Understand the Industry

In part 5 of this series, I talked about an important ability of a lawyer to understand the business of a company. Well that’s only a circle with a short circumference within the larger circle. This larger circle represents the “industry” at large. So it is equally important for a lawyer to understand the industry in which a company operates. Every company is impacted with the forces at play in this larger circle and these forces can directly or indirectly impact such companies. A lawyer’s view point will remain contrived until he comes to fully understand and appreciate, on a continuous basis, the nuances, challenges and issues that define (or may end up defining) the industry.

Judicial Precedents and Regulations

Many industries have set of specific and specialized laws and regulations that govern it. Laws mostly remain static until a landmark judgment is pronounced that has the effect of changing the interpretation of or providing a clarification to existing framework of laws, or settling the law on certain aspects. However, the regulations are introduced to ensure, inter alia, the markets run smoothly, consumers are protected and investment into the industry, especially the FDI, is streamlined. Regulations also address the social, political and environmental issues that a particular industry may have on a country. Regulations also have a bearing on Government’s past poll promises and future poll manifestos. Therefore, the industry regulations can rather be dynamic.

As a lawyer, one must have profound understanding of the extant regulatory landscape of the industry. Without this, a lawyer is most likely to be ineffective in handling complex contracts in which many contractual provisions emanate from the local regulations. The negotiations will certainly not give an edge to a lawyer who does not have an understanding of the local regulations and will make him look unintelligent generally. Outside the contracts and negotiations, knowledge of extant regulations helps lawyers in general advisory to the various functions of the companies and help to ensure the operations do not fall foul of these regulations in any manner. An innocuous request to opine on a routine operational matter of a company may have a bearing on some layered aspect of a regulation. So merely knowing the regulation broadly will not help. The lawyer must develop a thorough understanding of the regulations. The best way to do is to understand the genesis of the regulations. Begin with ‘why were these regulations introduced’, ‘which aspects the Government was concerned about (market, consumers, political, social, environment, etc.)’ and follow through the submissions made by the industry bodies to the Government or in response to any consultation paper which the Government might have floated. If a regulation is proposed by a Government, a lawyer must take active interest in his company’s stance on such a proposal, industry’s position in general and the submissions made to the Government in this regard.

There is a plethora of case law and the lawyers need to catch up with it continuously. It is critical to be updated with the case law pertaining to the industry and use it as much as one can. Every lawyer should know the landmark judgments in the least which have defined the laws and regulations pertaining to underlying business of the industry. Additionally, with judicial activism in India, Supreme Court and High Courts of India have been pronouncing path breaking judgments. Some of them have huge impact on industries. One such recent judgment is on Aadhar for example. If a lawyer working in telecommunications or e-commerce industry, regardless of his job profile and notwithstanding his job level, is unable to decipher how this judgment is going to impact the business he supports, what will be contractual and legal ramifications of implementing the judgment and is unable to talk about it coherently, he will soon lose relevance. There are certain judgments in which obiter dicta are equally important, especially in industry related cases. You never know your case with similar facts and circumstances may end up in front of the same Judge. Unless you have read the obiter dicta, you may not be able to advise truthfully to your company on initiating or defending a litigation.

Competing Forces

Not all of the forces impacting the market place emanate from judicial precedents and are regulatory in nature. There are certain forces which are frictional in nature and are caused by the peers and competitors. Understanding the market place of an industry is important and helps a lawyer in many ways to bring an edge to his legal advisory, transactional and litigation work. The uniqueness of product/service offered by a company and its competitors, demand-supply chain and the influence of the company and its competitors on such chain, pricing factors, profiles of target consumers, their habits, product differentiation etc. are some of the aspects which require at least an understanding if not in-depth knowledge. Since a lawyer may not necessarily be from the same industry when he joins a certain company, how quickly he gets his grasp at these things will play a tacit role in ascertaining business friendliness in his legal work.

Know Elementary Tax

Tax is one of the dominating factors in any contractual transaction, especially in mergers and acquisitions, and at times decides the fate of such transaction. For any transactional lawyer, holding elementary knowledge of tax laws, especially in the context of the laws that apply to the products and services of the business that one supports, is seen as a huge value add. Lawyers are not expected to become tax experts, since most companies have tax specialists, but knowing what taxes (direct and indirect) will be applicable on different types of transactions, possible ways of tax mitigation, tax slabs, tax compliances, etc. help a lawyer to push the bar and liaise more effectively with internal tax teams and externally with counter party lawyers. More importantly, a tax savvy lawyer can ensure that critical and high value transactions have robust tax related clauses, tax mitigation measures and of course the tax indemnities (which work differently from general contractual indemnities).

The reason for me to add this section is that many lawyers that I come across often struggle to understand even the difference between “net” and “grossing up” of taxes. So it pays for a lawyer to hold elementary knowledge about tax and tax laws.

Extended Industry Circles 

The remit of the larger circle that I talked about above (that is, “industry”) depends upon how a company perceives its business. By way of an example, broadcasting is an industry in itself. Related to broadcasting is distribution of content via multiple media platforms including OTT. So distribution can possibly be viewed as a separate industry. With the proliferation of OTT play, one can view OTT as a distinct industry too. Broadcasters like Sony and Star have their proprietary OTT platforms in addition to their respective broadcasting and distribution businesses. A lawyer may not be supporting all businesses of a company. Does that mean he should focus on fathoming the industry issues and challenges limited to the specific/limited industry supported by him? In my view it is undoubtedly indispensable to understand the specific industry in which the business is conducted. As for the extended overlapping circles of industries, a lawyer ought to know the dynamics of such extended circles and how these interact and impact the smaller circle legally supported by him. Since the extensions are related, without knowing them, a lawyer may struggle in contract negotiations and is not likely to see the big picture. And until a lawyer cannot see the big picture, he is going to lack that edge which is required to make him a business friendly lawyer.

Conclusion

In today’s age, an in-house lawyer can’t only confine himself to the legal and contractual side of the company’s affairs. Most of the job descriptions for legal positions are written around the need to ‘legally support the businesses’ of companies. Many (including head hunters and the HR) would interpret it to mean only the legal work. Well, that’s only the primary thing. In order to ably support the business with agility which a lawyer must demonstrate in a fast paced corporate environment striving to stay ahead of its competitors, it is important for a lawyer to understand the business of a company, the industry in which the business is done and the market place of such industry. I witness many business executives taking active interest in the regulations governing the business they manage. They even make an attempt to broadly know the laws which they need to comply with or be wary about. Commercial people are doing crash legal courses to better understand the full picture they are a part of. Corporate lawyers are therefore expected to do their bit.