Managing Unstated Covert Contracts When Founder Capacities Diverge Over Extended Time
Unstated covert contracts dissolve when organizations separate historic equity rights from active labor value through explicit governance agreements.
unstated agreements
Meaning
Informal understandings between partners create a set of expectations that are never written into a contract or discussed openly. These unstated agreements often cover things like the expected hours of work, the way decisions are made and the personal sacrifices each founder is willing to make. They are built on trust and a shared vision of the future, but they are also a major source of conflict when they are eventually broken.
Informal Norm
In the early days of a company, many of the rules of the partnership are never discussed because everyone is focused on the immediate task. These unstated agreements work as long as the founders are in close contact and their goals remain the same. The problems start when the company grows and new people join who are not part of the original silent bargain.
This expansion creates a gap between the old informal way of working and the new requirements of a professional organization.
Fragility Factor
Relying on assumptions rather than clear communication makes the relationship vulnerable to misunderstandings. Unstated agreements are impossible to enforce and are often remembered differently by each person. When a dispute arises, the lack of a written record means there is no objective way to determine who is right.
Formalization Need
Transitioning to explicit and documented terms is a necessary part of the maturation of any professional partnership. Replacing these unstated agreements with a formal shareholders agreement or a code of conduct removes the ambiguity from the relationship. This process of making the rules explicit helps to protect the founders and the company from the fallout of future disagreements that can arise as the business becomes more complex.