Three years after its release, your humble blogger recently read Heaven & Hell, the tell-all book by Don Felder. He’s the guitarist who joined the Eagles in 1974 and left amid a flurry of lawsuits 27 years later. If you’re familiar with the band’s story, you can skip the next paragraph.
After the Eagles had released two albums, Felder joined, making the band a quintet. They weren’t yet the icons they are now, and the original members gladly made Felder a full partner in the corporation they’d created to conduct business under. (After all, he was now going to be on the hook for 20% of the expenses.) Within 3 years two of those original members had quit, each returning his shares and ultimately turning Felder into a 33% partner.
Felder owned one-third of the most lucrative undertaking in the history of popular music. When the Eagles resumed after a 14-year layoff, they packed stadia around the world and charged fans historically high prices for the privilege of seeing their soft-rock favorites performed without any showmanship or pyrotechnics getting in the way. The tour brought in an estimated quarter-billion dollars, with relatively little overhead. There was no stage show to speak of, and expenses beyond the usual (travel, food) largely consisted of paying the side musicians. On top of that, the band members claimed to have sobered up – even Joe Walsh – which can easily turn red into black.
Fans were clamoring for another album. You know, to complement that copy of the Eagles Greatest Hits that every sentient being in the universe owns. (Biggest album in music history. Septenvigenuple platinum.)
The Eagles’ disagreements were already legendary, and had led to their breakup and the hiatus that lasted considerably longer than the band had been together. But decades later, when the money headed for the exosphere, the bickering reached critical mass. The two other partners “dismissed” Felder, because “squeezing him out to split the money fewer ways” sounded even less charitable.
One problem: the corporation. A limited-liability entity that protects its members’ interests, including that of one Donald William Felder. The other principals – Don Henley and Glenn Frey – obviously had the right to decide whom they wanted to play and record with. That’s not the issue. If Felder had been an employee (like longstanding Eagles Walsh and Timothy B. Schmit), he’d have been shown the door like most of us have at some point, asked to return his parking pass and given a 2-week severance check if he was lucky.
But Felder fought back in his capacity as a shareholder. The parties reached an out-of-court settlement, the details of which of course have never been publicly disclosed, but we do know the litigants’ arguments. First, for the defense:
- Henley and Frey felt they were entitled to larger shares, given their disproportionate contributions. They wrote and sang the vast majority of the songs. Felder wrote only a half-dozen and sang only one (which still made him more prolific than the two remaining members.)
- Only Henley and Frey were there from the start.
- Felder’s departure was unanimous. No one who matters wanted him there – neither of the other partners, neither of the non-partner band members, nor their longtime manager.
And from the plaintiff:
- Felder wrote the band’s biggest hit, “Hotel California”.
- To any true fan of the band, he was an inextricable part of it. Imagine Mount Rushmore without Jefferson. (Alright, that’s grandiose. Imagine Stone Mountain without Robert E. Lee.)
- There’s more to a band than singing and writing songs. The contributions of a lead guitarist are not meaningless nor irrelevant.
And the only argument that matters in the eyes of corporate law:
- If the remaining members wanted to tour and record under their valuable trademarked name, with or without Felder, he was entitled to a cut. Ideally, he should contribute something in order to enjoy a share of the profits, but if the other partners unilaterally refuse his contributions, they can’t subsequently deny him his take.
It didn’t matter whether everyone in the universe wanted Felder out of the band. They had formed a corporation. He was a shareholder, and a significant one. You can’t simply strong-arm shareholders out because of personal or professional differences. (Unless the corporation is General Motors, and the President of the United States is the one doing the strong-arming, but that’s a post for a different time.) The parties settled, with Felder selling back his interest. He got his, however much that might be. Whatever the amount, it was clearly large enough to keep him happy while small enough to make it worth the newly truncated Eagles’ while to continue as a band. (Then again, maybe they’re continuing to tour because they need to make enough to pay Felder off.) The Eagles released an album without him, which reached #1 everywhere from India to Russia to Greece and sold the equivalent of 7 million copies. (Which might even be more impressive today than selling 27 million albums was back in the ‘70s.)
Okay, captivating story, but how does rock stars fighting over riches pertain to you?
Felder was smart enough, or fortunate enough, to have become a business owner, rather than a well-compensated employee. (Either that, or he had someone smart enough on his side during initial negotiations.) That means:
- His financial rewards weren’t tied to his labor.
- He could enjoy residual profits. The “Hotel California” royalty checks continued long after he recorded the guitar parts for that particular song.
- He was protected against losses, should there have been any. He was only on the hook for his original contribution to the corporation, which, when he became a shareholder back in 1974, was negligible.
- He had a say in the workings of the corporation. Future profits (or losses) were linked to his (and the other owners’) decisions.
Contrast that with the fates of Walsh and Schmit, who remain salaried employees, no different than the roadies or the bus drivers. These guys have been famous rock stars for decades, yet they’re still obligated to The Man. They work at their bosses’ whim, and gain no incremental advantage if the corporation succeeds beyond projections.
Sure, their paychecks are somewhat guaranteed, while the owners risk losses. But the chance of business owners losing money on a proven successful venture is minimal. And, should the money suddenly evaporate and a business no longer be feasible, the first things cut from the budget will always be…employees.
If you’re operating a business, you owe it to yourself to incorporate. If you’re an exceedingly valuable employee and you know it, you owe it to yourself to want a piece or threaten to walk to a competitor who’ll give you one. There should be no loyalty in the employee/employer relationship, only honor. Work hard if you’re an employee, make sure the checks clear if you’re an employer. Any perceived obligation beyond that is 21st century slavery.