Business lawyers as enterprise architects

Business Lawyer

Volumn 64, Issue 2, 2009, Pages 279-328

  Dent Jr , George W ^a  

^a CASE WESTERN RESERVE UNIVERSITY   (United States)

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EID: 64949166857     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (362)

1. Ronald J. Gilson, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 YALE LJ. 239, 241 (1984) (emphasis in original) (footnote omitted).
2. Id. at 242.
3. Id.
4. Id. at 243.
5. Id. (emphasis omitted).
6. Id. at 245 n.9 (emphasis added).
7. Id. at 243. Elaborating, Gilson adds that the question is not whether each party separately is better off with a lawyer. Rather, the transaction should be "viewed from the perspective of both clients.... [T]he appropriate perspective is not that of the client with the more talented lawyer, but the joint perspective of both clients." Id. at 245.
8. Id. at 245.
9. Id. at 256.
10. Id. at 255.
11. See id. at 262-93.
12. Id. at 305.
13. Economists posit a continuum of exchanges ranging from the discrete transaction to relational contracts. See E Robert Dwyer, Paul H. Schurr & Sejo Oh, Developing Buyer-Seller Relationships, J. MARKETING, Apr. 1987, at 11, 12; Gregory T. Gundlach & Patrick E. Murphy, Ethical and Legal Foundations of Relational Marketing Exchanges, J. MARKETING, Oct. 1993, at 35, 36-37.
14. In the Buddhist fable each of several blind men touched a different part of the elephant and reached a different conclusion about what it was. See JOHN GODFREY SAXE, The Blind Men and the Elephant, in THE POETICAL WORKS OF JOHN GODFREY SAXE 111, 111-12 (Houghton Mifflin 1882).
15. Gilson, supra note 1, at 247.
16. See id. at 257.
17. See id. at 262-67.
18. Id. at 266.
19. See id. at 267-93.
20. Id. at 272 (footnotes omitted).
21. Id. at 294-95.
22. See id. at 302.
23. Id. at 303.
24. Id. at 304.
25. Id. at 305.
26. Robert W. Gordon, Lawyers, Scholars, and the "Middle Ground," 91 MICH. L. REV. 2075, 2088 (1993).
27. See Ronald J. Gilson & Robert H. Mnookin, Foreword: Business Lawyers and Value Creation for Clients, 74 OR. L. REV. 1, 7-9 (1995).
28. See Lisa Bernstein, The Silicon Valley Lawyer as Transaction Cost Engineer?, 74 OR. L. REV. 239, 245-51 (1995) [hereinafter "Bernstein, Silicon Valley Lawyer"]; Lawrence M. Friedman, Robert W. Gordon, Sophie Pirie & Edwin Whatley, Laws, Lawyers, and Legal Practice in Silicon Valley: A Preliminary Report, 64 IND. LJ. 555, 557-66 (1989).
29. Steven L. Schwarcz, Explaining the Value of Transactional Lawyering, 12 STAN. J.L. BUS. & FIN. 486, 506-07 (2007) [hereinafter "Schwarcz, Transactional Lawyering"].
30. Gilson, supra note 1, at 295.
31. Id. at 301.
32. Id. at 296.
33. Id. at 298 (footnote omitted).
34. Id. at 301.
35. Id. (footnote omitted).
36. Id. at 304.
37. Id. at 305.
38. Anthony j. Luppino, Minding More than Our Own Business: Educating Entrepreneurial Lawyers Through Law School-Business School Collaborations, 30 W. NEW ENG. L. REV. 151, 177 & n.91 (2007) (listing reports of proliferation of JD-MBA programs, reaching 82 percent of ABA-approved law schools in 2002).
39. See, e.g., Joshua D. Rosenberg, Interpersonal Dynamics: Helping Lawyers Learn the Skills, and the Importance, of Human Relationships in the Practice of Law, 58 U. MIAMI L. REV. 1225, 1258-69 (2004).
40. See, e.g., Jonathan C. Lipson, Doing Deals in School, BUS. L. TODAY, Sept./Oct. 2005, at 51, 55 (describing a course offered by the author).
41. See, e.g., id. at 55.
42. See Rosenberg, supra note 39, at 1231 & n.21.
43. See id.
44. See, e.g., Tina Stark, Thinking Like a Deal Lawyer, 54 j. LEGAL EDUC. 223, 232 (2004) (describing a course called Business Essentials) [hereinafter "Stark, Deal Lawyer"].
45. See, e.g., Lipson, supra note 40, at 51.
46. See, e.g., Bridget McCormack, Teaching Professionalism, 75 TENN. L. REV. 251, 262-63 (2008).
47. See Gilson & Mnookin, supra note 27, at 7 n.21. The two courses-a "Deals" class and "Deals Workshop"-are described in Victor Fleischer, Deals: Bringing Corporate Transactions into the Law School Classroom, 2002 COLUM. BUS. L. REV. 475, 490-92.
48. Id", at 6-7.
49. Lipson, supra note 40, at 53.
50. Id. at 54-55.
51. See id. at 55.
52. Roberta Romano, After the Revolution in Corporate Law, 55 J. LEGAL EDUC. 342, 352 (2005).
53. Id. at 352.
54. Id. at 353.
55. Id.
56. Schwarcz, Transactional Lawyering, supra note 29, at 507-08 (footnotes omitted).
57. Gilson, supra note 1, at 245.
58. Id. n.9 (emphasis added).
59. See David M. Driesen & Shubha Ghosh, The Functions of Transaction Costs: Rethinking Transaction Cost Minimization in a World of Friction, 47 ARIZ. L. REV. 61, 64 (2005) (noting "people and institutions paying lawyers' fees or other transaction costs obtain something of value").
60. See Gilson, supra note 1, at 267-93.
61. See George Dent, Lawyers and Trust in Business Alliances, 58 BUS. LAW. 45, 62-66 (2002) (discussing factors that enhance or erode trust) [hereinafter "Dent, Lawyers and Trust"].
62. Oliver Williamson defines opportunism as "self-interest seeking with guile. This includes⋯ lying, stealing, and cheating." OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS of CAPITALISM: FIRMS, MARKETS, RELATIONAL CONTRACTING 47 (1985). This definition seems to exclude the self-serving behavior that Gilson discusses, which involves no guile. This Article will understand "opportunism" to include all self-interested conduct.
63. See Gilson, supra note 1, at 266.
64. See Geoffrey Miller, From Club to Market: The Evolving Role of Business Lawyers, 74 FORDHAM L. REV. 1105, 1109 (2005) ("The simple version of Gilson's model of attorneys as transaction cost engineers also does not take account of the agency cost problem within firms.").
65. Paul Milgrom &John Roberts, Bargaining Costs, Influence Costs, and the Organization of Economic Activity, in PERSPECTIVES ON POSITIVE POLITICAL ECONOMY 57, 60 (James E. Alt & Kenneth A. Shepsle eds., 1990) (emphasis omitted).
66. See Stephen M. Bainbridge, Corporation Law and Economics 27 (2002) (stating that in corporate law the largest transaction costs are "uncertainty, complexity, and opportunism").
67. See Driesen & Ghosh, supra note 59, at 64 (noting "transaction costs ⋯ often aid the realization of efficient transactions that would never occur without them").
68. Ranjay Gulati, Does Familiarity Breed Trust? The Implication of Repeated Ties for Contractual Choices in Alliances, 38 ACAD. MGMT. j. 85, 87 (1995) (citation omitted) [hereinafter "Gulati, Familiarity"].
69. See infra notes 173-77 and accompanying text for a discussion of these contracts.
70. Gilson, supra note 1, at 257.
71. Edward Bernstein, Law & Economics and the Structure of Value Adding Contracts: A Contract Lawyer's View of the Law & Economics Literature, 74 OR. L. REV. 189, 195 (1995).
72. JAMES C. FREUND, SMART NEGOTIATING: HOW TO MAKE GOOD DEALS IN THE REAL WORLD 186 (1992). Proposing new terms may erode trust. "[B]y accepting the standard forms and not negotiating for unusual terms, parties signal that they will be cooperative after the closing." Robert B. Thompson, Value Creation by Lawyers Within Relational Contracts and in Noisy Environments, 74 OR. L. REV. 315, 317 (1995).
73. See, e.g., Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761, 769-73 (2008) (rejecting secondary liability under Rule 10b-5); In re DVI Inc. Sec. Litig., 249 FR.D. 196, 216-18 (E.D. Pa. 2008) (rejecting liability under Rule 10b-5 of a law firm that helped to draft, but whose name did not appear on, a materially false corporate document).
74. See Dent, Lawyers and Trust, supra note 61, at 49-52 (discussing the importance of trust in strategic alliances).
75. See supra notes 71-72 and accompanying text.
76. See DALE A. OESTERLE, MERGERS AND ACQUISITIONS IN A NUTSHELL 233-34 (2d ed. 2006) (describing these "deal protection" devices).
77. See WILLIAM A. GREGORY, THE LAW OF AGENCY AND PARTNERSHIP 57-58 (3d ed. 2001) (stating that "[t]he law of Agency ⋯ pretty generally governs the relationship between the lawyer and his client. This means that, for the most part, the same rules which apply to other agencies govern." (footnotes omitted)).
78. To some extent he recognizes this. He acknowledges that an acquisition differs from "a complex real estate transaction or joint venture," Gilson, supra note 1, at 257, though he does not explain how.
79. See Srikant Datar, Richard Frankel & Mark Wolfson, Earnouts: The Effects of Adverse Selection and Agency Costs on Acquisition Techniques, 17 J.L. ECON. & ORG. 201, 216 (2001) ("The overall percentage of transactions involving reported earnouts is 4.1%."); ROBERT E BRUNER, APPLIED MERGERS AND ACQUISITIONS 611 (2004) (reporting that from 1992 to 2000 only 1.2 percent of deals had earnouts).
80. See generally Charles J. Goetz & Robert E. Scott, Principles of Relational Contracts, 67 VA. L. REV. 1089 (1991).
81. See Coalition of Service Industries, http://www.uscsi.org/Statistics/ (last visited Jan. 16, 2008) ("Services represent nearly 78% of US economic output and a similar proportion of employment.").
82. See Roland Kirstein & Dieter Schmidtchen, Judicial Detection Skill and Contractual Compliance, 17 INT'L REV. L. & ECON. 509, 512-14 (1997) (discussing the difficulties of contracting in situations where it may not be possible to prove breach to a court).
83. See infra notes 153-69 and accompanying text.
84. See Clifford Smith & Jerold Warner, On Financial Contracting: An Analysis of Bond Covenants, 7 J. FIN. ECON. 117, 125-46 (1979).
85. "Strategic alliance" is a business term; it has no legal definition. It has been described as an arrangement "whereby two or more firms agree to pool their resources to pursue specific market opportunities." Gulati, Familiarity, supra note 68, at 85. Although there is no clear, precise line between relational contracts and strategic alliances, in the former each party typically performs a distinct, well-defined function in a chain of production (as in a long-term sales contract); in alliances, the parties' duties are generally vaguer and their relationship is more symbiotic, requiring closer cooperation.
86. See Josh Lemer & Robert P Merges, The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry, 46 J. INDUS. ECON. 125, 132 (1998) (asserting the impossibility of specifying exactly a requisite "level of effort" or "delivery of a specific innovation").
87. See Joanne E. Oxley, Appropriability Hazards and Governance in Strategic Alliances: A Transaction Cost Approach, 13 J.L. ECON. & 387, 392 (1997). The problem often begins during negotiations before a final agreement is reached: "If the seller were to provide..., information in order to educate the buyer on the value of know-how for sale, he, would, by revealing the information, be transferring the know-how free of charge." Jean-Francois Hennart, A Transaction Cost Theory of Equity Joint Ventures, 9 STRATEGIC MGMT. J. 361, 365 (1988). "Hence, information is shared alongside sheaves of nondisclosure agreements, and, even then, there is selective hiding of critical components." Richard J. Zeckhauser, The Challenge of Contracting for Technological Information, 93 PROC NAT'L ACAD. SCI. USA, NOV. 1996, at 12743, 12744.
88. See Lerner & Merges, supra note 86, at 131-32 (stating that it often takes biotechnology joint ventures a decade or more to obtain FDA approval for their products).
89. See Friedman, Gordon, Pirie & Whatley, supra note 28, at 563 (stating that a venture financing often "does not try to spell out contingency plans for every conceivable event that could go wrong, but assumes that the parties will be able to cooperate sufficiently to work out flexible adjustments to changing circumstances"); Ranjay Gulati & Harbir Singh, The Architecture of Cooperation: Managing Coordination Costs and Appropriation Concerns in Strategic Alliances, 43 ADMIN. SCI. Q. 781, 782 (1998) (referring to "an ongoing need for mutual adaptation and adjustment" in many alliances).
90. See Steven I. Glover, Negotiating and Structuring Joint Ventures; Lessons from Management Consultants, M&rA Law., Mar. 1998, at 1, 7 (noting "most high profile joint venture litigation turns on issues of scope").
91. See also David Ernst &r Stephen I. Glover, Strategic Alliances: Combining Legal and Business Practices to Create Successful Strategic Alliances, INSIGHTS, Oct. 1997, at 6, 10-11 (discussing dangers of defining venture scope either too broadly or too narrowly).
92. See Rachel E. Kranton, The Formation of Cooperative Relationships, 12 J.L. ECON. & ORG. 214, 227 (1996) ("[I]ndividuals begin cooperative exchange relationships at low levels of exchange. As partners fulfill their exchange obligations, cooperation rises to higher levels."); Ranjay Gulati, Alliances and Networks, 19 STRATEGIC MGMT. J. 293, 299 (1998) (noting "many joint ventures occur as options to expand in the future and are interim mechanisms") [hereinafter "Gulati, Alliances and Networks"]. Some business analysts posit five phases in the evolution of an alliance: awareness, exploration, expansion, commitment, and dissolution. See Dwyer, Schurr & Oh, supra note 13, at 15-20.
93. A true joint venture is generally considered a general partnership. Every general partner of a partnership is an agent with authority to conduct the partnerships ordinary business. UNIF. P'SHIP ACT § 9(1) (1914), 6 U.L.A. 553 (2001); UNIF. P'SHIP ACT § 301(1) (1997), 6 U.L.A. 101 (2001);
94. see 1 RICHARD D. HARROCH, PARTNERSHIP & JOINT VENTURE AGREEMENTS § 2.09(2), at 2-74 (1992) ("[E]ach joint venturer has the power and ability to bind the other joint venturer and to subject it to liability to third persons in matters which are within the scope of the enterprise."). Joint ventures are often incorporated, but the parties typically share control and thus are again mutual fiduciaries.
95. See 1 Harroch, supra, § 2.09(2), at 2-75.
96. See MODEL RULES OF PROF'L CONDUCT R. 1.13(a) (2003) ("A lawyer employed or retained by an organization represents the organization acting though its duly authorized constituents.").
97. See Miller, supra note 64, at 1109 ("Because the basic executive decisions-including the decisions to hire and fire counsel-are usually made by corporate managers, the attorney will not necessarily abide by the admonition that his or her duties run to the organization rather than its officers."). The Model Rules seem to condone this by instructing attorneys to accept the decisions of the corporation's authorized officers even if "their utility or prudence is doubtful." MODEL RULES OF PROF'L CONDUCT R. 1.13(a) cmt. 3(2003).
98. "Notwithstanding the existence of a concurrent conflict of interest ⋯, a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;... and (4) each affected client gives informed consent, confirmed in writing." MODEL RULES OF Prof'l CONDUCT R. 1.7(b) (2003).
99. See Thomas Hellmann, A Theory of Strategic Investing, 64 J. Fin. Econ. 285, 287 (2002). For a general discussion of strategic investments, see ALAN S. GUTTERMAN, CORPORATE COUNSELS GUIDE TO STRATEGIC ALLIANCES § § 1:1-1:25 (2006 & Supp. 2008).
100. See generally Ronald W. Masulis & Rajarishi Nahata, Strategic Investing and Financial Contracting in Start-ups: Evidence from Corporate Venture Capital (European Corporate Governance Inst., Working Paper No. 189/2007), available at http7/ssm.com/abstract=891605 (describing special arrangements that are made to limit the influence of strategic investors in start-up firms).
101. See generally Robert P Bartlett, III, Venture Capital, Agency Costs, and the False Dichotomy of the Corporation, 54 UCLA L. Rev. 37 (2006). Part of the problem is that "[a]lmost all venture and buyout funds are designed to be 'self-liquidating,' that is, to dissolve after ten or twelve years." PAUL A. GOMPERS & JOSH LERNER, THE VENTURE CAPITAL CYCLE 19 (2000). A fund nearing dissolution will have a different time frame than other investors.
102. Inside counsel "are not lawyers in the pure sense anymore. They are a unique hybrid that is part lawyer, part business leader and, in some cases, part entrepreneur." Irene E. Taylor, The Top 40 Corporate Counsel: 40 and Under 40, LEXPERT, NOV/DEC 2005, at 60, 61 (quoting Jim Riley, senior corporate partner at Ogilvy Renault).
103. See generally Deborah DeMott, The Discrete Roles of General Counsel, 74 Fordham L. Rev. 955 (2005); Robert L. Nelson & Laura Beth Nielsen, Cops, Counsel, and Entrepreneurs: Constructing the Role of Inside Counsel in Large Corporations, 34 LAW & SOC'Y REV. 457 (2000); Carl D. Liggio, The Changing Role of Corporate Counsel, 46 Emory L.J. 1201 (1997).
104. See, e.g., Miller, supra note 64, at 1121-26. Professor Miller concludes that "changing economic conditions.... significantly altered the cost-benefit calculation facing attorneys confronted with the question of whether to exercise independence." Id. at 1121.
105. See also PAUL D. PATON, Corporate Counsel as Corporate Conscience: Ethics and Integrity in the Post-Enron Era, 84 Canadian Bus. Rev. 533, 538 (2005) (stating that an in-house lawyer is particularly "vulnerable" in confronting ethical challenges).
106. See infra notes 125-28 and accompanying text.
107. Schwarcz, Transactional Lawyering, supra note 29, at 486, 500.
108. Id. at 512.
109. Id. at 513 (emphasis added).
110. Id. at 535.
111. See Matthew Schifrin, Partner or Perish, FORBES, May 21, 2001, at 26 (reporting rapid growth of corporate partnerships and alliances); Blair H. Sheppard & Marla Tuchinsky, Micro-OB and the Network Organization, in TRUST IN ORGANIZATIONS: FRONTIERS OF THEORY AND RESEARCH 140, 140 (Roderick M. Kramer & Tom R. Tyler eds., 1996) ("Hierarchy and market are moving aside for the boundaryless firm, the virtual organization, and the network organization." (internal citations omitted));
112. id. at 141 (noting "hierarchy and market are being replaced with more connected, lateral forms of organization").
113. See Glover, supra note 90, at 4 (estimating that in 2000 alliances "account[ed] for more than 20% of the average large firm's revenues" and noting a 20 percent annual increase in the value of strategic alliances involving Fortune 1000 companies in preceding years).
114. See David T. Robinson, Strategic Alliances and the Boundaries of the Firm i (June 14, 2006), available at http://ssm.com/abstract= 293721 (finding that "alliances cluster in risky, high-growth, high-tech industries").
115. Donald C. Langevoort & Robert K. Rasmussen, Skewing the Results. The Role of Lawyers in Transmitting Legal Rules, 5 S. CAL. INTERDISC. L.J. 375, 377 (1997).
116. See supra note 86 and accompanying text.
117. See supra note 92 and accompanying text. In alliances with foreign companies, however, American lawyers must be aware that foreign law often imposes fiduciary duties different from ours. See Susan Perkins, Randall Morck & Bernard Yin Yeung, Innocents Abroad: The Hazards oj International Joint Ventures with Pyramidal Group Firms 18 & n.14 (Feb. 2008), available at http://ssrn.com/ abstract=1097265 (stating that for firms that are part of a business group, foreign law often imposes on the directors and officers fiduciary duties to the group, not to the individual unit).
118. Steven M. Davidoff, The Failure of Private Equity, 82 S. Cal. L. Rev. (forthcoming 2008) (manuscript at 6, on file with The Business Lawyer).
119. Id. at 56.
120. See Sandra M. Huszagh & Frederick W. Huszagh, Lawyers as Exchange Engineers in Commerce: An Empirical Overview, 74 Or. L. Rev. 147, 174 (1995).
121. "[R]unning a triparty joint venture was extremely difficult, especially with respect to ⋯ direction and control." KATHRYN RUDIE HARRIGAN, STRATEGIES FOR JOINT VENTURES 368 (1985);
122. see also Gulati, Familiarity, supra note 68, at 96 ("[M]ultilateral alliances pose larger organizational problems.").
123. See Hans B. Thorelli, Networks: Between Markets and Hierarchies, 7 Strategic Mgmt. J. 37, 38 (1986); Sheppard & Tuchinsky, supra note 106, at 140.
124. See Bainbridge, supra note 66, at 27.
125. See John A. Byrne, Richard Brandt & Otis Port, The Virtual Corporation, Bus. Wk., Feb. 8, 1993, at 98;
126. Ann E. Conaway Stilson, The Agile Virtual Corporation, 22 DEL. J. CORP. L. 497, 499-502 (1997).
127. Sheppard & Tuchinsky, supra note 106, at 141.
128. See also Bengt Holmstrom & John Roberts, The Boundaries of the Firm Revisited, 12 J. ECON. PERSP. 73, 85 (1998) (discussing some examples of virtual corporations). Gilson himself has discussed some parallel trends in creating new devices to divide risk.
129. See Ronald J. Gilson & Charles K. Whitehead, Deconstructing Equity: Public Ownership, Agency Costs, and Complete Capital Markets, 108 COLUM. L. REV. 231, 245-47 (2008).
130. See, e.g., In re Caremark lnt'1 Inc. Derivative Litig., 698 A.2d 959, 968-70 (Del. Ch. 1996) (suggesting in dicta that directors' duty of care may require creation of program to monitor company's compliance with law); MODEL BUS. CORP. ACT § 8.31(a)(2)(iv) (2005) (imposing liability on directors for a "sustained failure" to act in the face of a clear warning).
131. See DEL. GEN. ANN. tit. 8, § 144 (2001) (governing interested transactions).
132. See id. § 142(b) ("Officers shall be chosen in such manner..., as [is] prescribed by the bylaws or determined by the board of directors or other governing body.");
133. id. § 170(a) (governing declaration and payment of dividends); id. § 211(b) (requiring an annual shareholders' meeting).
134. See Securities Exchange Act of 1934 §§ 14, 15, 15 U.S.C. §§ 78n, 78o (2006), and the rules thereunder.
135. Peter J. Gardner, A Role for the Business Attorney in the Twenty-First Century: Adding Value to the Client's Enterprise in the Knowledge Economy, 7 MARQ. INTELL. PROP. L. REV. 17, 50 (2003).
136. See supra notes 96-97 and accompanying text.
137. See supra note 95 and accompanying text.
138. Model Rules of Prof'l Conduct R. 2.4(a) (2003) (permitting a lawyer to serve as "a mediator or in such other capacity as will enable the lawyer to assist the parties to resolve" a dispute if certain conditions are met).
139. See Bernstein, Silicon Valley Lawyer, supra note 28, at 245-46;
140. Friedman, Gordon, Pirie & Whatley, supra note 28, at 562. Some firms hire non-lawyers to provide these services, but other Silicon Valley lawyers prefer to perform this task themselves.
141. See Zusha Elinson, Fenwicfe Hires Non- Lawyer to Introduce Clients to Venture Capital Funds, The Recorder, Nov. 12, 2007, http://www.law.com/jsp/ article.jsp?id=1194602647347.
142. Gilson, supra note 1, at 312. He said: [T]he manner in which the pie is carved can have enormous impact on the number of pies that are baked in the future. The decision to invest in the next pies creation depends not just on the size of the pie in the abstract, but on the piece that the investor actually receives. Id.
143. Id. at 245.
144. "The lawyers don't just solve problems facing a business venture. The lawyers help conceive the venture in the first place or, at an early stage, they're instrumental in funding and implementing the project." LARRY SMITH, INSIDE/OUTSIDE: HOW BUSINESSES BUY LEGAL SERVICES 137 (2001).
145. See generally Oxley, supra note 87.
146. See also WILLIAMSON, supra note 62, at 18 ("Transaction costs are economized by assigning transactions (which differ in their attributes) to governance structures (the adaptive capacities and associated costs of which differ) in a discriminating way.");
147. Charles R.T. O'Kelley Delaware Corporation Law and Transaction Cost Engineering, 34 GA. L. REV. 929, 941 (2000) (stating "[t]he corporate lawyer..., can increase the value of a prospective business association by selecting for it the optimal type of business organization").
148. See George S. Geis, The Space Between Markets and Hierarchies, 95 VA. L. REV. (forthcoming 2009) (stating "the possibility that we are moving toward an increasingly complete array of operational alternatives") (manuscript at 5, on file with The Business Lawyer).
149. For example, an S corporation cannot be used for an entity with a corporate shareholder. I.R.C. § 1361(b) (2006).
150. See, e.g., FRANKLIN A. GEVURTZ, BUSINESS PLANNING 58-112 (4th ed. 2008) (discussing choice of entity) [hereinafter "Gevurtz, Business Planning"].
151. See FRANKLIN A. GEVURTZ, CORPORATION LAW § 4.2.7, at 362 (2000) (noting that "[u]nfortunately, courts have been unable to come up with any clear tests for resolving this issue" of what constitutes a business opportunity).
152. In research and development ventures, for example, "adequate specification of property rights will inevitably be problematic, since the contracted assets do not exist at the time the contract is written, and technological innovation is a highly uncertain process." Oxley, supra note 87, at 394. See also Hennart, supra note 87, at 366 (noting that, when knowledge is "embedded in the individual possessing it[,] § its exchange must rely on intimate human contact"). If the individual is made an employee, though, the individual is vulnerable to breach of implicit contracts.
153. See Andrei Shleifer & Lawrence Summers, Breach of Trust in Hostile Takeovers, in CORPORATE TAKEOVERS: CAUSES AND CONSEQUENCES 33, 37-41 (Alan Auerbach ed., 1988).
154. See GEVURTZ, BUSINESS PLANNING, supra note 135, at 168 ("A well drafted provision expressing the parties' intent as to the extent of each owner's obligation to present to the firm any opportunities, inventions and the like, might avoid litigation if such events occur.").
155. "The opportunity set of each firm outside the particular alliance crucially affects its behavior within the alliance." Tarun Khanna, Ranjay Gulati & Nitin Nohria, The Dynamics of Learning Alliances: Competition, Cooperation, and Relative Scope, 19 STRATEGIC MGMT. J. 193, 205 (1998) (emphasis omitted).
156. See supra note 19 and accompanying text.
157. See generally infra Part III.B.3.
158. See Jesse M. Fried & Mira Ganor, Agency Costs of Venture Capitalist Control in Startups, 81 N.Y.U.L. REV. 967, 988-89 (2006) (discussing use of neutral directors);
159. Steven N. Kaplan & Per Stromberg, Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts, 70 REV. ECON. STUD. 281, 289-90 (2003) (reporting frequent use of neutral directors).
160. See Eric Rasnrusen, A Model of Negotiation, Not Bargaining: Explaining Incomplete Contracts 45 (Apr. 27, 2001) (unpublished manuscript, on file with The Business Lawyer) (stating that mandatory bargaining "can raise welfare by overcoming pessimistic out-of-equilibrium beliefs");
161. Bernstein, Silicon Valley Lawyer, supra note 28, at 241 (stating that alternative dispute resolution is preferred by many firms);
162. Thomas J. Stipanowich, Contract and Conflict Management, 2001 Wis. L. REV. 831, 847-51 (claiming benefits from terms requiring parties to negotiate requests for contract revisions).
163. See D. Gordon Smith, The Exit Structure of Venture Capital, 53 UCLA L. REV. 315, 346 (2005) (reporting high incidence of veto rights of venture capitalists over various actions) [hereinafter "Smith, Venture Capital"].
164. See DWIGHT DRAKE, BUSINESS PLANNING: CLOSELY HELD ENTERPRISES 589, 595-97 (2006) (discussing situation in which those managing a close corporation get employment contracts and common stock and participants not involved in management get preferred stock with features that encourage payment of dividends).
165. Separation of ownership and control was first brought to light by Berle and Means. See ADOLF A. BERLE, Jr. & GARDINER C MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 119-21 (1932). The problem persists.
166. See, e.g., Lucian Bebchuk & Jesse Fried, Pay Without Performance: The Unfulfilled Promise of Executive Compensation 2 (2004).
167. See Bartlett, supra note 98, at 59-60, 76-77 (explaining reasons for, and illustrating use of, liquidation preferences); Kaplan & Stromberg, supra note 142, at 284 (reporting high frequency of use of convertible preferred stock in venture capital financings).
168. See Robert A.G. Monks & Nell Minow, Corporate Governance 55 (1995) (stating that market share price has "unique value" and that other measures of value "are so highly flexible that they have limited significance").
169. See Drake, supra note 145, at 262-64, 267-68 (discussing elements of an effective incentive compensation plan and dangers of specifying compensation)
170. See supra note 82 and accompanying text.
171. See Royce de R. Barondes, The Business Lawyer as Terrorist Transaction Cost Engineer, 69 FORDHAM L. REV. 31, 40-44 (2000) (discussing hostages in business transactions).
172. See Khanna, Gulati & Nohria, supra note 139, at 198.
173. See, e.g., infra note 154 and accompanying text.
174. UNIF. P'SHIP ACT § 38(1) (1914), 6 U.L.A. 487 (2001) (providing that on dissolution, unless otherwise agreed, any partner who has not wrongfully dissolved may demand that the surplus (if any) be distributed "in cash."). "In effect, this gives each partner the right to force a sale of the partnership assets ⋯" j. DENNIS HYNES, AGENCY, PARTNERSHIP, AND THE LLC IN A NUTSHELL § 94, at 188 (1997)).
175. See, e.g., Page v. Page, 359 E2d 41, 44 (Cal. 1961) (holding that partner's proposed dissolution would be wrongful if he were "attempting to appropriate to his own use the new prosperity of the partnership without adequate compensation to his co-partner").
176. See DRAKE, supra note 145, at 180 (suggesting that a buy-sell agreement set a discount from the regular price for certain situations).
177. See Mark A. Medearis & Michael W Hall, Minority Equity Investments in Connection with Strategic Alliances, in STRUCTURING, NEGOTIATING & IMPLEMENTING STRATEGIC ALLIANCES: 2001, at 93, 106 (PLI Corp. L. Practice Course, Handbook Series No. B-1260, 2001) (describing a "rubber band" clause providing for return to a party upon dissolution of property that it had contributed to the alliance).
178. See HARRIGAN, supra note 115, at 98-99 (describing this device).
179. See l.R.C. § 165(a) (2006) (permitting deduction for "any loss sustained").
180. See Michael Klausner & Kate Litvak, What Economists Have Taught Us About Venture Capital Contracting, in BRIDGING THE ENTREPRENEURIAL FINANCING GAP 54, 57 (Michael J. Whincop ed., 2001) (stating that managers may wish to delay termination in order to maintain "salary and other compensation, social status, and psychic benefits of managing a business").
181. See Kaplan & Strdmberg, supra note 142, at 298, 305, 309 (reporting on frequent provision for increase in venture capitalists' board representation if company fails to meet stated goals);
182. id. at 291 ("Optional redemption and put provisions also are commonly used to strengthen the liquidation rights of the [venture capitalist]'s investment.").
183. See ROBERT J. HAFT, 2 VENTURE CAPITAL AND SMALL BUSINESS FINANCINGS § 1:14, at 1-12 (1994) (describing such provisions).
184. See Kaplan & Strömberg, supra note 142, at 291.
185. See 2B HAFT, supra note 162, at F8-1 (describing "demand" registration rights).
186. See DAVID J. GLADSTONE, VENTURE CAPITAL HANDBOOK 148-49 (1988) (describing such a clause).
187. See J. Howard Clowes, Equity Structures for Strategic Alliances, in STRUCTURING, NEGOTIATING, AND IMPLEMENTING STRATEGIC ALLIANCES: 2001, at 69, 142-43 (PLI Corp. L. Practice Course, Handbook Series No. B4-7156, 1996) (sample clause, here called "right of co-sale").
188. See 2B HAFT, supra note 162, at F8-1 (describing "piggyback" registration rights).
189. See ROBERT CHARLES CLARK, CORPORATE LAW 763 (1986) ("As time passes, the personal relationships among the major participants in a close corporation always change in important ways. ⋯ Shareholders who look ahead to these possibilities will usually want to restrict the transferability of their shares.").
190. See JEFFREY J. HAAS, CORPORATE FINANCE IN A NUTSHELL 332 (2004) ("Most corporations typically have only one class of common stock outstanding.").
191. See Gilson, supra note 1, at 296-98.
192. Id. at 247.
193. Ralph Lindeman, Small Businesses Face Highest Burden of Regulatory Costs, New Study Says, DAILY REP. FOR EXECUTIVES (BNA), No. 181, at DER-A26 (Sept. 20, 2005).
194. BAINBRIDGE, supra note 66, at 35-36.
195. See generally id. at 35-38. All relational contracts and alliances entail agency in the economic sense that one party relies on the exercise of discretion by another, although they do not always entail agency in the legal sense of one party (the agent) having authority to act on behalf of another.
196. Id. at 36.
197. Robert W. Gordon, Why Lawyers Can't Just Be Hired Guns, in ETHICS IN PRACTICE: LAWYERS' ROLES, RESPONSIBILITIES, AND REGULATION 42, 44 (Deborah L. Rhode ed., 2000).
198. See BAINBRIDGE, supra note 66, at 27.
199. See Rasmusen, supra note 143, at 44 ("The purpose of the legal staff is to deter the other side from trying to be sly or dishonest ⋯.").
200. JORDAN D. LEWIS, TRUSTED PARTNERS: How COMPANIES BUILD MUTUAL TRUST AND WIN TOGETHER 265 (1999) (recommending such provisions).
201. See George G. Triantis, The Efficiency of Vague Contract Terms: A Response to the Schwartz-Scott Theory of U.C.C. Article 2, 62 LA. L. REV. 1065, 1072-73 (2002) (stating that "[t]he parties may use a vague term to communicate intentions and expectations to each other or even to their own co-workers or agents").
202. See Jörg Sydow, Understanding the Constitution of Interorganizational Trust, in TRUST WITHIN AND BETWEEN ORGANIZATIONS: CONCEPTUAL ISSUES AND EMPIRICAL APPLICATIONS 38, 48 (Christel Lane & Reinhard Bachmann eds., 1998) (noting that "frequent, repeated and multifaceted contacts among organizations and an open exchange of information increase the possibility of trust building");
203. Gulati, Alliances and Networks, supra note 91, at 306 (stating that "regular information exchange with the partners" is associated with success in alliances);
204. Edward H. Lorenz, Neither Friends nor Strangers: Informal Networks of Subcontracting in French Industry, in TRUST: MAKING AND BREAKING COOPERATIVE RELATIONS 194, 207 (Diego Gambetta ed., 1988) (stating that members of business networks invariably "stressed the need for personal contact").
205. See Bernstein, Silicon Valley Lawyer, supra note 28, at 245 ("The lawyer ⋯ assists the entrepreneur in developing a business plan ⋯.").
206. See supra note 162.
207. See Bartlett, supra note 98, at 52 (stating that "a venture capitalist will typically stage its investment in a start-up company by incrementally investing capital over time"). Joint ventures and other alliances also frequently need additional capital after a time, and this need can cause friction between the parties.
208. See George W Dent, Jr., Gap Fillers and Fiduciary Duties in Strategic Alliances, 57 BUS. LAW. 55, 93 (2001) [hereinafter "Dent, Gap Fillers"].
209. See Bartlett, supra note 98, at 53-54 (stating that a venture capital investor "typically obtains special stockholder voting rights (or 'protective provisions') allowing the investor to veto important corporate actions").
210. See Bartlett, supra note 98, at 79-80 (describing anti-dilution clauses).
211. A less sanguine view is offered by Robert Bartlett: "[T]he very attempt to manage one form of agency problems may itself result in a second, equally troublesome dimension of agency problem among other corporate constituents.' Bartlett, supra note 98, at 47.
212. See David Chamy, Nonlegal Sanctions in Commercial Relationships, 104 HARV. L. REV. 373, 405 (1990) ("Negotiation may also create or intensify an adversarial atmosphere by raising the specter of litigation for transactors who wish to view themselves as friends or partners.").
213. Stewart Macaulay, Non-Contractual Relations in Business: A Preliminary Study, 28 AM. SOC. REV. 55, 76 (1963).
214. See also HarRIgan, supra note 115, at 363 (stating that a common reason for the collapse of joint venture negotiations is "that partners did not think through their arrangements adequately before they reached the altar. The probing questions the lawyers asked exposed these shortfalls in partners' agreements, and the venture fell apart.").
215. Gilson, supra note 1, at 257 (noting "the general contents of the [acquisition agreement] have by now become pretty much standardized").
216. See Dent, Lawyers and Trust, supra note 61, at 67-70 (discussing choice of entity in alliances).
217. See also Gulati, Alliances and Networks, supra note 91, at 302 (stating that there is "considerable variation in the formal structures of alliances"); Glover, supra note 90, at 9 (referring to a lack of standard- form contracts for joint ventures).
218. See Thomas Disare, A Lawyer's Education, 7 Md. J. CONTEMP. LEGAL ISSUES 359, 370 (1996) ("The ability to accumulate relevant facts and to identify actual or possible legal issues which those facts raise is also key.").
219. "The most frequent answer explaining why announced joint ventures never went beyond the discussion stage was that ventures were sunk by lawyers." HARRIGAN, supra note 115, at 363.
220. See also ROBERT A. WENKE, THE ART OF NEGOTIATION FOR LAWYERS 86 (1985) ("[MJany business people view attorneys as deal killers.");
221. SMITH, supra note 131, at 136 (referring to the "historical dread" of corporate clients who have "just cooked up a whale of a business deal" that "it will take the lawyers three months to 'clear' ⋯ and they're bound to sabotage the whole thing anyway").
222. See Daniel D. Bradlow & Jay Gary Finkelstein, Training Law Students to Be International Transactional Lawyers-Using an Extended Simulation to Educate Law Students About Business Transactions, 1 J. BUS. ENTREPRENEURSHIP & L. 67, 68 (2007) ("Law schools ⋯ have historically focused on litigation- based instruction ⋯.");
223. J. Edwin Dietel, Exceptional Lawyer Leadership: Trust and Trustworthiness, LAW PRACTICE Q., June 2002, www.abanet.org/lpm/newsletter/articles/newsarticle0502-p3-front.shtml (stating that law students "are trained to question, doubt, to be adversarial, to be independent, to be competitive, and to think win-lose. At or near their extremes, each and all of these concepts can and often do work at cross purposes to earning, building, and maintaining trusting relationships.").
224. Friedman, Gordon, Pirie & Whatley, supra note 28, at 563 (quoting a Silicon Valley Lawyer).
225. See also id. at 562 (stating that in Silicon Valley the lawyers "job is to solve problems: to take a principle, a task and 'engineer' it legally, showing how it can be done, or be done best. It is not his job to say something can't be done, but to show how it can be done." (emphasis in original));
226. SMITH, supra note 131, at 136 (stating that clients want lawyers to "find ⋯ ways to help businesses stay within the law and still get their deals done").
227. Katheryn Hayes Tucker, What's GC's Biggest Beef with Outside Counsel?, FULTON County DAILY REP., Sept. 14, 2007, http://www.law.com/jsp/ihc/PubArticleFriendlyIHC.jsp?id=1189674162049.
228. See SMITH, supra note 131, at 173, 249 (referring to the need for lawyers to develop a "closer identification" with the client's "corporate goals, corporate interests, corporate culture" and to "understand the [clients] business objectives"). The need to "educate new firms about their operations" Is one reason for corporate clients to eschew outside lawyers in favor of in-house counsel. Steven L. Schwarcz, To Make or to Buy: In-House Lawyering and Value Creation, 33 j. CORP. L. 497, 504 (2008) [hereinafter "Schwarcz, In-House Lawyering"];
229. see also id. at 514. They consider inside lawyers to have a "better understanding of their problems." Id. at 509. Inside lawyers are often preferred for handling matters like "preventive law" because they are "closer to the business of the client than outside counsel." Smith, supra note 131, at 221.
230. See supra note 124 and accompanying text for a definition of preventive law.
231. FREUND, supra note 72, at 186;
232. see Ernst & Glover, supra note 90, at 6 (stating that lawyers' inclinations may clash with the parties' desire to establish a long-term cooperative relationship).
233. See FREUND, supra note 72, at 186 ("[M]any businesspeople avoid introducing lawyers into the early stages of a deal when, in their view, whats needed is nurturing-not disaster scenarios."). It is telling that "in-house counsel seem to get involved at earlier stages of transactions than outside counsel, often helping (more than outside counsel could) to actually structure transactions." Schwarcz, In-House Lawyering, supra note 195, at 509;
234. see also Abram Chayes & Antonia H. Chayes, Corporate Counsel and the Elite Law Firm, 37 STAN. L. REV. 277, 281 (1985) (noting that "the very existence of a properly established inside counsel pushes back the involvement of lawyers to an earlier phase of a transaction and shifts the mode from reactive to proactive").
235. See also Gulati, Familiarity, supra note 68, at 95 (quoting one senior business executive as saying "[s]ometimes we give our lawyers only a few days to write up the contract, and that too after the project may already have begun").
236. See Bernstein, Silicon Valley Lawyer, supra note 28, at 248-50 (stating that using standard terms bolsters trust because the parties are familiar with them and their effects).
237. See also id. at 230 n. 107 (stating that the biggest factor affecting trust "is whether the proposal departs from custom"). Of course, innovation is proper, even necessary, when the client has new technology or a new problem.
238. See infra note 233 and accompanying text.
239. See Macaulay, supra note 188, at 58 ("Business people often prefer to rely on a man's word ⋯.").
240. Lisa Bernstein, Social Norms and Default Rules Analysis, 3 S. CAL. INTERDISC. L.J. 59, 70-71 (1993).
241. Karen Eggleston, Eric A. Posner & Richard Zeckhauser, The Design and Interpretation of Contracts: Why Complexity Matters, 95 NW. U. L. REV. 91, 117 (2000).
242. See also id. at 115 (noting "trust and nonlegal sanctions encourage the formation of simple contracts"); Macaulay, supra note 188, at 64 ("Some businessmen object that in ⋯ a carefully worked out relationship, one gets performance only to the letter of the contract ⋯ whereas performing to the spirit of the contract would offer mutual expected gains.").
243. LEWIS, supra note 178, at 262 (quoting an unnamed lawyer).
244. See also id. at 220 ("Candor is our style; bluffing and deception are unacceptable[] ⋯. We will use only logic, not politics or pressure, to find the best solutions.").
245. Sydow, supra note 180, at 38.
246. See Barondes, supra note 151, at 53 (discussing situations where a client "imput[s] responsibility to its counsel. ⋯ Counsel, by taking responsibility[,] ⋯ can deflect the negative reputation that otherwise would accrue to the client ⋯.").
247. This would be especially likely in a tight-knit business community, which could comprise either a geographic area or an industry.
248. See Bernard S. Black & Ronald J. Gilson, Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets, 47 J. FIN. ECON. 243, 252-53 (1998) (discussing reputational constraints on parties in the venture capital industry in Silicon Valley).
249. See Robert Eli Rosen, The Inside Counsel Movement, Professional Judgment and Organizational Representation, 64 Ind. L.J. 479, 505-06 (1989) (noting that "elite law practitioners do not adequately and efficiently determine the client's objectives for the representation"). One in-house lawyer complained, "You'd be amazed at how many law firms will make a pitch [for the company's work] and never ask a question about our business." Tucker, supra note 195 (quoting Teri Plummer McClure, General Counsel of UPS).
250. See J. Peter Williamson, Mergers and Acquisitions, in THE INVESTMENT BANKING HANDBOOK 219, 245 (J. Peter Williamson ed., 1988) ("Generally, the investment bankers fee in a major M&A transaction is based on the size of the transaction, often running into the millions of dollars. Lawyers' fees have been much lower, although they have risen in recent years.").
251. See Disare, supra note 191, at 385 ("Clients have become overly conscious that 'the clock is running.' Contact with lawyers is generally kept at a minimum to avoid excessive legal bills.");
252. Debra H. Snider, Enough Is Just Enough, CORP. COUNSEL, Oct. 17, 2001, http://www.debrasnider.com/site/files/639/ 43356/175619/242742/Enough-Is-Just-Enough-w-o-bio.pdf (stating that business people believe that lawyers engage in "overlawyering" and should pay more attention to cost efficiency and the client's "business objectives").
253. See Langevoort & Rasmussen, supra note 109, at 389-93 (showing how hourly billing encourages overlawyering).
254. See also Julie Kay, Billing Gets Creative in Souring Economy, NAT'L L.J., Nov. 10, 2008, at 1, 1 ("What has been a slow and steady call by many corporations, in-house counsel and legal think tanks to law firms to abandon the billable hour in favor of alternative fee arrangements has turned into a loud drumbeat in the past year ⋯.");
255. Zusha Elinson, Are Big Firms Warming Up to Alternative Fee Deals?, THE RECORDER, July 11, 2007, www.law.com/jsp/law/ LawArticleFriendly.jsp?id=1184058401567 ("With hourly rates continuing to skyrocket at big firms, clients are pushing alternative fees as a way to control costs ⋯. While the billable hour is still the most common calculation, fixed fees for larger volumes of work or success-based arrangements ⋯ are getting more attention ⋯.");
256. David Gialanella, The Skinny on Flat Fees, ABA J., July 2008, at 26 (discussing a firm that is using flat fees);
257. SMITH, supra note 131, at 233 (referring to the wide variety of billing structures used by various corporate clients).
258. See generally RICHARD C. REED, BILLING INNOVATIONS: NEW WIN-WIN WAYS TO END HOURLY BILLING (1996);
259. Stephen W Jones & Melissa Beard Glover, The Attack on Traditional Billing Practices, 20 U. ARK. LITTLE ROCK L. REV. 293 (1998). The lack of this incentive is one reason for the growth of in-house counsel.
260. See Schwarcz, In-House Lawyering, supra note 195, at 505-06.
261. Snider, supra note 208, at 57.
262. This is the basic tenet of costly contracting theory.
263. See Alan Schwartz & Joel Watson, The Law and Economics of Costly Contracting, 20 J.L. ECON. & Org. 2, 2-6 (2004).
264. See Zusha Elinson & Douglas Malan, Corporations Increasingly Unhappy with Their Outside Counsel, CONN. L. TRIB., July 9, 2007, at 1 (reporting study finding that most corporate clients were not satisfied with their outside counsel and that poor communication was a major complaint).
265. Rules of professional responsibility now permit lawyers in proper circumstances to accept stock as payment. MODEL RULES OF PROF'L CONDUCT R. 1.8(a) (2003) (permitting a lawyer to "enter into a business transaction with a client" if "the transaction and terms ⋯ are fair and reasonable," the client receives written advice "to seek the advice of independent counsel," and "the client gives informed consent, in a writing"). The practice became common.
266. See Christine Hurt, Counselor, Gatekeeper, Shareholder, Thief: Why Attorneys Who Invest in Their Clients in a Post-Enron World Are "Selling Out," Not "Buying In," 64 OHIO ST. L.J. 897, 918 (2003) ("In 1999, law firms in Silicon Valley midwifed 173 clients in IPOs and owned equity in ninety-nine of those clients."). It is unclear whether the bursting of the dot.com bubble or the more recent turmoil in the financial markets has reduced this practice.
267. See 2 HAFT, supra note 162, § 1.01, at 1-4 (describing conflicting interests when lawyer is also a shareholder).
268. See ANTHONY T. KRONMAN, THE LOST LAWYER-FAILING IDEALS OF THE LEGAL PROFESSION 284 (1993) (stating that "many corporations today do more of their own routine legal work than they did before, and increasingly rely on outside firms only for those unusual matters requiring special intellectual or other resources that it would be uneconomical for these companies to acquire on their own");
269. Mary C. Daly, The Cultural, Ethical, and Legal Challenges in Lawyering for a Global Organization: The Role of General Counsel, 46 EMORY L.J. 1057, 1059 (1997) (reporting that between 1961 and 1982 the number of in-house lawyers quadrupled, and that from 1980 to 1991 the number rose by 33 percent);
270. Rosen, supra note 206, at 488; D. Daniel Sokol, Globalization of Law Firms: A Survey of the Literature and a Research Agenda for Further Study, 14 IND. J. GLOBAL LEGAL STUD. 5, 24-25 (2007) (referring to the growing "importance of the in-house counsel to the corporation" and the "increasingly large number of roles" played by in-house counsel);
271. Niraj Chokshi, Survey: GCs Cutting Back on Outside Firms, THE RECORDER, June 25, 2008 (on file with The Business Lawyer) (stating that "more chief legal officers are planning to decrease their reliance on outside counsel and increase their in-house staffs in the coming year");
272. Smith, Venture Capital, supra note 144, at 227 (stating that between 1990 and 2000 General Electric increased the portion of legal work done in-house from 40 percent to 60 percent).
273. See Michael J. Powell, Professional Innovation: Corporate Lawyers and Private Lawmaking, 18 LAW & Soc. INQUIRY 423, 450 (1993) (stating that corporations "remain dependent on outside counsel for specialized advice and representation in critical high-risk areas").
274. See Miller, supra note 64, at 1111-21. Professor Miller concludes that changing economic conditions of corporate practice have produced "a far-reaching change in the economic organization of the legal profession from a 'club' system to a competitive one." Id. at 1106.
275. See SMITH, supra note 131, at 255-60.
276. See Miller, supra note 64, at 1118 ("The 'Cravath' strategy of lockstep partner compensation has given way nearly everywhere to 'performance-based' pay").
277. See supra note 95 and accompanying text.
278. See supra note 93.
279. See supra note 213 and accompanying text.
280. See supra note 92 and accompanying text.
281. See supra note 100.
282. See Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, § 307, 116 Stat. 745, 784 (codified at 15 U.S.C. § 7245 (2006)) (authorizing SEC to adopt rules requiring corporate attorneys to report certain incidents of illegality); MODEL RULES OF PROF'L CONDUCT R. 1.13(b) (2003) (requiring company lawyer to report certain known incidents of illegality).
283. See supra note 225.
284. Gilson, supra note 1, at 305.
285. See Huszagh & Huszagh, supra note 114, at 147 ("As a result of competition, innovation and information handling technologies, the need to execute [transactional] arrangements efficiently and effectively has increased, making lawyers critical participants in these transactions.").
286. See Dent, Gap Fillers, supra note 183, at 62-65 (describing growth of strategic alliances).
287. See Ronald J. Gilson, Engineering a Venture Capital Market: Lessons from the American Experience, 55 STAN. L. REV. 1067, 1076 (2003) ("The special character of venture capital contracting is shaped by the fact that investing in early stage, high technology companies presents [problems of uncertainty, information asymmetry, and opportunism] in an extreme form.").
288. Gilson, supra note 1, at 257.
289. See cf. Darian M. Ibrahim, The (Not So) Puzzling Behavior of Angel Investors, 61 VAND. L. REV. 1405, 1419 n.57, 1424-25 (2008) (stating that the angel investment market is characterized by informality).
290. Friedman, Gordon, Pirie & Whatley, supra note 28, at 562 (quoting a Silicon Valley lawyer).
291. See also Powell, supra note 216, at 428 (discussing lawyers' "development of new legal practices and devices ⋯ and even new forms of corporate organization"). By contrast, proposing novel terms may be counterproductive when new technology or problems are absent. See supra notes 198-203 and accompanying text.
292. See Bernstein, Silicon Valley Lawyer, supra note 28, at 245-51;
293. Friedman, Gordon, Pirie & Whatley, supra note 28, at 557-66;
294. Karl S. Okamoto, Reputation and the Value of Lawyers, 74 Or. L. REV. 15, 28 (1995) (stating that if the business clients reputation is insufficient, the lawyer's reputation may be accepted as a substitute);
295. Mark C. Suchman & Mia L. Cahill, The Hired Gun as Facilitator: Lawyers and the Suppression of Business Disputes in Silicon Valley, 21 LAW & SOC. INQUIRY 679, 699-700 (1996) (discussing the role of lawyers in educating entrepreneurs who seek venture capital financing);
296. Smith, supra note 131, at 137 (stating that, "if you had a great business idea," some Silicon Valley law firms "could help get you the venture bucks to make it happen").
297. See Miller, supra note 64, at 1115 ("Non-attomeys are performing tasks previously monopolized by lawyers, and even computers can do some of the work.").
298. See supra Part I.C
299. In Silver Blaze Holmes solves a crime in part by noting that dog that didn't bark. The dog's silence at the time of the crime showed that it had been committed by an insider, someone familiar to the dog. ARTHUR CONAN DOYLE, Silver Blaze, in THE COMPLETE SHERLOCK HOLMES 335, 347 (Double- day & Co. 1930).
300. See Richard H. Sander, A Systemic Analysis of Affirmative Action in American Law Schools, 57 STAN. L. REV. 367, 458-59 (2004) (reporting that within each geographic region the most powerful predictors of earnings were law school grades and school prestige); Ursula Furi-Perry, Do Law Firms Love Your Law School?, NAT'L JURIST, Sept. 2007, at 30, 31 (noting that "more than 50 percent of all on- campus interviews take place at only 25 schools-or 13 percent").
301. See supra note 37 and accompanying text.
302. See supra notes 38-46 and accompanying text.
303. Romano, supra note 52, at 352.
304. Id. at 353.
305. See Edward Rubin, Why Law Schools Do Not Teach Contracts and What Socioeconomics Can Do About It, 41 SAN DIEGO L. REV. 55, 56 (2004) (noting that in most contracts courses students "never read even a single contract" and "are never given any instruction about the way to negotiate a contract").
306. See also Tina L. Stark, My Fantasy Curriculum and Other Almost Random Points 3-8 (Emory Law and Econ. Research Paper No. 08-29, 2008), available at http://ssrn.com/abstract=l158506 (recommending a contracts course with greater attention to transactional issues) [hereinafter "Stark, Fantasy Curriculum"].
307. There does not seem to be any good empirical evidence on the value of the JD-MBA, but some anecdotal evidence suggests that it does have some value. A few years ago Columbias Dual Degree Student Association did a survey which found that several law firms reward associates who hold the JD-MBA.
308. See http://wwwO.gsb.columbia.edu/students/organizations/ddsa/ jdmbasur.htm (last visited Dec. 18, 2008).
309. Romano, supra note 52, at 353.
310. Id. The University of Pennsylvania also recently created a three-year JD-MBA program.
311. See Press Release, Penn Law, Penn Law and Wharton Create 3-Year JD-MBA Program (Sept. 10, 2008), http://www.law.upenn.edu/blogs/news/archives/2008/09/ penn-law-and-wharton-create-3-.html.
312. See Gilson, supra note 1, at 304;
313. Romano, supra note 52, at 352.
314. See Stark, Deal Lawyer, supra note 44, at 232 (describing a two-credit course called Business Essentials offered at Fordham Law School). One professor who co-teaches a Deals course with Gilson says that the course includes a component that teaches "somewhat simplified versions of some of the financial concepts taught in business school." He calls this part of the course "B-School Lite." Fleischer, supra note 47, at 495.
315. See supra Part III.
316. Gilson, supra note 1, at 304 (footnote omitted).
317. See, e.g., Scott Jaschik, Overhauling Law School's Third Year, Inside Higher Ed, Mar. 12, 2008, http://insidehighered.com/news/2008/ 03/12/thirdyear (describing plan of Washington and Lee Law School to "completely replac[e] all academic courses in the third year of its program with 'experiential' courses in which students will perform work equivalent to that done by lawyers").
318. See also supra notes 39-47 and accompanying text.
319. See Disare, supra note 191, at 377, and authorities cited therein (noting "clinicians focus on such topics as interviewing and counseling, mediation, and fact gathering" (footnotes omitted)).
320. See Disare, supra note 191, at 360 ("Law firms and corporate clients are no longer willing to complete a law school graduate's education.");
321. id. at 384 (noting "young associates no longer get the same education they used to in law firms[;] that which is not billable does not get done at law firms").
322. See Bradlow & Finkelstein, supra note 193, at 70 & n.5 ("It is expensive for law firms to provide [transactional! training ⋯ Indeed, ⋯ the cost of such training has become nearly prohibitive.").
323. See RONALD J. GILSON & BERNARD S. BLACK, THE LAW AND FINANCE OF CORPORATE ACQUISITIONS (2d ed. 1995).
324. See also GEVURTZ, BUSINESS PLANNING, supra note 135.
325. For example, my own law school-Case Western Reserve-offers concentrations in litigation; criminal law; health law; international law; law, technology, and the arts; and public law, as well as business organizations.
326. See Case Western Reserve University School of Law, Concentration Information, http://law.case.edu/concentrations/ (last visited Jan. 17, 2009).
327. See supra notes 202-03 and accompanying text.
328. This is not surprising. Employers care first about the general cognitive skills of associates, not about what courses they took. See supra note 238 and accompanying text.
329. I reviewed the tables of contents of The Business Lawyer for 1997-2007. Although references to negotiation and scattered economic insights are common, only one article dealt directly with negotiation skills: James C. Freund, Calling All Deal Lawyers-Try Your Hand at Resolving Disputes, 62 BUS. LAW. 37 (2006). Ten paid heavy attention to economic issues and analysis: Linda Allen, Meeting Daubert Standards in Calculating Damages for Shareholder Class Action Litigation, 62 BUS. LAW. 955 (2007);
330. Robert A. Fumerton, Market Overreaction and Loss Causation, 62 BUS. LAW. 89 (2006);
331. Henry T. C. Hu & Bernard Black, Empty Voting and Hidden (Morphable) Ownership: Taxonomy, Implications, and Reforms, 61 BUS. LAW. 1011 (2006);
332. Henry T. C. Hu, The New Portfolio Society, SEC Mutual Fund Disclosure, and the Public Corporation Model, 60 BUS. LAW. 1303 (2005);
333. Jay W Eisenhofer, Gregory C. Jarvis & James R. Banko, Securities Fraud, Stock Price Valuation, and Loss Causation: Toward a Corporate Finance-Based Theory of Loss Causation, 59 BUS. LAW. 1419 (2004);
334. Christian J. Henrich, Game Theory and Gonsalves: A Recommendaticn for-Reforming Stockholder Appraisal Actions, 56 BUS. LAW. 697 (2001);
335. G. Eric Brunstad, Jr. & Mike Sigal, Competitive Choice Theory and the Unresolved Doctrines of Classification and Unfair Discrimination in Business Reorganizations Under the Bankruptcy Code, 55 BUS. LAW. 1 (1999);
336. Sanjai Bhagat, Dennis C. Carey & Charles Ellison, Director Ownership, Corporate Performance, and Management Turnover, 54 BUS. LAW. 885 (1999);
337. G. Eric Brunstad, Jr. & Mike Sigal, Competitive Choice Theory and the Broader Implications of the Supreme Courts Analysis in Bank of America v. 203 North LaSalle Street Partnership, 54 BUS. LAW. 1475 (1999);
338. Steven M.H. Wallman, Competition, Innovation, and Regulation in the Securities Markets, 53 Bus. LAW. 341 (1997);
339. E. Norman Veasey, An Economic Rationale for Judicial Decisionmaking in Corporate Law, 53 BUS. LAW. 681 (1997). The vast majority of entries offer surveys and analyses of case law and legislation and discussions of planning and drafting problems.
340. This is a negative assertion and therefore hard to document; one could cite many authorities that support the claim, but that would not disprove the existence of authorities that belie the claim. Among those that support it are DANIEL LEE & MATT SWARTZ, THE CORPORATE, SECURITIES, AND M&A LAWYER'S JOB: A SURVIVAL GUIDE (2007) (a guide for new lawyers, published on conjunction with the American Bar Association, that pays almost no attention to sophisticated corporate finance doctrine);
341. Disare, supra note 191, at 370-72 (a description of what it means to think like a deal lawyer that also ignores sophisticated corporate finance doctrine);
342. Stark, Deal Lawyer, supra note 44, at 364-72 (description of author's development as a business lawyer that also ignores sophisticated corporate finance doctrine).
343. See, e.g., Susan R. Jones, Promoting Social and Economic Justice Through Interdisciplinary Work in Transactional Law, 14 WASH. U. J.L. & POL'Y 249, 267-84 (2004) (describing a small business clinic offered at George Washington University Law School); Dina Schlossberg, An Examination of Transactional Law Clinics and Interdisciplinary Education, 11 WASH. U. J.L. & POL'Y 195, 195-96 (2003) (describing a small business clinic offered at the University of Pennsylvania Law School). Although transactional law clinics offer certain benefits, they are restricted to a limited range of transactions because "[n]o client would entrust a multi-million dollar transaction to law students." Fleischer, supra note 47, at 485-86.
344. Of course, by earning an MBA a student shows further evidence of strong cognitive skills, and also a commitment to corporate practice that may be lacking in a JD-only graduate who may just be looking for a high paying job for a couple of years before moving on to something he really wants to do. Also, most JD-MBA students will also have taken the business courses offered in their law school, so it may be hard to determine how heavily their employers weighed the MBA alone.
345. See James E. Moliterno, Exporting American Legal Education, 58 J. LEGAL EDUC. 274, 276 (2008) ("In most of the world, legal education is an undergraduate program of study").
346. See James H. Backman, Where Do Externships Fit? A New Paradigm Is Needed: Marshaling Law School Resources to Provide an Externship for Every Student, 56 J. LEGAL EDUC. 615, 619 (2008). Gilson recommends apprenticeships, although apparently as an addition to rather than a substitute for the graduate degree in law.
347. See Gilson, supra note 1, at 304.
348. 1 do not defend the monopolistic practices of the bar. There are two separate issues here. One is who should be allowed to practice law. The other is what is the desirable education and training for lawyers, particularly business lawyers. I address only the second question.
349. See supra note 48 and accompanying text.
350. See Myron Moskovitz, Beyond the Case Method: It's Time to Teach with Problems, 42 J. LEGAL EDUC. 241, 249 (1992) (listing the virtues of the problem method);
351. William J. Carney, Teaching Problems in Corporate Law: Making It Real, 34 GA. L. REV. 823, 828-32 (2000) (same);
352. Cynthia G. Hawkins-Leon, The Socratic Method-Problem Method Dichotomy: The Debate Over Teaching Method Continues, 1998 BYU EDUC & L.J. 1, 8-9 (same).
353. See also Stark, Fantasy Curriculum, supra note 243, at 8-9 (advocating a "Deal Skills" course that would include many of these features).
354. This is not necessarily undesirable; there is nothing inherently wrong with the student taking courses that she finds the most interesting or that have the best instructors, even if they do not open up any particular career path. However, many third-year students start to worry that a lack of academic direction may limit their job opportunities or their ability to perform well in practice.
355. See Case Western Reserve University School of Law, Concentration Information, http://law.case.edu/concentrations/ (last visited Jan. 17, 2009) (listing required courses and electives for each of several concentrations).
356. Treating both necessitates a course with many credit hours; at the law school where I teach the basic course gets five credits. This creates scheduling difficulties but seems unavoidable if the subject matter is to be handled properly. It is sometimes suggested that there be two introductory courses-one for those who want to specialize in business law and one for those who want just the basic course. This strikes me as a bad idea because students often change their plans after taking the introductory course in a field.
357. This is an old adage attributed to, inter alia, Napoleon. See JOHN C. MULCHER, THE AMERICAN DIRECTORY OF WRITER'S GUIDELINES: A COMPILATION OF INFORMATION 183 (2005).
358. See James C. Freund, Teaching Problem Solving: New Business Lawyers Need to Know How to Find the Deal, Bus. L. TODAY, July-Aug. 1999, at 32.
359. See also supra Part III.C;
360. Karl S. Okamoto, Leamingand Leaming-to-Learn: Simulating
361. See supra note 238 and accompanying text.
362. See supra note 256 and accompanying text.