Posted by: Nick Leiber on August 13, 2009
This is a post by guest blogger Jonathan I. Ezor.
Matt Blumberg, CEO of e-mail marketing firm ReturnPath, recently wrote a blog entitled “Stuck in Legal”, where he bemoaned how the lawyers he works with seemed to be getting in the way of the business he’s trying to do, especially when it comes to contracts. As a contracts attorney for more than 15 years and a full-time business and technology law professor, I have one response: he’s right.
Or rather, his experience is a fairly common one: attorneys who seem to be slowing down business, rather than helping it move forward. In a way, it’s a function of legal education. Law students are trained to identify, evaluate, and above all avoid risk. That training translates to a very risk-averse perspective in practice, whether in a law firm or as part of an in-house legal department. The problem, though, is that successful business depends on risk, or at least the ability to successfully manage that risk. An attorney who is constantly trying to eliminate risk will frequently come into conflict with the sales and business professionals who know the risk is there but want to move ahead anyway.
In my classes, I illustrate this tendency of lawyers to put lawyering above business with the following true story: as a first year law student, I was in a Contracts class with a newly-minted MBA graduate. One evening, our small group was assigned a contracts role-playing exercise, with each of us playing the part of a lawyer for a particular client in a complicated transaction involving waste management. My colleague, the newly minted MBA, decided that he was not going to give in on any points in the "negotiation" and refused to budge an inch from his initial (scripted) position. The rest of us, who were trying to learn but also understood it was a homework assignment, were less than impressed with his intransigence. As the evening wore on, though, we realized we had to get something written in order to not fail, and therefore created a contract with which we were not happy but which we could turn in.
As I tell my students, though, in the real world, with real clients, the fact that it was due the next day would not change the fact that there were certain things our clients could not agree to and still remain in business.
In an actual negotiation, we could not have given in just to get the contract finished, and instead would likely have walked away. I then suggest that the following conversation would occurred with my intransigent fellow student and his client in such a real-world situation:
Client: So how did it go?
Lawyer: Great! I didn't give in on a single point!
Client: Sounds good! Where's the contract so I can sign it?
Lawyer: Oh, there's no contract. They couldn't agree to our points, so they went home. But I didn't give it on anything!
Client: Oh. I see.... You're fired.
Not the best result for a lawyer hoping to stay in practice.
Another problem particularly for law firm attorneys are the financial incentives of the billable hour. A lawyer who bills by the 1/10th of an hour (that is, every six minutes) makes the most money when she works just quickly enough that the client doesn't fire the firm for being too slow. Any faster, and the lawyer is collecting fewer dollars for the same work; any slower, and the client gives up in disgust. This does not make for efficient, productive work; in other words, when the client has a great year, the lawyer is thrilled, but when the lawyer has a great year, the client is horrified. Law firm attorneys are also very sensitive about potential malpractice suits, and it's generally safer to say "no" to a client asking whether something is legal than to go out on a limb and say "yes." The result? The dreaded lawyer roadblock.
So what's the answer? First, the lawyers need to have a more nuanced, business understanding of risk and how to manage rather than eliminate it.
They need to save the "no" for when it's truly unavoidable, and try to find more "yes, if" or even "yes, but" answers for their clients. From an efficiency perspective, law firm attorneys should be considering alternative compensation (such as fixed fee arrangements) wherever possible, freeing them to work quickly as well as effectively without costing themselves money.
Business lawyers also have to remember that they "win" when their client gets what it needs, not when they score a point against the other lawyer. The best negotiations and contracts, in fact, are win-win for everyone involved.
When it comes to contracts, attorneys should create language that is clear, understandable and actually fits the clients' needs, rather than establishing such a hard-line position that no one would ever agree to it, and then hiding behind the "it's our form" excuse when reasonable alternatives are offered.
Contracts must also address as many "what if" scenarios (both good and bad) as possible, and have details specifications so both sides share an understanding of everyone's responsibilities. The clearer the contract, the less likely a conflict or lawsuit later on.
Clients, though, bear some responsibility in this mess as well. Too often, a client will tell a lawyer that the deal is all negotiated and ready to be put on paper, but the lawyer quickly discovers that major points have been forgotten. When the lawyer tries to raise them, it looks as if she is "renegotiating the deal" and being a roadblock, rather than actually finishing the job for the client. To avoid these unfortunate situations, businesspeople should work out both important points to consider and acceptable positions with their lawyer before negotiating with the other side in the first place. For that matter, the more an attorney knows why a business deal is being done as well as what its terms are, the better and more appropriate the advice the attorney can give to help move it forward rather than stopping it in its tracks.
Becoming a business lawyer does not automatically bring with it an understanding of business, any more than starting a company guarantees success for the entrepreneur. Good businesspeople learn what the customers want, and find the best way to provide it, and good business lawyers can (and do) become a key part of the team, understanding and facilitating the business' needs rather than becoming an unnecessary and annoying obstacle to success.
Jonathan I. Ezor is the director of the Touro Law Center Institute for Business, Law and Technology, and an assistant professor of law and technology. He also serves as special counsel to The Lustigman Firm, a marketing and advertising law firm based in Manhattan. A technology attorney for more than 15 years, Ezor has represented advertising agencies, software developers, banks, retailers, and Internet service providers, and has been in-house counsel to an online retailer, an Internet-based document printing firm, and a multinational Web and software development company.