Chapter D5
Rule 5 - Priority of targets
Nature understands that when two silver back gorillas disagree, they are both too strong to be allowed to fight it out. Unless things get really hairy, the argument is decided by engaging in chest beating contests. At the very least, this minimizes damage and resolve conflicts quickly. Nature encourages this because it understands that all other alternatives are worse. After all, what would be the purpose of a violent confrontation between two super strong apes? To decide which gorilla will survive the contest? Or to decide which gorilla will dominate the other? If the answer to our question is the first one, then its all very simple. The gorillas must keep fighting till one of them dies. What this murderous contest does to the health or long-term longevity of the other gorilla is a whole different question. Why should nature promote a form of mutually assured destruction? If the only aim is merely to establish domination, wouldn’t no-contact demonstrations of strength be enough? Unfortunately, we humans don’t seem to have developed the same natural instinct. We could say that gorillas are apes but people are only cousins to monkeys!
This doesn’t mean that we humans have even begun to answer the big question the gorillas ask of us. How much dominance is dominance enough to resolve human disagreement? Do you want your opponent to eat humble pie and submit to you? Or do you just want him to give you all that you want, leaving him nothing except what you don’t want? As you can see, it’s a question of proportionality. How much do you want to take, and how much are you willing to let go? Every additional bit you want to take is going to take incremental effort. When it comes down to dust, would you settle for a lot less if it came to that? These priorities set up the objectives you are willing to shoot for, and the targets you are willing to attack.
Bear in mind that a lot of our discussions throughout this book has been about proportionality. Think about the other strategic considerations we have discussed: matching the magnitude of engagement to resources, optimizing logistics, avoiding costly annihilation, and so forth. A lot of these discussions were about what goals you achieve and at what cost. This chapter is about the same basic issue: what price are you willing to pay for what you want to get? Because if you are not willing to pay an infinite price, you should not look at total victory as an objective. That brings up the most fundamental question of litigation strategy: if you are not looking for total victory, what must be the priority of targets that you would attack so you can win your value-for money goals?
Allow me to cut to the chase. In my view, unless special circumstances justify paying a higher price for getting to greater objectives, here is the pecking order in which enemy targets must be attacked:
- First, and this you must do in any case, your first job is always to stop your enemy’s plans dead in its tracks. It’s obvious. If your enemy achieves his plans, you have lost the legal war. It’s over. Whatever else you may do; you have to stop him and bring him to a grinding halt. This is Level One activity and we can call it ‘Thwart Enemy Plans’.
- Once you have stopped the enemy dead, your next job is to ‘Isolate the Enemy’. Your enemy is only as good as the supporters he moves with. Everyone in a legal dogfight moves on the strength of a set of allies: customers, suppliers, distributors or even government. If you can deny your enemy all this support, you will face a weak enemy and your job will become that much easier. This then is Level Two activity.
- You are now ready to jump to Level Three. With you enemy’s plans stopped in their tracks and his allies cut off, it’s time for you to beat him up. It is time to launch a direct attack on the enemy. But what does direct attack mean? In a legal war, you don’t cut off heads! Your enemy runs on material resources. In the business world, this means money and manpower and markets. If you damage these resources, you enemy will be unable to fight you. It is these resources you must attack.
- Finally, after you have defeated his plans, isolated him and destroyed his resources, it is only your enemy’s strong holds that remains before you. You are at Level Four, the core of what your enemy has left. It is now, and as the lowest priority, that you will allow yourself the luxury of directly attacking your enemy’s citadel, his very home and hearth.
Let us look at the logic of these propositions in a little more detail with cases we have studied already.
(a) Level One – Thwart enemy plans
It’s near impossible to argue that you can ever afford to let the enemy successfully implement his plans. It is completely obvious. At the very least, doing this ensures that you are not much worse off than when you started the fight. Even if getting this done does not itself secure the conditions of victory, it frustrates the enemy and creates self-doubt as he stops his mobilization to think about what he is going to do next.
How do you stop the enemy’s plans unless you know what they are? This requires both long experience and good instinct. You would try and read the signs. You would put yourself in your enemy’s shoes and think about what you would do if you were him. Unless you are very emotionally invested in this war, this is scenario analysis at its most fascinating best. You would start out by identifying your enemy’s objectives. Given those objectives, you would then make a classic best-case war plan your enemy could use to attack you. Very likely, such a plan would be more or less obvious and predictable. Since you cannot stop with a plan that is obvious, you would add a list of possible unorthodox actions which your enemy could implement.
Once you know what is possible, you would test these options for feasibility and effectiveness. You would eliminate options that take too much to do, but yield too little, or yield it with insufficient certainty. In this way, you could reduce the options open to your enemy to one of only a few courses of action. It is now time to test these available courses of action to what you know about your enemy. You need information. What is his character? How does he think? What is he up to these days? What are his allies up to? What is he capable of doing and what is a bridge too far? With this information, you would eliminate options you think the enemy may not be thinking about or able to roll out if he wanted to.
Naturally, there is a limit to this elimination process. I say that for two different reasons. One, you may never have enough information to eliminate all but a few options you enemy may have. More significantly, even when you think you have enough information, your enemy could have deliberately fooled you. You may think your enemy is not thinking of something, he may be deliberately feeding you with disinformation while he secrets plans to do exactly what you have predicted as a course of action open to him. This means that even if you think your enemy is unlikely to do something, you still have to have a plan to stop him if he does.
Finally, keep in mind the unknown unknowns. Every litigation always generates elements of surprise and uncertainty: it is always possible that something unforeseen happens. In such situations, you would need to have some sort of contingency plan to combat even unlikely things the enemy may do. While you will doubtless have your defense plan in some sort of order of priority, you would still need to develop a strategy to successfully combat nearly everything your enemy can reasonably do to hurt you.
Let us look at the Weizmann case once again and see what Gupta could possibly have done to hurt Weizmann.
The Weizmann case
In this case, Weizmann, a global automotive major, and Gupta, an Indian promoter, fought for control of their commonly owned JV Company. The company was financially sick and protected under the then current bankruptcy law under the supervision of a body called BIFR. When Weizmann discovered that Gupta had falsified accounts, Weizmann chose to strip Gupta of his executive powers, remove his nominee directors from executive roles and took over complete control of the JV Company. It was inevitable that once he got over his initial shock, Gupta would react.
On an assessment of the circumstances attending the case, Weizmann decided that Gupta’s plans could encompass all of the following:
(a) Gupta could stonewall the Company at the board level. He had two ways to do it. He could do this by gaining the sympathy of external directors nominated by BIFR and lenders. He had built up warm relationships with these professional directors and they would have their apprehensions about an incoming foreign investor wreaking havoc in the JV Company. If he managed to get these external directors to side with him, persuading BIFR to intervene and reverse what Weizmann had done was entirely possible. Even if BIFR didn’t intervene, based on this support, he could invite a court to restore him to ‘power’ through stay orders and so forth.
(b) Gupta could stall the functioning of shareholders meetings, prevent key resolutions from being passed and otherwise interfere with the company’s attempt to improve its financial situation. He could do this by collecting proxies from public shareholders, or approaching courts through public shareholders and asking for stay orders etc.
(c) Gupta could destabilize the Company’s employees by spreading rumors about Weizmann’s future plans. He could undermine employee confidence and hamper the smooth functioning of the Company. Every drop in performance of the Company would set the alarm bells ringing within BIFR putting pressure on Weizmann.
Once these possible potential enemy plans were identified, Weizmann went about neutralizing all of them. The Board of Directors had to be stabilized. Weizmann appointed two senior lawyers as directors. That prevented Board proceedings from stalling because of legal objections. In truth, lawyers took over most of the functioning of the Board! Every agenda, resolution, minutes of meetings, notice and compliance process was vetted by lawyers at all times to ensure that nothing illegal went unnoticed. In this way, Weizmann made sure Gupta could find no way to approach a court of law and improve his position.
Next, the Shareholders meeting problem had to be addressed. This is generally a difficult area because publicly listed companies are widely held and any marginal shareholder can always stir up some legal trouble. It’s not physically possible to tie down all shareholders or be present everywhere to stop stay orders. As it turned out, this remained Weizmann’s weak point and we have studied events around that aborted shareholder’s meeting already. Barring the early fiasco, Weizmann’s strategy to position ever ready lawyers in every court was stunningly successful and helped it to eventually resolve this dispute to its satisfaction.
Next there was the threat of BIFR interference in company affairs. Weizmann faced a threat of interference because BIFR had approved a ‘Revival Scheme’ which allowed Weizmann to buy shares in the JV Company. The Scheme projected that Gupta and his associates would continue to participate in the day-to-day management of the Company. How could the Board strip Gupta of his executive power without first asking BIFR if they could? Weizmann instituted a two-fold plan. For a start, Weizmann obtained several legal opinions from eminent jurists and circulated these opinions to Board members. These opinions were also circulated to BIFR and lenders. It helped that Gupta and his associates were stripped of their executive power because of an accounting fraud.
In addition, Weizmann systematically send out weekly reports to BIFR reporting on everything Gupta did to be a nuisance and put pressure on Weizmann. Weizmann reported every case at every hearing, every rumor at the factory and every attempt to interfere with Company business. Weizmann created a huge record of transgressions, destroying Gupta’s credibility with BIFR. By the time Gupta actually approached BIFR arguing that its Revival Scheme had been violated, BIFR had already concluded that Gupta was a mischief making crook.
Finally, on the issue of labor mischief, Weizmann greatly upended engagement with the union, calling frequent meetings, talking about their medium to long term India plans, demonstrating how they expected to get the Company to profitability again. That apart, key employees were identified, targeted for special briefing sessions and their opinions influenced till they began to see events from the Weizmann viewpoint.
In this way Weizmann thwarted Gupta’s offensive plans and denied him victory.
(b) Level Two – Isolate the Enemy
It is self-evident that no man is an island, complete in himself. A warrior is only as good as his allies. Many would argue that the strength of every warrior flows from his allies. In a corporate context, every warring party has many alliances it draws strength from. Every company has business associates, other corporations with identical interests, political clout, sympathizers in government, sympathizers in the legal world and so forth. If you can find a way to take away your enemy’s allies, you will weaken him a great deal. If you can isolate him, he will find it difficult to fight you.
For this reason, after you have thwarted your enemy’s plans, your enemy’s allies become your second focus of attack. There are two ways in which alliances are attacked. At its simplest, you hurt your enemy by directly attacking his ally. You can do this to good effect when the ally is weak and cannot resist you very much. It helps if the ally is a fence sitter, meaning he supports your enemy but giving this support is not critical to him. If you attack this fence sitter, and let him know that his alliance irritates you, you can encourage him to distance himself from your enemy. Attacking such an ally can even encourage other allies to rethink their relationship with your enemy.
To give you typical examples, if you have business dealings with a third party that also deals with your enemy, you can let them know that they should either stop dealing with your enemy or you won’t deal with them. If you have an employee who is also loyal to your enemy, you can terminate his services. This will also let other employees know that you won’t tolerate them dealing with your enemy. In a more heavy-handed approach, you can file cases against your enemy’s allies. You could attack the business interests of the enemy’s ally. It depends on the facts of each case. Besides, you have some judgment to make here. You have to look at the cost benefit. You have to look at the ultimate impact these actions will have on your enemy. Let’s face facts. Sometimes, this kind of heavy-handed approach is counter-productive. You can hurt yourself more than you hurt your enemy’s allies. Worse, all your enemy’s allies can gang up and start to attack you back. You can take damage if you are seen as too much of a bully.
Subversion is a far better way to attack your enemy’s allies. It takes a kind of cynical sophistication to execute this well. You have to engage in hard-nosed politicking. You must try and influence your enemy’s allies through powerful intermediaries and make vague promises of future riches in return for present support. You can ask these allies to abandon your enemy, or worse, undermine your enemy. You can pay your enemy’s allies to subvert them. This is more common with dealer networks than you would think. It is even more common with shelf spaces in supermarkets between warring consumer goods companies.
This could be demonstrated from the Weizmann case.
The Weizmann case
Gupta was a guerilla warrior in the truest sense. He was mobile, his decisions were quick and he could execute his plan without bureaucratic delay or bungling. He had long standing stable relationships and he didn’t need to constantly massage them to keep them working. His professional life was uncomplicated. Still, even a rolling stone relies upon gravity and so it was with Gupta. He had his favorite employees to protect, some of whom he was obliged to support when the battle lines became clear. To take one example, a middle level manager in the finance department had managed all his money siphoning over the years. This same manager asked a court to issue a stay on the JV Company to stop it from holding a shareholders meeting when the fight started. He was Gupta’s mole in the JV company and Weizmann had to do something about him. To begin with, Weizmann tried to induce him to switch sides. It didn’t work. Weizmann now had no choice but to attack him instead.
Weizmann dug into company records. It found that the JV Company had given unsecured loans to this employee several times. The company had also issued bearer cheques to many unknown persons under his signature. Weizmann decided to put this manager in an impossible position. It accused him of embezzling money and threatened to go to the police.
The employee was frightened out of his wits. He explained that he had transferred equivalent amounts into Gupta’s bank accounts in every case. He protested his innocence, which in a sense was true. A middle rung employee in India had little choice when his MD asks him to switch some cheques for cash or rotate funds back to the MD. Weizmann now offered him amnesty if he could prove what he was saying. Would be produce his Bank’s statement of accounts to show that he had made these payments to Gupta? What could this employee do? He provided Weizmann with copies of these statements of account and his story checked out. Weizmann now asked him to have these payments certified by the Bank. At this point, anything could have happened. He could have provided this certification and in effect signed his own confession. Or he could have gone to Gupta to seek protection. He chose to resign instead.
Weizmann found this result unacceptable. It did not want to get rid of Gupta’s ally, or sue him, it wanted to turn him against Gupta. Weizmann rejected this resignation on the ground that he had to settle unpaid debts first. ‘Pay up or face a case’, they told him. Finding himself in an impossible position, this employee vacated his residence and disappeared. In truth, Weizmann had tried for too much. It already had the evidence of company money finding its way to this employee and then onto Gupta’s bank account. It had also managed to remove a Gupta sympathizer from the critical finance function in the Company.
Gupta’s nominee directors were his other allies that mattered. Removing a director in India is difficult unless you make allegations. In turn, allegations are difficult to make because they expose the company to official investigations with unpredictable results. Weizmann thought about allegations it could make. Given all that went on with the money syphoning, it could probably nail the finance director but in the other two cases, it didn’t think it had enough material to remove these loyalists.
Did Weizmann have to remove these two directors? They weren’t active enough in management to be a real threat. They had a vote each in the board room but they could be outvoted every time. Why get into more litigation? Weizmann was dealing with a listed company with public shareholders. There is a huge difference between a man fighting to keep his position on the Board of a private Company and a man fighting to save his money, his reputation, his image and so forth in public. Removing a director in a listed company is always a very public affair. Making these directors fight for their image, their position in society, indeed their very survival as men of substance was a big ask. Did Weizmann need the drama? Fights to the finish are expensive, sub-optimal, inefficient, and sometimes self-defeating. Weizmann decided to let it go.
Finally, the BIFR nominee director was a major irritant. He was Gupta’s biggest ally in the board room. Weizmann did its homework. It found his attitude did not come from collateral motivation. He was a retired civil servant who felt loyalty to an old colleague who had treated him well in the past. With each passing board meeting, he became progressively harder to deal with. He converted every Board meeting into a battle over procedure. Attacking him made great sense. Weizmann pondered the problem, and then decided against it. It didn’t like the political equation. BIFR would not sympathize with a foreign investor who attacked its nominee director. Here was an ally who was too strong to attack. Weizmann let it go.
(c) Level Three – Destroy Enemy Resources
So far, you would have noticed that you have not thought of directly attacking your enemy. This makes sense because every direct attack brings a direct response. If you hit your enemy, he will hit you back. That is going to hurt in a very different way. In the ideal world, you would do very well if you run your legal war without ever directly attacking your enemy. This is because you recognize that wars are not won when the attacker bleeds, they are won when the enemy surrenders without bloodshed. This same principle was applied to the Weizmann strategy.
The Weizmann case
Gupta main strength flowed from the people he had hired when he ran the JV Company. These employees were not allies: they were people who took orders from Gupta and did what he asked. They were expected to do this for so long as he was MD. Even after he was removed, they continued to take their orders from him. They helped achieve the company’s objectives if he said they should and undermined the company if he asked them to. This extended to the Company’s marketing network. On more than one occasion, they told dealers in so many words that so and so batch of goods was substandard and the dealers should not place orders for those items. Gupta did this to keep the company off balance and these loyalists executed his “nuisance measures” to perfection. Something had to be done to cut these resources down to size,
It would have been a simple matter to attack each of these resources individually. Weizmann could have filed cases against them making all kinds of real and imaginary allegations. These people kept Gupta fed with information about company affairs and this information then helped Gupta improve his court case against Weizmann. They also undermined Weizmann’s attempts to persuade workmen that their future lay with Weizmann. They kept spreading rumors that Weizmann was not committed to the business. Weizmann thought about sacking these people but faced two tricky problems. For one, Weizmann was still new to the Company and did not have enough control of day-to-day operations. Some of these people did important jobs and understood company records well. Second, some of these employees were technically very qualified. It would not be easy to replace them. Finally, in legal terms, these people were mainly workmen. Back in the day, an industrialist could not sack workmen without creating a bunch of legal problems.
Weizmann did a due diligence on all its workmen. Who was a Gupta loyalist resource? How much of a threat was he? Who was an uncommitted Gupta resource? Could this fence sitter be turned? In the end, it was really about which resource is to be attacked and who is to be let off the hook. Bear in mind that an attack on enemy resources is only third in the priority list of targets: you don’t want to go that far unless you really need to. Weizmann pondered this question: do with live with these irritants or do we have to throw the key resources out of their jobs?
Ultimately, Weizmann found the Buddhist middle path. Hostile employees who performed key roles were transferred to the Company’s branches in distant cities. Transfer letters were issued and while some employees chose to shift to their new jobs far away, a few resigned. In this way, Weizmann greatly reduced Gupta’s strength in the Company.
The entire problem could not be dealt with in this way. Some key workmen were pure factory workers: there was nowhere to transfer them. Others were rabble-rousers and bullies. Gupta was not alone in keep such people on the rolls: it is standard practice to nurture trouble makers and use them to control the rest of the workforce. This works for both parties. The business owner uses these trouble makers to control other workmen and in turn, the business owner doesn’t assign them major work duties.
Weizmann hit on a novel plan to squeeze these trouble makers. They were used to shirking work. Weizmann assigned them the most inconvenient and hardest of jobs. All of them protested but Weizmann were immoveable. Disobedience followed protest and while some eventually succumbed and fell in line, others pushed back with threats of industrial action and violence. It was time to play politics. For every worker that an owner indulges, there are others who resent the free lunches he gets. Weizmann started to confer special favors to those who hated the Gupta loyalists. As the industrial unrest simmered, Weizmann suspended these Gupta loyalists. Indian labor law now kicked in. Domestic Inquiries were now started on the conduct of these workers. While their behavior was inquired into (as slowly as possible!), they were not allowed to enter the factory. After the usual storm of protest lasting two weeks, the whole matter went into back burner simmer mode and was all but forgotten.
Although direct attacks on enemy resources are usually to be avoided, Weizmann did selectively attack Gupta’s resources, and it worked. Left with no ability to create trouble at the factory, Gupta lost leverage and was reduced to just fighting a bunch of civil cases.
The smart litigant only attacks the opponent’s resources when this offers substantial benefit over cost. In an ideal situation, you should never attack your enemy’s resources if it’s possible to achieve your aims without directly fighting your enemy.
(d) Level 4 – Annihilate Enemy Citadels:
If you have attacked every plan, ally and resource that your enemy has, all that remains for you to attack is his main citadel, his fort, his city, or whatever is his last bastion. If it is at all possible, this is the last place you should even consider attacking. I say so for many reasons.
First, it is at its citadel that the enemy is at its strongest. This is his last defendable post, the final sources of his strength, his home and hearth, the place he most closely identifies with his very existence. Unless he is truly reckless, this would be his strongest point of defense. If you want to take it, you will have to fight a very bloody battle. In a philosophy where we try and win our wars without fighting, you cannot make an argument fighting a bloody and expensive war and losing a lot of your own resources in the bargain. For sure, there are situations where there is no choice, but this must remain by far your absolutely last resort choice.
This philosophy is the opposite of the strategy commonly used in India where litigants are quick to attack things are most valuable to their enemies. Litigants try and get their enemies’ factory licenses revoked, their premises raided by tax authorities, their businesses interrupted by various authorities. These are all legitimate strategic moves, and there is no absolute prohibition to using them. But if you are going to do this, you must bear in mind that the more you threaten a target at the heart of your enemy’s zone of security, the bloodier the fight will get. When fights get truly bloody, then bloody reprisals follow and everyone loses in the end.
There is a second reason why you must not attack your enemy’s citadel. By definition, the citadel is the last tenable point of defense for your enemy. If you enemy loses his citadel, he is utterly defeated. He is obliged to defend this citadel as best he can, to the very bitter end. How hard will you fight to save your children, your home, your life from destruction? It’s the same with business. A fight to the finish can easily finish both parties. The experienced litigant does not even attempt to finish his enemy for fear of finishing himself.
This fundamental principle was also applied in the Weizmann case.
The Weizmann case
Once Gupta was thrown out of management, he started to put together his war plan. It was in Weizmann’s interest to continually carry the attack into Gupta’s camp and keep him off balance. What was to be attacked and what was not? Weizmann decided that everything but Gupta’s citadels were fair game.
Every man needs the same things to stay alive: a home, some capital, some revenue and personal physical security. These were his citadels. Gupta lived in a house rented by the Company. His only capital were his shares in the JV Company. His only income was his MD’s salary. As to physical security, he had been sacked for financial crimes and jail was a real threat to him. Should Weizmann focus any of its attacks on these four citadels?
Weizmann obviously didn’t want to pay rent for Gupta’s house. They spoke to the landlord. He didn’t want to rent the house to an Individual: it was company lease or nothing. It would have been easy to terminate the tenancy and let the landlord chuck out Gupta. Weizmann decided not to do it. It’s one thing to make a man fight for management control, quite another to make him fight to stay in his home and off the footpath. For so long as Gupta was fighting for management control, rather than his survival, there was only so much energy he would bring to the table. Besides, Weizmann had to consider Gupta’s incentives and motivations. If Weizmann turned around the company and it became profitable, the value of Gupta’s shares in the Company would rise even though he had lost management control. On the other hand, if his family landed up on a footpath, he would be an injured tiger looking for something to wound.
Gupta’s second citadel was his shareholding in the Company. Gupta had given a lot of warranties when he signed the JV Agreement. Many of the financial ones were false because the accounts were dressed up and false. The agreement required Gupta to compensate Weizmann if these financial warranties were found to be false. Should Weizmann demand that it be compensated? Gupta didn’t have much money but his shares in the Company had value. Should Weizmann try and attach these shares to compensate itself for the losses it suffered because of the falsified accounts? And while that war was going on, should Weizmann try and stop Gupta from voting on his shares in company meetings? Weizmann debated this point a long time. It would be an expensive bloodletting kind of battle. Gupta’s shareholding was his hearth and home, his ultimate life’s achievement. It made sense to just leave it untouched.
Gupta’s salary came next. He had lost the job. How could Weizmann keep paying him his MD’s salary? Weizmann stopped these payments not because it made great strategic sense, but because in a public company, it just wasn’t possible to keep paying a sacked MD. Gupta could see the problem and did not react. He soon started a small distribution business to keep the home fires burning. That business gave him some small cash flows, enough to run his kitchen and pay his legal bills. Should Weizmann attack that business too? There was a case for it. If he couldn’t pay his lawyers, he couldn’t fight for long. Weizmann debated this very hard and long, but in the end, spending lots of money to choke off a small business didn’t make commercial sense. Weizmann let it go.
Finally, Weizmann had the opportunity to file criminal cases against Gupta for defalcation of funds. Perhaps they had enough evidence to nail him or perhaps they didn’t. But whatever be the truth of that, they would have to invite the police to look at all the books of the company. One body of opinion argued that Weizmann was duty bound to report a crime by a Managing Director of a widely held listed company entrusted with public funds. The other body of opinion said that opening an investigation into one’s owns accounts is a strange way to protect the best interest of the Company. In the end, Weizmann decided that it would not threaten Gupta’s life and physical liberty. It feared he would come out like a raging bull, not caring what he destroyed. Who knows what other can of worms would open as a result?
In this manner, Gupta’s citadels were never attacked.
The secret of a good war strategy is to make continuing war expensive for your enemy but it is not good strategy to make him fight for his survival. You must convince your enemy that he has no business case to keep on fighting. If you make him fight for his survival, that is not the result you will achieve.