr. Dana had to further payments under his agreement with Mr. Woodman, in June 2011 we issued Mr. Dana fully vested options to purchase 6,584,427 shares of Class B common stock under our 2010 Plan at an exercise price of $0.763 per share, and in December 2011 issued to him 270,000 RSUs under our 2010 Plan that will be settled upon a qualified acquisition. We recorded compensation expense of $6.8 million in connection with the issuance of these options. In connection with our equity awards to Mr. Dana, Mr. Woodman entered into a separate agreement with us in December 2011 pursuant to which he agreed to contribute back to us the same number of shares of Class B common stock as are issued pursuant to the exercise of Mr. Dana’s options.
Mr. Dana has been employed by us since October 2004. During 2011, 2012 and 2013, Mr. Dana had total cash compensation, including base salary, bonus and other compensation, of $6.3 million (inclusive of the $6.1 million payment described above), $245,499 and $240,982, respectively."
> I still don't think we should be /astonished/ that someone honors an employment contract that was made for equity. That's setting the bar rather low, isn't it?
Yes, that's the standard, but yet, everyone is still surprised.
Highlighting these events in a public manner could help push the tide to make sure this isn't such a rare event.
An agreement, even if verbal, can be a contract if the other party gave consideration (here, labor). So the story is: executive meets terms of contract with employee #1.
Oral contracts are completely binding in theory, but in practice a judge requires evidence of the contract's existence and content.
What if CEO person "yes we had an agreement, but it was for 5%, not 10%?" How would a judge decide? At best, look for written documents about the contract, or testimony from people who the CEO told about the contract.
>Sure, the contract was verbal. I still don't think we should be /astonished/ that someone honors an employment contract that was made for equity. That's setting the bar rather low, isn't it?
With how businesses will try to screw people (employers, customers, and unrelated third parties) over even with written contracts, honoring a verbal contract at least appears to be breaking the norm. Maybe it only appears so because the bad faith behavior is so over reported, but a short review of history has left me thinking that humans will sell their soul for enough money. Consider the violence companies have always deployed to protect their profits, be it historically in the US or be it currently in third world countries.
230 million out of 2.3 billion. I hope the vast majority around here would honour their word: there is nothing at all you can do with 2.3 billion that you cannot do equally with 2 billion.
230 million out of 460, 100K out of 1 million that's would be another story.
>> "there is nothing at all you can do with 2.3 billion that you cannot do equally with 2 billion."
What about threshold effects in large scale philanthropy, where you could eradicate malaria in country X if only you could buy another three hundred million dollars worth of mosquito nets. But since you don't have the money, you only solve 95% of the problem, and then the mosquitos breed back to their original level in a few generations.
(Contrived example but you get the idea)
The person getting the 230M isn't just some random guy on the street that a bet was made with. It is employee #1 who still works there. Presumably he was/is key to the companies success and future. Personally, I would happy to give someone 10% of my companies worth and have it be 230M because that means I have built a 2.3B company.
Not really true. Someone can do an incredible job taking a business from 0 to $1B, but be ineffective or worse at taking it from $1B->$2B. and that's OK --- you can thank and pay them for their past contribution, not in expectation of similar future service.
But the person is still there, and if he didn't get the company to 1B there would be no 1B-2B. Perhaps he was lucky and anyone could have been employee #1, good for him. People win the lottery all the time.
I just read the article, I don't know much about the subject, but I find myself feeling really good about someone honouring the contract, even more a verbal one, I wish more people could honour theirs. I think the moral of this story is: honour your word.
After living in Europe for the last 2 years, I've heard stories of as many folks going back on eye-to-eye deals and taking things to court, as I had living in the States. Congrats having good experiences, but shady people are as common here as elsewhere.
And, do realize that what's being discussed on this site are exceptions to business in the US. Most business is done fairly, without issue, over a handshake in the US as well. But, as anywhere, 10's or 100's of millions of dollars makes people do abnormal things.
Sure you do that with local people around town at a garage sale. I don't think a handshake is wise for either party in something that could be worth millions of dollars. Is it common in europe to make multi million dollar handshake deals over 10 years?
I trust that someone will keep their word, but writing it down, preferably with contractual language establishing what happens if they don't, or I don't, reduces the possibility of either of us screwing over the other.
Once you get screwed over once, you use these legal instruments profusely, because the US small claims system works pretty well. Of course, the person you're going after has to have what you want from them: you cannot bleed a dry heart.
Due to the immigrant nature of the U.S. and our international reach, our businesses faced and dealt with a huge number of various, mutually incompatible, "handshake and honor" systems. The outcome of that was a two-part set of mature assumptions:
1) Every party in a business relationship is seeking to maximize their outcome.
2) The government acts as a fair arbiter in disputes and has enforcement powers.
Almost all American business theory is formed under this two-part umbrella. Importantly, Business relationships are built upon founding documents (contracts, agreements, etc.) that all parties have agreed to and those documents are used as the basis for arbitration by the government.
This is contrary to many places where personal connections and gentlemen's agreements (and some perception of honor) act as a kind of enforcing agent in business. "Everybody is out to screw me, except for my very best business friends who I've gone drinking and golfing with many times" or "If he screws me in this deal I'll make it known and it'll hurt his reputation."
These kinds of ideas only work if all parties care about them. But a single actor operating outside of these handshake and honor systems can completely upset the environment. What if somebody doesn't care about maintaining face or honor, or has a different perception of how honor works? Now what keeps them honest in an agreement? The answer, as we found out through lots of trial and error is "nothing".
Americans often find stories of other countries' business relationships gone bad (where one party simply decides not to honor their part of an agreement) amusing and almost impossibly naive sounding because we already know this truth.
On the flip side, Americans overseas continue to assume #2 from above and often find themselves screwed over by savvy business people who know the ins and outs of the local handshake-and-honor system. For example, areas with weak contract enforcement, where the ceremony of contracts are signed, but the non-U.S. party simply has no intention of honoring it (and is aware of the local weak arbitrage and enforcement options) are fairly common.
That's not to say that handshake-and-honor agreements don't happen in the U.S. But usually for very small things where it's not worth the trouble of forming an agreement that might later be enforced by the government. For example, lots of businesses give small amounts of credit to long-time customers based on a verbal agreement that the tab will be paid soon.
At any rate, our solution is the two-part system above that has provided the safety and security to form a highly permissive business environment and enables things like Silicon Valley, New York City finance, Apple's supply chain might, and so on.
What makes this unusual in the American system is that this was a handshake-and-honor agreement, which turned into a very large amount of money. But the owing party treated it like a normal enforceable agreement anyway and completed his part of the deal, even though there's not really any founding documents that would have formed he core of an enforcement action by the government.
I am not certain the problem you see is "American culture" but instead "business culture".
Many if not most businesses exist primarily to generate a profit, focus on short term gains and "maximize shareholder value", with all other considerations secondary. These traits are not unique to American companies.
I do business with verbal deals constantly in the US. I also do deals with written contracts, but in my experience, the cost to enforce a written contract through legal avenues means that they're not useful for most of my work.
Look at when businesses would gun down employees who tried to unionize. And this isn't just the US, though for some places you may have to go back a little further in history to find the use of violence.
Of course they do. It's just that I've done a fair amount of business by looking people in the eye. I've also worked at a 300 person software agency where that way of doing business was the norm. Sure, there was some paperwork, but it wasn't all-encompassing.
Note the difference between a repeated game of many oral contracts over time, vs a one-off even that will never be repeated (founding a massively successful company)
Not only does this light the way for other CEOs to keep their word, it enhances Woodman's future standing with investors, employees and any other stakeholders.
I really doubt Dana and Woodman were thinking about it at the time, but this is a kind of a nice way to structure an equity compensation contract with early employees or investors.
Instead of saying "I want x% of the company's shares," employees are probably better off looking at the most powerful person at the company and saying "I want y% of everything he makes."
It's not about having spellcheck. It's about having the time to calmly read something over in a copy-editing mindset. Preferably with a different set of eyes than the ones that wrote it. Spellcheck won't catch brand-name errors unless GoPro is in your dictionary. It won't catch grammatical problems, or typos that happen to be real words.
The journalist who wrote it and the editor who approves it are probably way too distracted and have a ton on their plate. By the time it's going to press it all blurs together and errors slip through.
The title of this article is very misleading. The "promise" was already turned into a legally binding agreement. It's not like he's just now deciding to honor it, which the title implies.
Woodman agreed to pay Dana 10% of stock back in college. Woodman (through the company) gave Dana what amounts to just under $230 million. Other than the S1 filing (the document filed with the SEC prior to GoPro's IPO) which mentioned this deal, it was a verbal contract. Were he so inclined, Woodman probably could have refused to give Dana the $230 million and gotten away with it.
Even if 1% of verbal contracts for 200 million dollars are not honored.. the expected value of not signing is -2 million.. seems smart to spend 5k on a lawyer, no?
I don't know why I'm challenging you on this, but the expected value is -2m times the probability of your contract being worth $200m in the first place. At best, that's 1 in a thousand, thus making the expected value at best $2000, making the $5000 a waste, per your logic.
Woodman and Dana reportedly had a contract that Dana would receive 10% on sales of Woodman's stock, as first employee and head of sales, and Woodman is honoring the contract. It's not just, as far as I can tell, some kind of donation or obscure college bet. Sure, the contract was verbal. I still don't think we should be /astonished/ that someone honors an employment contract that was made for equity. That's setting the bar rather low, isn't it?