WHAT MAKES A LAWYER BUSINESS (UN)FRIENDLY Part 5: Understand the business

One thing that distinguishes a corporate lawyer from the one working in a law firm is by far the knowledge of company’s business. An in-house counsel who demonstrates maturity in navigating the legal work using his business knowledge shall invariably standout. The absence of such business understanding will otherwise bring an in-house lawyer at par with an external lawyer, and hence the very purpose of having an in-house legal team gets defeated in part. The objective of having a legal team in an organization is not only to get the legal work economically done, but also to augment the business with qualitative risk mitigation and quantitative value additions.

 

An external lawyer, no matter how specialized he might be, will undertake only risk mitigation. The focus on risk mitigation is so abrasive that it funnels out certain elements of commercial objective of doing a transaction at times. This is because an external lawyer has no interface with the business of a company, no interaction with the business people responsible for taking key decisions, no insights on why such decisions are important and how these further the objectives of the business, no access to the teams that are running the operations and no means to fathom the vision and purpose of the company’s business. No business can be done without certain degree of risks and exposure. Each company has subjective risk appetite and this is defined in many cases by the legal team, especially in those organizations where the commercial team has minimal influence over the legal team. In my discerning view, those lawyers who are obsessively concerned with only risk mitigation are disconnected with the business and can at best be described to be doing an otiose job.

Business knowledge brings depth in lawyer’s perspective

An in-house lawyer plays an instrumental role when he exercises his judgment in risk mitigation. This judgment comes from understanding of the business for which he is hired by a company to support. This judgment guides him in identification of key areas where a company can possibly be exposed, the bandwidth of negotiations with counter contracting party, the importance of the transaction for the business, business relationship with the party, objective of the transaction and timelines. This identification of the said factors is so subtle, subjective that decisions are made by a business lawyer in real time – in drafting, negotiations and even with internal interactions and pitching of risks to the business. One of the most difficult parts of the job of an in-house counsel, especially for those who are legal decision makers in an organization, is to let go in negotiations those points/clauses of a contract which require risk mitigation as per strict legal standards, something which an external lawyer will harp heavily on. This ‘let go’ comes from the “business judgment” of such lawyer and is very hard to practice (see part 2 of this series which talks about the inherent conflict of the lawyers).

In my experience, the business judgment of a lawyer also gives him novel ideas of risk mitigation. When an in-house counsel knows the strong and weak points of the business he supports, he gets appropriately equipped to draft and negotiate contracts vociferously. He can plot mitigation measures to protect the weaknesses of the business and trade off certain mitigation measures, which otherwise could be secured for protecting strengths of the business, with something else which brings value to the business, be it legal or commercial.  A lawyer’s clinical approach to risk mitigation can overkill the commercial side of a transaction. The balance is supposed to be achieved by an in-house counsel and he can do so when he understands the business. As a matter of fact, it is the business judgment which helps him approach risk mitigation holistically to serve the interest of the business. Business understanding helps him to think out of and beyond legal fiction and hypothesis of risk and exposure of a transaction, keeps him closer to ever changing business landscape, and equips him to legally deal with business opportunities, priorities and challenges with different perspectives.

Case of legal value additions to commercials  

The other side of the business understanding, if acquired and exercised properly, should yield value additions for the business in the legal work undertaken by lawyers. Any business is applied quite differently in legal work as against the way it is understood and talked about. The gap is filled by the lawyers. And this gap creates opportunities for value additions provided the lawyer is well versed with the nuances of business of the company.

The standard operating procedure in most companies is that the business is transacted and negotiated by the business and commercial teams and the key terms are sent to legal for contracting. The lawyer populates the commercials in the draft agreement, chisels the legal terms & boiler plate and rolls out the draft. Alternatively, a lawyer receives such a draft prepared by the lawyer of the counter contracting party and he embarks upon the review after receiving the commercials from the business/commercial team. If a lawyer does not understand the business for which the transaction is undertaken, commercial terms lose relevance to him and his natural instinct will be to safeguard the company’s interests only in legal clauses thereby ignoring the ‘gap’ that I mentioned above. On the contrary, if he is well versed with business of the company, he will quickly relate to the transaction in question, review the commercials and come up with “if, how and why” questions for the business to answer. It may well be a case that these questions will be responded to with sufficient information and clarifications but this process enables a lawyer to wear a thinking hat and weave the commercials in such a manner that not only ensures placing essential safeguards in the contract but also adds tangible and intangible value to the contract and business. You will be surprised how many times the business will be forced to revisit the commercials and reopen the negotiations with contracting party after receiving “if, how and why” questions from a lawyer.

When a business lawyer uses his knowledge of the business to make the internal inquiry on the commercial terms, the business is forced to expand on the earlier commercial information given to the lawyer. Secondly, a business lawyer does not solely rely on the commercial information provided to him. This is because commercials will only be specific to the concerned transaction. How a lawyer leverages his understanding of the business to company’s advantage, be it risk mitigation or value addition, be it drafting or negotiations, is truly the hallmark of his business prowess.

This dexterity of a lawyer to handle transactions keeping the business of company as the focal point puts him in a different league.

Lawyers need encouragement to turn to business

 Legal department is an equally important stakeholder in the business of a company. If legal work is undertaken by lawyers in isolation, then it certainly cannot augur good for companies. A lot depends on the culture of a company which ascertains how a legal department functions – whether regular interactions between business/operations teams with the legal are encouraged, how do these interactions occur, access to each other, importance accorded to the views of legal team in business dealings, how legal team is positioned in a company, etc. Where the culture of a company isn’t conducive for the legal team to be seen and more importantly, treated as part of the business, it is less likely that the lawyers will turn to business and use their business judgment. It is however quite likely that in such organizations the effort of lawyers will be to simply get the work done the way it is dictated by business teams and get over with it. This practice and culture can blow up in company’s face! Lawyers need encouragement, especially those who are relatively new to corporate or have few years’ experience. This encouragement needs to come from the company and its leaders.

I am of the firm view that a lead lawyer of each transaction should be made a part of all important deal negotiations. This not only helps the business to get a legal view on the commercials instantly but the lawyers can play the devil’s advocate and often give the contrarian view to business because of their training and ability to see everything through the legal lens. Of course for this the lawyer must exuberate deep understanding of business. This is perhaps one of the reasons that we find lawyers in modern days leading business verticals, especially in sports in which it is quite common.

What it takes for lawyers to develop understanding of business

 Take initiatives and go beyond the legal mundane!

Taking initiative is the toughest. It is certainly not easy to make the extra effort in acute paucity of time in a demanding job of an in-house counsel. However, that’s how the cookie crumbles if one wants to become a business friendly lawyer.

Take active interest in how things are done in a business, its processes and even the rationale for and background to such processes. Talk to the process owners every time any such processes find a mention in legal work.  Avoid getting clarifications or information on emails.

Similarly, it is important to get involved from outside how the products and services of the company are marketed. Next time, do not just do the documentation of an important marketing campaign of the business that you support. Talk to the marketing team to understand the pitch, appeal and target audience of the campaign. Take interest in the research which might have been commissioned by the marketing team before conceptualizing the campaign.

Have a broad understanding of the financials of each and every product/service offered by your company, its pricing and market share, the KPIs, the targets of each product/service and that of the overall business. It does not stop here. It extends to company’s competitors, understanding their products/services, in what ways they compete with your company’s products/services, what measures are taken by your company to counter competition and increase market share, etc. Assimilate the innovations that are currently being worked upon to sustain the market share or increase the market share.

Understand the challenges faced by the business, how these are tackled and what are the plans to eventually overcome them, how these challenges are perceived by a company, which ones are threats and which ones’ opportunities. How threats are positioned to be mitigated and how opportunities are going to be carved out of such challenges.

Talk to people in the organization – socially, officially, formally and informally. Read up on your own – there is a plethora of material available in today’s digital age. Read what the business folks read and do not hesitate to ask for recommendations. Join business related forums (internally as well as externally). Remain inquisitive and ask right questions. When you constantly engage yourself in this way, you will find yourself gradually understanding the business. Where you don’t yet have full understanding on any aspect, you will at least know how it concerns the business – directly, indirectly, actively or passively!

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