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How Agents Can Avoid Conflicts of Interest

14 May 2011

I’ve banged on agents pretty hard during the past few days. I believe the current trend for agents to sign their clients to long-term publishing contracts with an in-house agency publisher is not a good idea for several reasons.

As I’ve discussed previously, there is an absolute, definite, can’t-get-away-from-it conflict of interest between acting as an agent for an author and signing that author to a publishing contract with your agency.

Literary agents are not the only group that experiences conflict of interests issues. In other professions, methods and procedures for dealing with COI have been developed which provide some ideas agents could and should consider.

If an agent wanted to handle a transaction with a client in a way that would avoid legitimate complaints about conflict of interest, what might she do?

  1. Tell the client that the agency has created an in-house agency publisher you would like the client to consider.
  2. At the same time, tell the client that discussing the agency publisher puts you in a conflict of interest position because, as an agent, you are obligated to act in the author’s best interest while as someone who profits from the agency publisher directly or indirectly, you have financial interests that may be adverse to the author’s best interests.
  3. Tell the author that signing or not signing with the agency publisher will have no effect whatsoever on your commitment to continue to act as the author’s agent for so long as the author wants you to do so.
  4. Tell the author you will discuss the agency publisher’s plan with her and share written information about it, including a draft contract, but you will not enter into any publishing contract with the author until she has had ample time to consider this decision and consult with anyone she likes to discuss her decision.
  5. Tell the author you will not enter into any publishing contract with her until she has reviewed the contract with an attorney who has no relationship with the agency.
  6. Inform the author that the agency publishing contract includes a signature line where her attorney will sign, confirming that the attorney represents the author in the contract matter and has reviewed the contract and discussed the terms of the contract privately with the author prior to the author signing the contract.
  7. Tell the author that, while the author will need to pay this attorney herself, if the author so requests, whether the author signs the contract or not, the agency will reimburse the author for her reasonable attorney’s fees. If you put a ceiling on the reimbursement, ensure that it is high enough to cover the costs expected for such consultation. Check the cost ceiling with your own attorney.
  8. Tell the author she may use any attorney she prefers to review the contract. If the author does not know an attorney who can help her, the agent will provide a list of twenty qualified IP attorneys who have never represented the agency or any of its agents. The author may or may not consult the list when she chooses her attorney.
  9. Tell the author that, after she has consulted with an attorney, if the author wishes to retain another agent to represent her in negotiations concerning your agency publishing contract, you will release the author from any agency agreements with your agency necessary for this to take place.
  10. Tell the author that, if she decides she wants to sign the agency publishing contract, but wishes to retain another agent to handle the work your agency currently performs, you will release the author from any agency agreements with your agency and work with her new agent to ensure a smooth transition of work.
  11. Put all of the things you have told the author into a letter to the author.
  12. In the publishing agreement with your agency, include a clause that gives the author the right to terminate the publishing agreement for any reason within one year after the agreement is signed.

Are all of these components absolutely necessary to resolve the conflict of interest issue? Perhaps not.

However, where a conflict of interest arises in a fiduciary relationship, the burden invariably falls upon the agent to show that the principal was treated fairly, made her decision independently and the agent made no improper use of the relationship of trust between the agent and principal to pressure or unduly influence the principal to make a decision that was in the agent’s financial interest.

I believe doing all of the things on my list would satisfy any judge that the conflict of interest was handled properly.

I didn’t do any special research for this and relied primarily upon my understanding of how attorneys resolve conflicts of interest with their clients. There may be state statutes of which I am not aware that govern what must be done to resolve a fiduciary’s conflict of interest which statutes conflict with my informal list.

I’m interested in comments, suggestions, reactions, etc.

As usual, this isn’t legal advice, just discussion. Hire a practicing lawyer if you would like legal advice.

 

Agents

17 Comments to “How Agents Can Avoid Conflicts of Interest”

  1. This is great, PG. I’m forwarding it to many.

  2. My own mother knows very little about publishing—she still things authors don’t have to market themselves, with a traditional contract—because, well, she doesn’t care. But even she pointed to the conflict of interest when I gave her the brief of literary agents, who broker contracts between publishers and authors, and are now setting themselves up as publishers, too.

    Something that’s occurred to me, but I’m not sure if it still wouldn’t be a conflict of interest, is what if an agent offered to broker publication in general? Their cut would be the same, either way (15%), but they could help the author get set up with a traditional publishing contract or as a self-publisher, with an option for agency imprint. It would therefore be no innate benefit to the agent to push the agency imprint.

    I could see agents doing well this way, able to make personal recommendations for editors/copyeditors/proofreaders/artists who they thought would be a good fit for a title, which would help the author get set up—maybe with the agent able to help the author with those up-front costs, for perhaps another 10% of earnings up to what the cover art/editing had cost. (Therefore agent would earn 25% off self-published only until repaid what he’d invested, then earn 15%) The primary 15% royalty would likewise need a cap of some sort.

    It’s complicated, and I know there are some kinks in there to be worked out (like would that 25% drop down to 15% after investment is repaid overall, or only after it’s repaid by that extra 10%? I’d think the latter). But I think that makes more sense and would be less of a conflict of interest than the current model that’s being set up.

    That might just be me, expecting business to make sense, though. I’ve been told that’s silly.

    • Carradee – I agree that no one I’ve read has a problem with the agent continuing to receive 15% of the author’s take for providing assistance with self-pubbing. It’s the bigger grab and the new role as publisher that sets me off.

      • I wonder, though, since there is a clear way of doing this in a way that doesn’t present a conflict of interest, why I haven’t heard of any agents doing it? Are the scammers that loudmouthed? Are all agents that shortsighted?

        And if they’re all that shortsighted, why are authors hiring ’em, again?

        I’m honestly puzzled, here. There’s this clear market gap that everybody who can fill it seems to be ignoring. I do realize it’s a seeming and not reality, but I find it bewildering.

        • Carradee – I can only speculate on answers to your question.

          First, the steps I suggest in my post don’t make conflict of interest go away, they just protect the agent against accusations that she exploited her relationship of trust to unfairly exploit the author. The conflict is still there, but it’s been clearly disclosed to the author and the author has decided to move forward because she trusts that the agent will treat her well. Additionally, the author’s attorney may have negotiated contract terms to provide protections or easy exits for the author.

          As far as why authors are hiring their agents as publishers, a lot of authors have good relationships with their agents and, rightly or wrongly, view their agents as having a better business sense than the author does. I doubt that authors who are dissatisfied with the job their agents are doing as agents will sign up for the captive publisher deal.

          As far as why agents, at least the ones I’ve heard about, are not taking steps to protect themselves against conflict of interest charges, my guess is there may be some herd mentality happening plus many agents are looking at a dark financial future and such a vision has caused many, many people, agents and non-agents, to bend their principles to survive.

          • “…the author’s attorney may have negotiated contract terms to provide protections or easy exits for the author.”

            This is the key.

            The 50-50-net split is outright revolting. Even in a situation where the split ratio is fair — considering that the IP proceeds from the author — every wise adviser to writers on the internet might find it more worthwhile to persuade authors with backlists that they need a new provider of independent advice, once they’ve made their agent their publisher. (Here is where DWS is having a problem persuading, because of his stance on other related issues.) Any decent adviser will recommend against signing up those backlist authors for a forever deal. The authors have property from which the so-called agent-publishers would like to benefit, so they have some leverage when they insist on the inclusion of such a clause. It’s not as though this property is the unproven work of a brand new indie author.

            Unless DW Smith, Rusch, yourself, and others of your ilk have unprecedented, unanticipated, early success in persuading all those authors with backlists, who are incapable of thinking of their agents as a business service rather than a bosom buddy and mentor, that is… 😉

      • PG, Dean Wesley Smith has definitely expressed that you should not be giving away 15% of your proceeds forever, to someone who does a one-time job for you. I agree with him completely.

        Cover art, editing, formatting, even PR at the time of release, are all one-time investments per book, and should be paid at a flat rate, not a percentage.

        The book is the author’s intellectual property, an investment, and like any investment property, should only pay its owner.

        DWS uses the analogy of giving your landscaper a % interest in your house for cutting the lawn and trimming the shrubbery.

        • A.K. – I absolutely agree with Dean on that. I would add that the ongoing services agents provide to authors can almost certainly be obtained from other sources for less money.

          If, as Dean has written, you don’t need an agent to get your book accepted by a publisher, the agent’s gatekeeping powers are diminished or gone. If the agent isn’t a gatekeeper any more, the agent’s pricing power to extract a lifetime percentage has disappeared.

  3. Thanks, Robin.

  4. Thank for this informative post. Crucial for writers to understand what they are signing before they sign it. I’ve tweeted & otherwise spread the world.

  5. Here’s one I think you missed, Kris: The agent should waive his or her commission on all deals and royalties coming from the agency’s publishing arm.

    Not only is that fair, I think it somewhat ameliorates the conflict of interest (though you can never eliminate it altogether). It reduces the agent’s financial incentive to herd authors into his/her own publishing program by making the agent choose (in terms of his own interests) between publishing profits and agent’s fees.

  6. Thanks for the discussion from one who had more agents during my NY publishing career than I care to mention. None now. Just myself and I love it.

    • Miriam – I’m glad you found the post useful.

      I follow several Twitter streams about different topics and the high-powered agent stream has the worst stupid/intelligent ratio of any stream by far.

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