Business Musings: Sure, I Trust You

Here’s the one sentence response that I expected to last week’s post  and didn’t receive:

I know some writers have had troubles, but my agent [editor/publisher] would never do something like that.

Am I optimistic enough to believe that writers—traditional and indie—are finally getting the message that they’re business people? And, as business people, they should operate under the trust-but-verify model?

Or have I simply trained the people who respond to my blog not to put that sentence on here? (And if that’s the answer, then how come I didn’t see that sentence in the comment threads on other sites?)

In the past, I’d put up a post challenging the numbers coming out of traditional publishing and half a dozen writers would defend traditional publishing, their agents, or their editors.

But so far, no one has—at least in the venues I’ve seen.

Does that finally mean that events of the last few years have proven to writers that traditional publishing does not hold a writer’s best interest at heart?

I fervently hope so. But I’m an eternal optimist. I keep expecting things to get better.

However, in the spirit of pessimism and education, I’m going to write the post I was planning to write after last week’s which is simply, this:

It doesn’t matter how much you trust your editor or your agent, they’re not the ones handling every aspect of your career. You are. You are responsible for your career. And as such, you need to trust but verify.

In other words, you need to run your business as a business.

When I negotiate contracts, I always imagine that I’m negotiating with someone worse than the person I’m actually negotiating with. The easiest way to do this is to imagine that the person handling the other side’s negotiation gets fired or dies or moves to a better job, and gets replaced by a savvy spawn of Satan. That spawn of Satan will take every innocently drafted clause of the contract and twist it to his advantage.

My job, if I do it correctly, is to make certain that the clauses can only be interpreted as written.

That includes an audit clause. (See last week.) Because everything in publishing is based on numbers and, as is finally becoming clear to many writers, the numbers traditional publishing often hands out are wishy-washy at best.

If you have any questions about how to negotiate, see my book, How To Negotiate Anything (or click on the negotiation posts from the Freelancers Survival Guide, free on this website).

But there’s more to trusting and verifying than audit clauses or even a fiduciary responsibility.

There’s an attitude.

When I started in the publishing business, long-time professional writers told me that my relationship with my agent would be like a marriage. I was startled, because at that point, I had just come out of a divorce, and frankly, I didn’t want another. What I didn’t realize was that about six years hence, I would fire my then-agent and the experience would be lots worse than the divorce. My ex-husband was civil throughout our divorce; my ex-agent became an utter bastard within minutes of the firing.

(I have since fired two more agents. One remained civil and professional. The other remains a friend. It was only my very first agent who was a complete and utter asshole.)

That whole marriage myth is one of the worst ever perpetrated in publishing. An agent-author relationship is a business relationship, and should be treated as such. Your agent might become your friend, but that friendship needs to exist outside the confines of your business relationship.

Many writers I know discovered this when Ralph Vicinanza died and his sister inherited the agency he had built from the ground up. Ralph was highly respected in the industry, but he had some questionable business practices. They were nothing compared with the business practices of the people who inherited his estate. And unfortunately, a lot of authors got trapped in the mess.

Remember that spawn of Satan? In 2010, those authors with the Vicinanza agency actually met the creature I always imagine when I’m doing a contract negotiation.

The same thing goes with negotiating any kind of contract. Your editor might be nice, but the publishing company she works for is a corporation attached to a large international conglomerate. Whose attitudes do you think will triumph inside the corporation when it comes to dealing with your business relationship? Your nice, salaried editor’s or the corporate legal department’s? Your editor may be on the communication end of the contract negotiation, but you can bet cash money that she’s checking with legal before responding to your requests. She has to, or she’ll lose her job.

So, if something goes awry, your editor will not be able to help you. A lot of editors go dark when things go badly, and forward emails and paper communications directly to legal. Some editors try to maintain the relationship with their authors, only to lose their jobs in the process.

When it comes down to it, the business decision for the editor is pretty simple: Do I defend my author or do I keep the job that pays for my home and feeds my children?

The words “nurturing” and “cultivating” get bandied about a lot when traditional publishers talk about their relationships with writers. We nurture a writer so that he can continue writing. We cultivate talent so that we enrich the culture around us.

Agents are even worse in talking about this. They “handle” problems and pesky things like negotiation and money so that the writer can concentrate on his fragile creativity.

Imagining that these powerful people are protecting us is quite parental, isn’t it? And it’s flattering to think that our talent is so great that important people will do things for us so that we can concentrate on “what we’re good at.”

Only…they’re not doing these jobs for us. They’re doing the job for money. Agents get more than 15% for the work they do. Agents are only as powerful as their clients, so if they have powerful clients, the business grows. And many agents work hand in glove with publishers.

Agents run their own businesses, and again, that trumps anything they do for you. Given a choice between the good of the agency and the good of a single writer, they’ll choose the agency every time. (And so would you, if you were an agent.)

Because the agency pays them, in most cases, or in other cases, the business is the agent. The agent can always get another writer/client. The agent can’t always repair perceived damage to the agency.

I get it. It makes a lot of sense. If you’re that agent’s biggest client, then the agent will do everything he can to keep you. If you’re one of many, you’re free to leave when you want.

You have to keep that in mind when dealing with others in this business.

You also need to ask yourself what an agent would get if she harmed one client. Sometimes writers ask agents to do things that aren’t in an agent’s best interest, particularly when it comes to dealing with the five biggest publishing companies here in the US. Piss of Penguin/Putnam for a midlist writer? No. Piss off Penguin/Putnam for a client who brings in $20 million a year? Okay, maybe. Or maybe the agent can get Penguin/Putnam to see the light (reflecting off that $20 million, which they all get a piece of).

See how it works?

I’d love to say straight out that all agents are crooked, but that’s not fair to the friends I have in that industry.

I do know many crooked agents, but I also know some very good people who would never deliberately harm their clients. It just depends. (And sometimes, it depends on whether the agent is flush or is in great financial trouble.)

But many agents run their own shop, and many of them occasionally skim from clients to pay the rent, figuring they’ll pay the clients back when the flush times happen again. I can list agent after agent after agent (single agencies) who did this, and who never saw the flush times return. A couple of them were friends of mine, and have now vanished into the wind.

I also know that some large agencies were initially built on the float (holding money from clients for two weeks to a month, and collecting interest on the large sum in their bank account). Even though the float no longer works well, those agencies have questionable financial practices built into their DNA.

I also know of some agencies that have such a loose handle on their own bookkeeping that any bookkeeper with brains and a bit of larceny in his soul would be able to keep a penny here and a penny there without anyone noticing. The thing about pennies is that they add up to dollars over time, and no one is ever the wiser.

It’s easy to see how agents can either act inappropriately for their clients or flat-out misuse clients’ money.

But it’s harder to see why traditional publishers would do it, until you think about the history of publishing.

Figuring out royalty payments, particularly with the returns system, is an accounting nightmare. Steven Zacharius of Kensington came on The Passive Voice last week in the comments thread and mentioned that within 18 months, a traditionally published writer will know how many copies a book sold and how much it earned. But there’s much more to the story than that.

Right now, Dean and I have over 400 titles in print through WMG, not counting another fifty to a hundred backlist titles through large traditional publishers. The royalty statements we get on our books are often thicker than the books themselves.

We have trouble keeping track. Publishers have even more trouble. You’d think the troubles would have ended with the dawn of the computer age, and for the most part, the troubles eased, but didn’t entirely go away.

That’s because, in the past, so many publishers used formulas to pay their authors instead of accurately tracking the books in the warehouse, books sent to distributors, books returned, books pulped, books shipped to regular accounts, and so on. (Multiply that by 15,000 titles per year, by another 10,000 per year of backlist, by thousands of authors, and thousands of distribution streams, and think about the accounting nightmare before computers came on board.)

The formulas made royalty periods easier, although not easy.

Then computers came in, and publishers tried to design systems that would make this opaque information clear to everyone. At the same time, publishing companies consolidated, so they tried to merge Publisher A’s system (covering books that were published last week and books published in 1960 [To Kill A Mockingbird, anyone?]) with Publisher B’s system, and still tried to keep up with all the current work and…wow, is there slippage.

Add to that the advent of all the ebook markets, which report hourly, unlike book distributors and warehouses and bookstores, and the mess continues.

Never blame malice when incompetence or impossibility will do.

It’s lucky any of us who’ve been traditionally published get any numbers at all.

The wealth of data is not an excuse. But, traditional publishing accounting systems are in flux right now. One reason is the incredible number of ebook channels; another is the slow collapse of the returns system.

However, the major reason for the change is that so many of the old traditional publishers—places that were once businesses in their own right—have been merged with major international conglomerates, often large entertainment conglomerates.

All of these large international conglomerates are beholden to their shareholders. Some conglomerates are based in the United States, others in countries with stricter business laws we have. Many of those laws cover accounting practices and accurate reporting to shareholders.

(Yes, lawyers and major business types who regularly read this blog, I know I’m skimming over lots of important caveats.)

Traditional publishers, particularly in the Big 5, have had to adopt (or are adopting) more accurate accounting systems within their own organizations. Even though information is becoming clearer to stockholders, it’s not becoming clearer to authors. Most of these publishers see no reason to change how they report sales to writers.

If enough writers demand accountability—particularly writers at the top of the food chain—through regular contract-mandated audits, the traditional publishing practice of doling out incomplete, late, or estimated information will have to change.

(And those portals some of these companies have instituted to report sales in real time do not cover major segments of the market. The portals are better than nothing, however, and they are a good start. But that’s all they are. A start.)

Authors rarely act in concert, and I know that asking authors to treat their writing like a business, particularly on this level, is asking a lot. It would be better if organizations like the Romance Writers of America, Novelists Inc, and Mystery Writers of America teach their authors to have a standard audit clause in every contract. Many writers don’t even have that much.

Even better would be an audit clause that requires a scheduled audit of the account. (Annual, biannual, every five years—something regular)

A scheduled audit of the data would be best for anyone who earns over—I don’t know–$100,000 annually from their publisher. Or I’d even be happy if the folks who earn $1,000,000 annually from their publishers schedule regular audits of their publishers.

And every author who receives money through an agent should demand an annual accounting from that agent. The agent has a fiduciary responsibility by law to accurately report financial transactions. The author should demand accountability.

Do I do that with the agents who handle my work? No.

But in truth, I haven’t had an agent handle my book sales in years. One agency kicked me to the curb for demanding an audit (see last week’s post). Some of my money still funnels through that first agent, but only for one book, and I get those royalty statements directly.

With another of my former agents, the rights to the works he sold have reverted. This leaves my final agent who has worked closely with me on projects five to six years ago. Again, the money being funneled through his office is quite small. I track the handful of projects that he handled, and there’s no reason to audit, because I can count those projects on one hand (and I see the royalty statements on them).

It’s when the agent handles hundreds of different sales through hundreds of different subrights categories and major publishing arms that the situation gets dicey. I can’t imagine the accounting nightmare it is to handle some of these long-term bestsellers, folks who’ve published hundreds of books in dozens of countries over thirty years.

Or wait! I can. Dean and I are facing that now, and it’s daunting for us on our stuff. Imagine being an agent, and handling dozens of bestselling authors, tracking sales and royalty statements through fifty different publishing companies for each bestselling book. Common sense dictates annual audits in this circumstance, and I know most writers don’t do it.

Because they trust their agent. They believe in their publishers. They know no one would try to cheat them.

Until someone does.

In my private e-mail this past week were horror story after horror story about writers who finally decided to audit their publishers. In three different cases cited by three different people (one a lawyer involved with one case, the other a journalist telling me about a second case, and the last an author confessing to the third case), three different publishing company paid the authors involved millions to stop the audit. On the books, those millions were attributed to a novel that was never written or attributed to cost overages. But the author in each case had to sign a confidentiality agreement, and could not discuss the case.

One contact told me the name of the publisher involved, but not the author’s name. Two of my contacts did not tell me the name of the publishing house involved, although it was easy to discover with a Google search once I had the author’s name.

All of three of the cases involved bestsellers, and all of the cases involved major publishers. And those are just the ones where the publisher paid to stop the audit. Other cases that came through my e-mail this week reminded me about one-time audits that I had watched from afar, audits that found huge discrepancies, and some cases told me about different problems with other publishing houses that I hadn’t heard of.

In each case, the author had to sign a confidentiality agreement.

How can I tell you this stuff? Note that I’m really not. And I can’t cite legal cases or show you what really happened or even tell you the names of the parties involved. When I was contacted by lawyers or authors, they told me about “hypothetical” cases that “might or might not” have seemed personal to them.

In one case, the author said that h/she did not give a rat’s ass about the confidentiality agreement. I give a rat’s ass about it, though, so I’m not telling you anything that violates that legal contract except to tell you it exists.

I am telling you a lot of this, though, because so many of you believe bad things won’t happen to you. No one with sticky fingers will lift some of your money. Everyone you know in traditional publishing is ethical and good-hearted. No one thinks of it as a business, and you’d be insulting everyone if you do.

That’s the one that gets me the most. It’s the people who are afraid of insulting their agent for asking for an audit that worry me. Why is asking for standard business behavior an insult?

Oh, yeah, I forgot. Because this industry has frowned upon artists who take financial control of their own businesses. The industry itself makes it socially unacceptable to ask even the most basic questions about the contracts that govern a writer’s livelihood.

That has to stop. Being taken care of at the cost of your own business has to stop.

Once upon a time, writers did get blacklisted for asking for an audit or for requesting standard business information. That once-upon-a-time is within the past twenty years, and so many of us still have the reflexive attitude of “If I ask, I’ll ruin my career.”

Yes, you might get kicked to the curb like I did from the agency I’d been trying to fire for five years. (If only I had known that requesting an audit would do it. I would have done it the day I officially fired them.) You might also get kicked to the curb by your current agent or your traditional publisher, people with whom you’d like to continue a business relationship.

They might think an audit too risky, and cease doing business with you.

So what?

Now you can self-publish, and make more money. You’ll also be in control of your finances, maybe for the first time.

I have to add one thing here, for those who asked last week if they should audit Amazon or their other distributors. See the note I mentioned above about the way that international conglomerates work. Right now, these organizations have no reason to cheat you and no ancient systems that allow them to stumble into cheating you.

Unless you’re earning millions through these major companies like Amazon and Apple, an audit isn’t worth the time or the expense. If you are earning millions, you might want to consider a few other things before jumping immediately to an audit. First, you might want to negotiate a different contract or TOS through those organizations so that they treat your business like they treat other major retail suppliers, rather than going through the self-publishing portals like KDP.

But until you’re ready to treat your business like a large retail supplier, don’t audit your distributor. There are so many steps that I refuse to go into here on how to be a large business that most of you asking the question have no clue about. I’m not here to train you how to run a large company.

If you’re running a small one, you’re just going to realize that you’re such a small fish that any discrepancies you find are due to system errors or standard accounting deviations. The big corporations have no reason to screw up your numbers. You’re too insignificant. You’re not worth the legal risk.

So chill out.

For traditionally published writers, the grafting of old systems onto new systems has led to a lot of leakage of funds and accounting. If you’re earning a lot of money through your publisher, then you need to make sure that publisher is accountable.

If you funnel those large sums through your agent, then you need to audit every year. Every year.

Why am I beating on agents more than the publishers? Because agents are already skating on thin ice ethically. If your agent negotiates a contract for you, and your agent does not have a law degree, then your agent is practicing law without a license. 

I am not a lawyer, and I don’t pretend to understand all the twists of the law. I do know that each state has a different legal standard for practicing law without a license, and I don’t pretend to understand what the standard is for your state. But I do know one thing: A 2012 law makes practicing law without a license a felony in New York. I know it’s a felony in many other states as well. 

Two very large agencies that I’ve had dealings with actually have a legal department, with lawyers who handle the contract negotiations. The big Hollywood agencies that have a book arm also have a legal department.

But most agencies that I’ve dealt with do not have lawyers on staff. Most of the agents do not have a law degree. The agents themselves handle the contract negotiations.

I can’t tell you how many times lawyers from other states who know I’m involved in publishing have asked how agents can legally negotiate contracts.

And as one state Supreme Court judge said to me recently, “That’d be so illegal in my state, it’s not even funny.”

Exactly. Here’s my thought: if an agent believes he can negotiate a contract without fear of reprisal even though most states consider that negotiation to be practicing law without a license, what’s to stop said agent from slipping a little more than 15% into her pocket once in a while as well? Especially if the agent plans to pay it back. Someday. If possible. When there’s extra money. Or when the client complains.

If I’ve scared you, good. I intended to.

Your agent might be one of the good ones. Your publisher might have the best accounting practices in the world.

Are you willing to bet hundreds of thousands of dollars on your sense of them as human beings?

I’m not. But I’m not you.

If you find out later that your publisher or your agent has screwed you blue, don’t cry to me. Because you were warned.

Trust. But verify.

Especially where large sums of money are concerned.

I didn’t plan to write this one. Still haven’t gotten to the numbers post I had planned, but I might simply do a craft piece as a palate cleanser next week. I’ll see what the old brain serves up.

Thanks for returning to the blog after all this time. Your support has been tremendous. I appreciate the comments, e-mails, and donations. They made my return a good one.

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“Business Musings: Sure, I Trust You,” copyright © 2015 by Kristine Kathryn Rusch.