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Jun 08

It’s not a Problem until It Is

Posted by: Steve Marr

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Like many of you I've been watching the Kilauea Volcano devour neighborhoods on the big island in the Hawaiian chain. Watching people's houses swallowed by lava flows is heartbreaking. Some years ago when I was visiting the area, someone told me that a lot of the houses were built in what was known as the “red zone.” The red zone was land subject to volcanic activity. Building in the red zone meant that insurance was either costly or impossible to obtain. At the time I remember thinking these nice houses were in an ideal environment, unless the volcano turned angry.  That’s when I was reminded of the key principle in business:  it’s not a problem until it is. 


One of my employees was “Ed.” Every night he would stop in a bar not far from the office to consume a number of beers before heading home while driving a company vehicle. My concern was that someday he would kill or injure someone and I would be asked to answer two questions in court. 1) Did you know he drank on a regular basis and drove the company vehicle?  2) Why did you allow it? If I had to answer those questions, I feared the only question for the court to decide would be how large the damage award should be. At the time removing the company vehicle from Ed was not an easy decision, but I believed that if Ed continued to drive a company vehicle while under the influence; sooner or later it would become a problem for the company. Fortunately, even after removing the company vehicle from him, he never had an accident heading home.

In another situation I was advising “Jeff” who owned a construction business as well as about 20 rental properties.  They were all under the same limited liability corporation. I advised Jeff to remove the rental properties from the construction business and consider creating a separate LLC for each of his rental properties. The reason for my advice was that in the event there was a lawsuit regarding one of the properties or the construction business, liability would be limited to the assets of the specific LLC. At the time Jeff ignored my counsel. Several years later he was served with a large lawsuit for his construction business.  Had he not won the case, he would have lost his construction company as well as all of his rental properties. Fortunately, Jeff prevailed.  Shortly thereafter, he followed my advice and separated each item into a separate business entity.

In another instance “Greg” operated a construction business and did not verify the insurance coverage of each subcontractor. Unfortunately a subcontractor suffered an injury on the job and filed legal action against Greg for damages resulting from the injury. Under state law Greg was required to cover the cost of the injury. Had Greg properly verified Workmen's Compensation and liability insurance for all subcontractors, he could have avoided the judgment. Greg's thinking was that he hadn't had difficulties for many years so he didn’t bother checking everybody's insurance coverage. It is another example of a situation that did not start out as a problem until it became a problem.

King Solomon wrote, “A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.” (Proverbs 22:3, NLT) All of us have had the experience of groaning when something bad occurred knowing that we could've and should've done something earlier to prevent the problem. In your business situation, if there is an issue or problem that needs to be addressed; make sure you address it before it blows up like a volcano and swallows what you worked hard to build. 

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