Chapter D6

Rule 6 - Factor Force Levels

In the beginning, there were only humanoid apes with jaws and claws. When they disagreed, they screamed a lot and bit each other occasionally. Then they discovered clubs. This is captured with great poignancy in the opening sequence of Stanley Kubrick’s 1968 epic “2001 A Space Odyssey” when the first humanoid discovers how to swing the thigh bone of a dead animal to attack his rivals. Cinematographically at least, this was the inflection point from where the journey from humanoid to human began. That may be simplifying things a bit but inflection point or not, this moment certainly changed the history of human warfare!

At the dawn of human history, a band of brother humanoids were only as strong as the numbers of warriors they could muster. When they discovered clubs, they acquired a force multiplier. Now, the force level they brought to the battle was the sum of their numbers multiplied by the number of clubs they had. In an instant, some apes became more equal than others. In the history of force multipliers, this was only the beginning. Next, they invented bows and arrows. This made distant, no-contact war possible. Inevitably, they commenced dividing their warriors into those who shot arrows and those who swung clubs. The results were dramatic. Even where both groups were of equal numbers, those with archers scored over those bearing only clubs. I think the point is clear. When we talk about force levels in legal wars, we conceive of the real deliverable ‘force’ you are able to bring to the battle ground. It is the absolute sum of your power, your deliverable power. Now, let’s stop and ask ourselves this question: what is your deliverable power in the context of a legal war?

One good way to view this force level is to refer back to the ‘Five Conditions to decide if you want to fight’ (Section A). In practice, these conditions are a great judge of your ability to fight a legal war. Recall that these conditions are pretty bipolar: either they favor you or they don’t. You can put them down in terms in plus and minus terms using a scale of minus ten to plus ten depending on how wide the disparity is. In crude terms, it follows that the arithmetic sum of these conditions tell you if you will win or lose your legal fight. Just so I am clear, your:

Effective force level = internal power + advantages flowing from the governing environment + the occupation of the field + leadership + organization and its management.

All you need to do now is assign positive or negative values to these items. Once you have done this simple arithmetic exercise, you know what force level you and enemy will project onto a battlefield. In the ideal world, if you are on the minus side of the equation, you would do your best to avoid a legal war. Unfortunately, the world doesn’t work that way. You may not want to fight but you may be forced to. What then?

There is an even larger issue. Assume that you have a great force level advantage. Should you go and pick a fight only because you can fight and win easily? The one thing Monika Lewinski taught Bill Clinton is that you should not do something only because you can. Let me put it another way: should you behave the same way regardless of whether you are twice as strong as your enemy, or ten times as strong? Imagine that you are a mega multinational corporation? Is your strategy the same whether you fight a smaller national organization or the local pizza delivery shop? Mere gut instinct will tell you that in these two cases, your strategy cannot be inflexibly the same. Clearly, your strategy will change depending on how disproportionate the force levels are between you and your enemy.

This is key. Your litigation strategy cannot be to inflexibly attack when you are strong enough to attack and defend when you are too weak to attack. In practice, the opposite is arguably the better way. Obviously, complex considerations go into your strategic decision making and there can be no absolute rules of strategy. All we can do is be clear about generic first principles, principles that are good to begin with, which you can use as a starting point as you think through the issues. To understand these first principles, allow me to break down the rival force levels into one of five possible alternatives:

(a)     Overwhelming strength: when you grossly outnumber your enemy and are much much stronger;

(b)     Substantial strength: when you are clearly stronger than your enemy but not overwhelmingly so;

(c)      Marginal strength: when you are ‘somewhat’ stronger than your enemy but you really don’t have the kind of advantage that will give you the win;

(d)     Standoff: when both you and your enemy are evenly matched; and

(e)     Weak: when you are much weaker than you enemy.

Now let us see how each of these force level scenarios impact the kind of strategy you would want to develop.

Overwhelming strength

If you are in the mood for a brawl and you are overwhelmingly stronger than your enemy, you could easily take the attitude of a school yard bully. You can carry the fight to him and simply crush him with your power. You could justify this by arguing that if it can be done, it should be done. After all, isn’t the world a better place for you if you have destroyed your enemies? The problem with this attitude is that you may not recognize that even though your enemy is weak, you will take some damage before you finish the job. The bigger problem is that everyone in the school yard is now mortally afraid of you and wouldn’t want to deal with you. You may have destroyed your enemy but you probably destroyed your credibility too. Who wants to do business with a violent bully? In the world of business, reasonableness, the ability to compromise, to find accommodation, and the ability to make win-win deals are key attributes counterparts look at before they partner with you.

Why not look at it the other way? If you are so much stronger than that defiant pip squeak who so offends you, why do you feel the need to attack him? Surely, even he knows you are way out of his league: he may heckle you but does he have the stomach to attack you? If he is not going to attack you, how is he a threat to you? Sure, he may do things to bruise your ego but in the world of business, you follow the money, not your emotional insecurities! You could laugh at his puny provocations, and then it would be one big joke. Why do you need to waste energy on a fight you don’t need? You could disagree with me. I accept this little guy is an irritant but then why would you not treat him as an irritant? This is the key to understanding your strategic path when you are overwhelmingly stronger.

Your solution comes down to this: treat the irritation but not the irritator. It’s not about the guy, it’s about what he is doing. How would this work on a battlefield? If a small army is heckling you, your most obvious response would be to surround the enemy and hem them in but not attack them. It’s no different in the market. He has a small piece of the market and heckles you constantly? Take the market around him and let him waste his energy in his tiny slum. Don’t waste your time trying to take him down, or out. More likely than not, your enemy is likely to capitulate without battle if you surround him. Even if he does not capitulate, how much is he hurting you anyway? You can afford to leave the little change out there for the tiny players.

How does this play out in the context of a family business? Let’s say you inherited 75% of a family business and your cousin has 10%. Inevitably, you will have a lot of directors from your side of the family on the board while he would probably have only himself. In the eyes of the law, this cousin is nobody, or at least that is how Indian law works. In this kind of situation, this cousin will probably try to leverage himself up by being a permanent pest. He probably questions everything you do, or fail to do, writes aggressive letters raising exaggerated fears, and talks too much at board and shareholders meetings. He tries to create shareholder value by raising his nuisance value. You know he is only trying to be relevant. What should you be doing? Should you make his life impossible till he goes to court, creates a legal crisis and forces you to buy his shares? Since you already have 75% of the company, you don’t need to buy those shares. If you do pick a fight with him, when the dust finally settles, you are going to end up buying shares you don’t need. Your anger will in time cost you a very great deal of money, to say nothing of the legal bills! Can you afford to be angry?

It makes better to sense to tolerate the odd pinpricks and carry on as if there is no problem. In the perfect world, you would treat him like you do a cranky maternal uncle: you know, the overleveraged family clown! If you cannot tolerate the pinpricks, your next best option is to contain the clown. How would you do that? If he is doing his dance in a shareholders meeting, you smile as he insults you, ask the Company Secretary to note his objection and move on to the next item. If he is interfering in management, you simply ask your managers to keep saying ‘yes sir, three bags full sir’ and keep doing what they are doing. You are a man with nothing to gain, and much to lose. Try to be philosophical about the travails of being powerful!

This is consistent with classical war theory. When a large army lays siege but does not attack, it confines the small army. The small army is secure behind its stronghold but its room for maneuver is minimal. The small army still has its freedom, but there is not a lot it can do with its freedom. Then their freedom is of no interest to you. You only have to manage the nuisance. The art of winning legal wars is never to machine-gun every spider that bothers you: it is maintaining paramount dominance at minimal cost.

This principle plays out in a diverse variety of life’s challenges. HR is usually an irritant. Unions will come up with ridiculous demands, many petty and silly. Treat an employee well and he will assume you can’t do without him. Minor state functionaries, the babus and the inspectors, routinely irritate companies. The mature management does not react to such provocations with disproportionate responses. In all hostile situations, the overwhelming purpose must always remain to preserve within reason. Litigation is always destructive: you must not engage in it without being very aware that one way or another, you will pay a heavy price.

Substantial strength

Substantial strength in relation to your opponent no doubt is a matter of some comfort but it is an uneasy kind of comfort. The proper way to look at such a situation is to focus on the fact that your enemy does have some strengths too. At the very least, he cannot be contained. If he cannot be contained, anything you do will mean that you must overcome him and that is going to cost you time, money and resources. This is a situation you would do well to worry. Actually, you biggest worry is not that your enemy has some strengths: you should worry that your enemy may not understand that while he has strengths, he isn’t all that strong. Strong enemies with no understanding of the limits of their strength are the most dangerous of all enemies because win or lose, they cause a lot of destruction. You may prevail in the end, but both of you would have filled some body bags, and that is never a good thing. You have yet another reason to worry. Strategy is the ultimate force multiplier. If your enemy is truly gifted, he will use strategy to beat you into submission. Basically, what I am saying is this: no matter what the outcome, the risk of war is too high for you not to seize and keep the initiative at all times. You need to attack your enemy and the sooner the better. This makes perfect sense because all things considered, you are a lot stronger, have substantial advantage in the field, your enemy is armed and dangers and a war is a great way to resolve this looming menace.

Let’s translate this into our joint family business. A listed company would be a good example. Let’s take it that your enemy has less than negative control on the equity, meaning he has less than 25% of the shares. Conversely, you have let’s say 51% of the company so you do actually control the company. As for the balance 25+%, it’s held in small lots by public shareholders who can be troublesome only if they all act in unison. We know it is difficult to make small public shareholders pull together. As a 51% owner, Indian law allows you to drive the fortunes of the company. Still, there are limits to your freedom because many things you want to do need you to pass a ‘special resolution’, meaning 75% of the shareholders must vote in favor of the resolution. On the flip side of the coin, your enemy does not have the voting power to reject a special resolution but he can influence just a few of the external public shareholders to achieve that result. Net, net, your enemy cannot drive the company’s fortunes but he can obstruct decision making and mar its functioning. You can’t run a company if your ability to run it depends on the goodwill and support of your worst enemy. What choice do you have but to attack your enemy?

Having no choice is not the same as being unaware of the risks you run. In a listed company, you can never treat a 24% shareholder with disdain. Let’s not forget: Tata Sons had more than the majority in the major Tata group companies while the Shahpurjee group had only 18.4%! By attacking the minor shareholder, Tata Sons took its fate out of its own hands and put it into the hands of the judiciary. That was risky choice to make: a potential self-inflicted wound waiting to happen! Still, the real question is: did Tata Sons really have a choice? It all came down to timing, seizing opportunity and acting decisively. Tata’s took that risk, and it worked.

To sum it up, in my view, this is the only scenario in which it makes any sense for you to attack your enemy. Your substantial strength is your enemy’s comparative lack of it. If you don’t take advantage of the situation now, when will you take advantage of it? Of course, you may be led into litigation in other scenarios when you have less than substantial comparative strength but hopefully it wouldn’t be out of choice.

Marginal strength

Marginal strength is the worst of all legal situations to deal with simply because it propels the worst kind of neurosis! Think about this. You are stronger than your enemy but not that much stronger: you constantly fear his attack. He is a bit weaker than you so he fears you in turn. In the joint family business, you can’t hire a professional manager without him thinking this new guy is meant to hurt him. Then he starts seducing that manager. Then the manger gets over leveraged because both sides are currying favor. The professional manager starts to strut about insolently and you get upset. The atmosphere becomes weird and rife with conspiracy theories. The insecurities become public jokes and everybody with no stakes in the business get to do what they want.

It’s a very unstable situation. In your mind, there is little you can do because you fear one or more of them switching camps. Worst of all, you never know when your enemy will do something aggressive just because he feels like ‘trying his luck’. A little surplus of power is always more intoxicating than a lot of power. Your enemy has the same fears. To insecurities, you can now add paranoid hostility. It does not help that your side of the family is pushing you to ‘do something’ about your cousin. In the other camp, your enemy’s family is telling him you are becoming ‘too big for your boots’ and if something is not done about it, it will be soon too late. You know this reaction comes from frailty, not judgment, human fallibility, not wisdom, and yet, you remain vulnerable to the pressure. You truly don’t know what to do, any more than your enemy does. Very likely, sooner or later, either you or your enemy will do something stupid. I have rarely seen anything good come out of such situations.

This is how I see the situation. The problem is not that you are potentially attacking your enemy, or that he will soon do the same. The real problem is the insecurity and neurosis. If you want to peacefully resolve the problem, you have to remove the forces that are provoking the situation. In these circumstances, if your slight advantage is causing the problem, your best bet is to reduce your strength. If it is a face-off between two armies, you should reduce your force level till you have equal power. Make your enemy comfortable. Make him believe you cannot successfully attack him. This serves three purposes. First, it prevents you from acquiring too much hubris: you don’t let your small advantage go to your head. Second, it prevents your family from putting pressure on you to ‘do something’. If they do, you only have to remind them that you are powerless to do so. Third, it quietens down your enemy. With your added strength gone, his fears stop playing out and he enters a comfort zone and both of you become stable in your positions. That’s perfect.

In terms of our joint family business, this is a lot like a company started by two brothers and now well into the third generation of children with a 51-49 split between them. In this kind of simplified example, Indian law will give you the illusion of majority control but we know that control does not flows from shareholding alone. Doubtless, different family members have operational control over different segments of the business, or different group companies. Its always a messy situation, and everyone has paranoid fears. From a strategic viewpoint, it is sagacious for you to ignore your marginal strength and run the business as if the partners are exactly equal. You must consult constantly, and defer as often as you assert. Your main aim cannot be to maximize shareholder value: it must be to maximize Gross Universal Shareholder Happiness!

Stand Off

On the principle of it, a Stand Off is a good place to be, not least because it is the most stable place to be. When neither party has any advantage, this ‘dynamic equilibrium’ rarely if allows either side to become strong enough to have ego problems. Its uncomfortable, and both parties feel unsafe, but the index of shareholder unhappiness is about equal on both sides. No one takes chances. In this situation, both parties have the same aim: forget about victory, just survive. No one commits substantial resources to fighting a legal war knowing that there is little chance of winning it. In a joint family business, you are looking at a 50-50 partnership between two related family groups. Cousins will skirmish all the time, but no one will commit to a serious fight. This makes perfect sense. You can jockey for position, but if you go too far, you could theoretically convert a stable world into a terrifying humiliation and loss of wealth. Why bother? If this stable situation is intolerable to you, while you may fret and fume, you know that the only chance of have of fixing it is if some external event changes this equilibrium giving you the opportunity to strike.

One variant to a 50-50 partnership is its opposite: a 26-26 partnership between two related families with the balance held by the public. This looks like potential chaos but it’s actually pretty stable. Both parties are equally capable of gathering up the balance by proxy. Your effort to collect proxies will be cancelled by your enemy’s similar effort. You would want to preserve the status quo. Your paramount aim would be preservation, because if you start a legal war, you are as likely to lose as win. This will not prevent you from your little soul satisfying skirmishes and small ticket conspiracies in concert with public shareholders. You will sniff around for opportunities. After all, the world is never stable for long and you never quite know when circumstances offer you a great gift. That said, in the meantime, you will never want to seriously rock the boat.

Weak

Finally, there will be times when you will be forced into a battle you do not want: when you know that you are too weak to make a fight of it. Not only can’t you win, perhaps you can’t even last long if you are forced to fight. That doesn’t make the threat to you less real. What would you do in such circumstances?

Inescapably, your first objective is to avoid battle and maintain the current status quo. To avoid battle, you may well have to avoid all engagement. You are in a gorilla’s cage at the local zoo. If you make yourself small enough, maybe the gorilla won’t notice you. You can hide behind the rock, or in the bushes. Whether it works or not doesn’t depend on you: it depends on the gorilla! But you can try. If he does threaten you, you could keep dodging him, till he gets tired, or just bored.

But then again, there is a limit to how much you can circumvent the gorilla. You do indeed have two potential doors that may open for you. The first is the door of fortune. Maybe, the situation in the cage will change. Maybe the gorilla will fall ill changing the power equation between the two of you. If that happens, you will then be able to come to some sort of accommodation with the gorilla. The best you can hope for here is a change in circumstances which may make you equal enough to be able to make a bargain.  He may agree to a deal because he would be worried about having his head beaten to a pulp with a rock while he is incapacitated. Yet again, this doesn’t depend on you: it’s the wheel of fortune. The point if any is that no matter how weak you are, nothing lasts forever and you must never give up. You must also never give up hoping for change. If you watch and await your chances, good things may yet happen.

Your other door is the improvisation option. Minority freedom fighters do not seek to win a conventional ground war because they know they can’t. They engage in guerilla warfare (which makes our illustration very apt!). They seek to inflict injury without ever having their own strength tested. They seek to win the war by attrition, by continual disruption, but ultimately, they wait for the tides to turn in their favor, they wait for external events to change the equation.

In terms of our joint family business, you could be a sub 10% shareholder. As a marginal shareholder, you have practically no legal rights in Indian law. You can’t prevent a shareholder’s resolution from being passed and you can’t go to the National Company Law Tribunal to agitate your grievances. this envisages a situation where the litigant holds somewhat less than 10% of a company. At best, you are a pesky loudmouth at a shareholders meeting. That does not make you powerless! You are a magnet for the flotsam, the jetsam and the disgruntled in the ranks of minor shareholders. Given an appropriate provocation, these disgruntled people can gather around you and given you a power you do not otherwise possess. If your joint family business has public shareholding, you can gather proxies, influence independent directors and embarrass the board with exuberant aggression. This helps you gain some leverage, but it’s not as if you forget that unless the force level changes materially in your favor, you will not be capable of outright war and victory.  Within the envelope of your minority shareholding, you are free to devise your strategy, using some of the rules we have discussed here, knowing that your aims are limited.