Decoupling From A Controversial Partner: Financial, Legal, And Social Pitfalls

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Companies and advertisers jumping ship when a celebrity or other company does something very negative is not new. However, in the past few years, the number of times this has happened has skyrocketed. From racist behavior caught on tape to poor business protocols, companies are now distancing themselves from any hint of bad behavior with record speed. If your company has a partnership with another company that recently got called out for terrible practices, you may want to leave that partnership as fast as possible. You often can, and you should understand what the legal and financial effects can be.

Refunds and Loss of Funding

If the partnership led to you marketing a new product that has already started selling, you may have to refund money to customers. Maybe the issue was so heinous that you don't want to be seen as making money off your connection to the controversial company, or maybe customers pre-ordered items that now won't be produced. In any case, refunds can take a hefty bite from your budget, and you have to know where that money will come from.

Also note that the rest of the funding you might have gotten as a result of the partnership will be gone if you break your contract. You and your accounting department need to have emergency talks to figure out how to keep operations going with this loss of money. This does not mean that you should keep the partnership instead, as guilt by association could lead to worse outcomes. However, you must go into any contract-breaking talks with a clear idea of numbers.

Getting out of the Contract

Speaking of breaking the contract, you may have to make a settlement to get out. Because the other company was depending on the partnership (as were you), breaking it will result in a financial loss if the contract was geared toward bringing in more profits. You'll have to make sure that all aspects are covered, so working with business lawyers is a good idea.

Loss of Publicity

Note that once the intial brouhaha dies down and you've gotten away from any guilt by association, you might have a lot less visibility. For example, if you're a retailer partnering with another company, your store and items for sale may not have as wide an audience once the partnership is over. You'll have to work on additional marketing ideas quickly.

Sometimes the offending company makes a fast apology and manages to save its reputation, and you don't have to break ties. But if you feel you have no choice, contact a business lawyer immediately to ensure the break is legally very clean.