Meaning
Legal risks that arise from informal promises and decisions made without a written record can haunt a company for years after its founding. These verbal governance liabilities occur when founders agree to terms with partners or employees in person or over the phone. They are difficult to prove and even more difficult to defend in a formal dispute.
Commitment Tracking
Oral agreements carry the weight of a contract but lack the clarity of a signed document. When verbal governance liabilities are brought into a courtroom, the case depends on the conflicting memories of the people involved. This uncertainty makes it much harder for the company to resolve the issue quickly or at a low cost.
Proof Difficulty
Proving what was said in a meeting that took place years ago is a near-impossible task without contemporary notes. Because verbal governance liabilities rely on testimony, they are subject to the bias and fading memory of the participants.
Precautionary Documentation
The best way to manage these risks is to follow every conversation with a written summary. Such verbal governance liabilities can be avoided by turning every informal agreement into a formal record immediately. A founder who takes the time to document their interactions ensures that the company’s history is based on fact rather than a series of disputed recollections.
By maintaining a strict policy of written confirmation, the organization protects itself from the cost of fighting a legal battle over a conversation that no one can recall.
