What's law got to do with it?: Integrating law and strategy

American Business Law Journal

Volumn 47, Issue 4, 2010, Pages 587-639

  Bagley, Constance E ^a  

^a YALE SCHOOL OF MANAGEMENT   (United States)

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EID: 78649353918     PISSN: 00027766     EISSN: 17441714     Source Type: Journal    
DOI: 10.1111/j.1744-1714.2010.01105.x     Document Type: Article

References (280)

1. See, e.g., Bruce M. Owens & Ronald Braeutigan, The Regulation Game: Strategic Use of the Administrative Process (1978)
2. Mike H. Ryan, Carl L. Swanson, & Rogene A. Buchholz, Corporate Strategy, Public Policy and the Fortune 500: How America's Major Corporations Influence Government (1987)
3. Frank Shipper & Marianne M. Jennings, Business Strategy for the Political Arena xviii (1984); G. Richard Shell, Make the Rules or Your Rivals Will 1-31 (2004)
4. David B. Yoffie, Corporate Strategy for Political Action: A Rational Model, in Business Strategy and Public Policy 92-111 (Alfred A. Marcus, Allen M. Kaufman, & David R. Beam eds., 1987)
5. Vinod Aggarwal, Corporate Market and Nonmarket Strategies in Asia: A Conceptual Framework, 3 Bus. & Politics 89 (2001)
6. David P. Baron, Integrated Strategy: Market and Nonmarket Components, Cal. Mgmt. Rev., Winter 1995, at 47
7. Amy Hillman & Michael Hitt, Corporate Political Strategy Formulation: A Model of Approach, Participation, and Strategy Decision, 24 Acad. Mgmt. Rev. 825 (1999)
8. Gerald D. Keim & Carl P. Zeithaml, Corporate Political Strategy and Legislative Decision Making: A Review and Contingency Approach, 11 Acad. Mgmt. Rev. 828 (1986)
9. Douglas Schuler, Corporate Political Strategy and Foreign Competition: The Case of the Steel Industry, 39 Acad. Mgmt. J. 720 (1996)
10. Brian Shaffer, Firm-Level Responses to Government Regulation: Theoretical Approaches, 21 J. Mgmt. 495, 495 (1995)
11. David B. Yoffie & Sigrid Bergenstein, Creating Political Advantage: The Rise of The Corporate Political Entrepreneur, Cal. Mgmt. Rev., Fall 1985, at 124.
12. Constance E. Bagley, Winning Legally: How to Use the Law to Create Value, Marshal Resources, and Manage Risk 47-50 (2005).
13. Constance E. Bagley, Winning Legally: The Value of Legal Astuteness, 33 Acad. Mgmt. Rev. 378, 378-79 (2008).
14. George J. Siedel, Six Forces and the Legal Environment of Business: The Relative Value of Business Law Among Business School Core Courses, 37 Am. Bus. L.J. 717, 725-27 (2000).
15. Constance E. Bagley, Legal Problems Showing a Way to Do Business, Fin. Times, Nov. 27, 2000, at 2.
16. George J. Siedel, Using the Law for Competitive Advantage 1-28 (2002).
17. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, [hereinafter Porter, Competitive Strategy] 3-33 (1980)
18. see also Michael E. Porter, How Competitive Forces Shape Strategy, in Michael E. Porter, On Competition 21, [hereinafter Porter, On Competition] (1996).
19. Shell, supra note 1.
20. See generally Jay B. Barney, Firm Resources and Sustained Competitive Advantage, 17 J. Mgmt. 99 (1991)
21. Birger Wernerfelt, A Resource-Based View of the Firm, 5 Strat. Mgmt. Rev. 171 (1984).
22. Bagley, supra note 3.
23. Robert C. Bird, Pathways of Legal Strategy, 14 Stan. J.L., Bus., & Fin. 1, 10 (2008).
24. Larry A. DiMatteo, Strategic Contracting: Contract Law as a Source of Competitive Advantage, 47 Am. Bus. L.J. 727 (2010)
25. David Orozco, Legal Knowledge as an Intellectual Property Managerial Resource, 47 Am. Bus. L.J. 687 (2010)
26. George J. Siedel & Helena Haapio, Using Proactive Law for Competitive Advantage, 47 Am. Bus. L.J. 641 (2010)
27. David Silverstein & Daniel C. Hohler, A Rule of Law Metric for Quantifying and Assessing the Changing Legal Environment of Business, 47 Am. Bus. L.J. 795 (2010).
28. Porter, Competitive Strategy, supra note 7.
29. Robert Kaplan & David Norton, Strategy Maps 322-44 (2004).
30. Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance 36-48 (1990).
31. Bagley, supra note 3
32. Barney, supra note 9
33. see also David J. Teece, Gary Pisano, & Amy Shuen, Dynamic Capabilities and Strategic Management, 18 Strat. Mgmt. J. 509 (1997).
34. Lee E. Preston & James E. Post, Private Management and Public Policy: The Principle of Public Responsibility 12 (1975).
35. See authorities in supra note 1.
36. Yoffie & Bergenstein, supra note 1, at 126-29.
37. Bird, supra note 11, at 6.
38. Baron, supra note 1
39. see also David Baron, Integrated Market and Nonmarket Strategies in Client and Interest Group Politics, 1 Bus. & Politics 7 (1999).
40. Yoffie & Bergenstein, supra note 1.
41. Baron, supra note 1.
42. Hillman & Hitt, supra note 1.
43. See, e.g., Aggarwal, supra note 1 (characterizing firms as operating within a market and a nonmarket environment). For a literature review, see Jean J. Boddewyn, Understanding and Advancing the Concept of "Nonmarket," 42 Bus. & Soc. 297 (2003).
44. David Baron, Business and Its Environment 2 As discussed further below, given the role of the judicial sanction in private ordering, see, e.g., Ian R. Macneil, The New Social Contract: An Inquiry into Modern Contractual Relations 94 (1980), it seems incorrect to characterize contracts as part of the market environment. As Macneil explained, the availability of judicial enforcement of contracts serves "as a back-up system seldom used actively, but always used passively" to promote cooperation and the continuation of interdependence. Id.(2003)
45. Baron, supra note 30, at 2.
46. Aggarwal, supra note 1, at 91.
47. Douglass North & Barry Weingast, Constitutions and Commitments: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England, 49 J. Econ. History 803, 831 (1989).
48. Theodore J. Lowi, Risks and Rights in the History of American Governments, Daedalus, Summer 1990, at 20. The World Economic Forum reported in 2002 that for all seventy-five countries studied there was a statistically significant relationship between a country's gross domestic product per capita-"the best single, summary measure of current competitiveness available across all countries"-and each of the following: (1) judicial independence, (2) the adequacy of legal recourse, (3) police protection of business, (4) demanding product standards, (5) stringent environmental regulations, (6) quality laws relating to information technology, (7) the extent of intellectual property protection, and (8) the effectiveness of the antitrust laws. Michael E. Porter, Enhancing the Microeconomic Foundations of Prosperity: The Current Competitiveness Index in World Economic Forum, in The Competitiveness Report, (Michael E. Porter ed., 2002) 2001-2002 59-61.
49. See generally Ronald H. Coase, The Firm, the Market and the Law (1988).
50. Douglass C. North, Institutions, Institutional Change and Economic Performance 3 (1990).
51. Robert D. Cooter, Stephen Marks, & Robert H. Mnookin, Bargaining in the Shadow of the Law: A Testable Model of Strategic Behavior, 11 J. Legal Stud. 225, 225 (1982)
52. Robert H. Mnookin & Lewis Kornhauser, Bargaining in the Shadow of the Law: The Case of Divorce, 88 Yale L.J. 950, 978 (1979).
53. Yoffie, supra note 1.
54. Yoffie & Bergenstein, supra note 1.
55. Oliver E. Williamson, The Economic Institutions of Capitalism: Firms, Markets and Relational Contracting 48-49 (1985).
56. Laura Poppo & Todd Zenger, Do Formal Contracts and Relational Governance Function as Substitutes or Complements?, 23 Strat. Mgmt. J. 707, 707 (2002).
57. See, e.g., Jay B. Barney, Frances L. Edwards, & Al H. Ringleb, Organizational Responses to Legal Liability: Employee Exposure to Hazardous Materials, Vertical Integration, and Small Firm Production, 35 Acad. Mgmt. J., (finding that exposure to liability stemming from employees' on-the-job exposure to hazardous materials made firms more likely to adopt nonvertically integrated production systems) 328 (1992).
58. Ronald J. Gilson, Value Creation by Business Lawyers: Legal Skills and Asset Pricing, 94 Yale L.J. 239, 255 (1984)
59. For a further discussion of how lawyers create value in transactions, see Steven L. Schwarcz, Explaining the Value of Transaction Lawyering, 12 Stan. J.L., Bus., & Fin. 486, 498-99 (2007).
60. George W. Dent, Jr., Business Lawyers as Enterprise Architects, 64 Bus. Law. 279, (explaining that business lawyers organize and reorganize firms; structure joint ventures, licensing arrangements, and other strategic alliances; practice preventative law; protect intellectual property; and handle regulatory matters), 289-93 (2009)
61. For example, "R&D [is] carried out in a virtual Cambrian explosion of organizational forms," which are shaped at least in part by business lawyers. Ronald J. Gilson, Locating Innovation: The Endogeneity of Technology, Organizational Structure, and Financial Contracting, 110 Colum. L. Rev. 885, 887 (2010).
62. Poppo & Zenger, supra note 44, at 707.
63. Robert D. Cooter, The Law and Economics of Anthropology, in Encyclopedia of Law and Economics 723 (Boudewijn Bouckaert & Gerrit De Geest eds., 1999).
64. see also Robert C. Ellickson, Order Without Law: How Neighbors Settle Disputes (explaining how neighbors and others engaged in repeat transactions can resolve disputes without litigation)., (1991)
65. Cooter, supra note 49.
66. Poppo & Zenger, supra note 44, at 707.
67. See, e.g., Jeffrey Dyer, Effective Interfirm Collaboration: How Firms Minimize Transaction Costs and Maximize Transaction Value, 40 Strat. Mgt. J. 687 (1997)
68. Jeffrey Dyer & Harbir Singh, The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage, 23 Acad. Mgmt. Rev. 660 (1998).
69. Poppo & Zenger, supra note 44, at 707. See generallyCharles Hill, Cooperation, Opportunism, and the Invisible Hand: Implications for Transaction Cost Theory, 15 Acad. Mgmt. Rev. 500 (1990)
70. Benjamin Klein & Keith B. Leffler, The Role of Market Forces in Assuring Contract Performance, 89 J. Pol. Econ. 615 (1981).
71. Poppo & Zenger, supra note 44, at 707.
72. (citing Sumantra Ghoshal & Peter Moran, Bad for Practice: A Critique of the Transaction Cost Theory, 21 Acad. Mgmt. Rev. 13, 24, 27 (1996)
73. Stewart Macauly, Non-Contractual Relatives in Business: A Preliminary Study, 28 Am. Soc. Rev. 55, 64 (1963)).
74. Poppo & Zenger, supra note 44, at 712. This makes sense given the difficulty of providing for all contingencies in a written contract for a strategic alliance. See Dent, supra note 47, at 290-92.
75. Macauly, supra note 57, at 58-59.
76. Poppo & Zenger, supra note 44, at 721.
77. North & Weingast, supra note 34, at 808.
78. Bagley, supra note 3, at 385.
79. Chad Nehrt, Maintainability of First Mover Advantages When Environmental Regulations Differ Between Countries, 23 Acad. Mgmt. Rev. 77, 77 (1998).
80. see also V.K. Narayanan & Liam Fahey, The Relevance of the Institutional Underpinnings of Porter's Five Forces Framework to Emerging Economies: An Epistemological Analysis, 42 J. Mgmt. Stud. 207, (highlighting the need for more research on the institutional importance of laws governing rivalry in emerging economies), 207 (2005).
81. See Adam M. Brandenburger & Barry J. Nalebuff, Co-opetition viii (1996).
82. Pankaj Ghemawat, Strategy and the Business Landscape 35 (2001). Porter attributed his decision not to include nonmarket factors as a sixth force to the lack of a "monotonic relationship between the strength and influence of government power and the profitability of industry." Quoted in Nicholas Argyres & Anita M. McGahan, An Interview with Michael Porter, 16 Acad. Mgmt. Exec. 43, 46 (2002).
83. Ghemawat, supra note 66, at 35.
84. Porter, Competitive Strategy, supra note 7.
85. Shell, supra note 1.
86. Margaret A. Peteraf, The Cornerstones of Competitive Advantage: A Resource-Based View, 14 Strat. Mgmt. J. 179, 187 (1993).
87. Michael E. Porter, Clusters and Competition, in Porter, On Competition, supra note 7, at 211.
88. see also Edward A. Snyder & Thomas E. Kauper, 90 Mich. L. Rev. 551, (recommending limits on competitors' ability to bring private antitrust actions).596-98 (1991)
89. See generally Vance H. Fried & Benjamin M. Oviatt, Michael Porter's Missing Chapter: The Risk of Antitrust Violations, 3 Acad. Mgmt. Exec. 49 (1989).
90. These four policy objectives are drawn from Constance E. Bagley & Diane W. Savage, Managers and the Legal Environment: Strategies for the 21st Century 12 (6th ed. 2009). An earlier version of Table 1 was published in Constance E. Bagley & Douglas W. Rae, Law and Strategy, Yale School of Management Case 08-023 (2008).
91. Bagley, supra note 2, at 16-17.
92. Matthew DoBias & Shawn Rhea, August Showdown; As Congress Heads for a Recess, the Turmoil over Reforms only Intensifies with Hospitals, Insurers and Activists Ready for a Fight, Mod. Healthcare, Aug. 10, 2009, at 6.
93. FedEx Home Delivery v. NLRB, 563 F.3d 492, 504 (D.C. Cir. 2009).
94. Porter, On Competition, supra note 7, at 183-84. See generallyGregory C. Shaffer, How Business Shapes Law: A Socio-Legal Framework, 42 Conn. L. Rev. 147 (2009)
95. George J. Stigler, The Theory of Economic Regulation, 2(1) Bell J. Econ. & Mgmt. Sci. 3 (1971).
96. See generally Michael Watkins, Mickey Edwards, & Usha Thakrar, Winning the Influence Game 1-12 (2001)
97. Sharon Oster, The Strategic Use of Regulatory Investment by Industry Sub-Groups, 20 Econ. Inquiry 604 (Oct. 1982).
98. Barry M. Mitnick, The Political Economy of Regulation: Creating, Designing and Removing Regulatory Forms [hereinafter Mitnick, Political Economy] 434-42 (1980)
99. Barry M. Mitnick, The Strategic Uses of Regulation-And Deregulation, in Corporate Political Agency: The Construction of Competition in Public Affairs (Barry M. Mitnick ed.) (arguing that firms can seek or exploit regulation to gain competitive advantage).199367-78
100. Fed. Reserve Sys., Order Approving Formation of Bank Holding Companies (Sept. 21, 2008), (approving application of Goldman Sachs to become bank holding company); Fed. Reserve Sys., Order Approving Formation of Bank Holding Companies and Notice to Engage in Certain Nonbanking Activities (Sept. 21, 2008), (approving application of Morgan Stanley).
101. Mitnick, Political Economy, supra note 80, at 71.
102. Martin LaMonica, Newsmaker: Stirring GE's Ecomagination, CNET News.com, Oct. 26, 2007.
103. J. Alberto Aragon-Correa & Sanjay Sharma, A Contingent Resource-Based View of Proactive Corporate Environmental Strategy, 28 Acad. Mgmt. Rev. 71, 73 (2003).
104. Nehrt, supra note 63, at 77.
105. Geoff Paradise, Cummins up to Standards, Daily Telegraph (Sydney, Australia), Apr. 20, 2002, at 38.
106. William Q. Judge & Thomas J. Douglas, Performance Implications of Incorporating Natural Environmental Issues Into The Strategic Planning Process: An Empirical Assessment, 20 Acad. Mgmt. Rev. 1015, 1015 (1998)
107. Robert D. Klassen & D. Clay Whybark, The Impact of Environmental Technologies on Manufacturing Performance, 42 Acad. Mgmt. Rev. 599, 599 (1999).
108. Aragon-Correa & Sharma, supra note 85, at 73.
109. Kaplan & Norton, supra note 14, at 165.
110. An earlier version of Table 2 appeared in Bagley, supra note 2, at 11.
111. Siedel, supra note 6, at 5.
112. CSU, LLC v. Xerox Corp., 203 F.3d 1322, 1329 (Fed. Cir. 2000).
113. Image Technical Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1201 (9th Cir. 1997)
114. see alsoConstance E. Bagley & Gavin Clarkson, Adverse Possession for Intellectual Property: Adapting an Ancient Concept to Resolve Conflicts Between Antitrust and Intellectual Property Laws in the Information Age, 16 Harv. J. L. & Tech. 327(arguing that intellectual property owners "should be able to exclude other firms from developing ancillary markets within the scope of the original intellectual property grant" but that if an owner of intellectual property permits ancillary markets to develop then, after some period of time, "adverse protection would preclude the original intellectual property owners from excluding the other firms from the ancillary market based on existing products."), 365 (2003)
115. Constance E. Bagley & Gavin Clarkson, Crossing the Great Divide: Using Adverse Possession to Resolve Conflicts Between the Antitrust and Intellectual Property Regimes, in 15 Advances in the Study of Entrepreneurship, Innovation and Economic Growth 149, 173 (Gary D. Libecap ed., 2004) (asserting that if "an intellectual property owner has market power in the foremarket and the underlying product is a platform technology characterized by network effects," then the refusal to license should be governed by the Rule of Reason if the underlying product is an essential facility and the holder of the essential facility competes in the aftermarket).
116. Michael E. Porter & Victor E. Millar, How Information Gives You Competitive Advantage, in Porter, On Competition, supra note 7, at 75, 77-83.
117. I have added the words in italics to Porter's framework. An earlier version of Figure 1 was published in Bagley, supra note 2, at 12.
118. For other factors affecting the boundaries of the firm, see Sanford J. Grossman & Oliver D. Hart, The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration, 94 J. Pol. Econ. 691, 693-95 (1986).
119. See generally Bagley & Savage, supra note 74, at 265-69.
120. Gary S. Hansen & Birger Wernerfelt, Determinants of Firm Performance: The Relative Importance of Economic and Organizational Factors, 10 Strat. Mgmt. J. 399, 399 (1989).
121. Barney, supra note 9, at 106-11.
122. Barry A. Colbert, The Complete Resource-Based View: Implications for Theory and Practice in Strategic Human Resource Management, 29 Acad. Mgmt. Rev. 341, 343 (2004).
123. Richard L. Priem & John E. Butler, Is The Resource-Based "View" A Useful Perspective For Strategic Management Research?, 26 Acad. Mgmt. Rev. 22, 22 (2001).
124. Jay B. Barney, Is the Resource-Based "View" a Useful Perspective for Strategic Management Research? Yes, 26 Acad. Mgmt. Rev. 41, 49 (2001).
125. See Anthony Bisconti, The Double Bottom Line: Can Constituency Statutes Protect Socially Responsible Corporations Stuck in Revlon Land?, 42 Loy. L.A. L. Rev. 765(naming thirty-three states with constituency statutes), 780 (2009)
126. Employment discrimination suits are "among the leading types of cases faced by business leaders in the United States."Erika H. James & Lynn P. Wooten, Diversity Crisis: How Firms Manage Discrimination Lawsuits, 49 Acad. Mgmt. J. 1103, 1103 (2006).
127. Michael R. Kaplan & J. Richard Harrison, Defusing the Director Liability Crisis: The Strategic Management of Legal Threats, 4 Org. Sci. 412(finding that judicial decisions increasing directors' exposure to personal liability for corporate decisions affected corporations' ability to attract and retain qualified independent directors), 421-22 (1993)
128. Jay B. Barney et al., The Resource-Based View Ten Years After: Retrospective and Prospective, 27 J. Mgmt. 625, 625 (2001).
129. Bagley, supra note 3, at 385.
130. John P. Martin, 5 Makers of Implants to Forfeit $311 M: They Avoid Fraud Charge in Case of Doctor Payoffs, Star-Ledger (Newark, NJ), Sept. 28, 2007, at 1.
131. After the Texas Court of Appeals upheld an award of $7.53 billion in compensatory damages and $3 billion in punitive damages in Texaco, Inc. v. Pennzoil Co., 729 S.W.2d 768, 784 (Tex. Ct. App. 1987), cert. dismissed, 485 U.S. 994 (1988), Texaco settled the case for $3 billion. James Kinnear, The Man Who Wore the Star-Real-Time Perspectives on a Business Leader's Changing World 32 (2001).
132. Lawrence Ingrassia & James S. Hirsch, Polaroid's Patent Case Award, Smaller than Anticipated, Is a Relief for Kodak, Wall St. J., Oct. 15, 1990, at A3.
133. Karl S. Okamoto, After the Bailout: Regulating Systemic Moral Hazard, 57 UCLA L. Rev. 183, 208 (2009).
134. John B. Stewart, Den of Thieves 432-33 (1991).
135. The ultimate reversal of Arthur Andersen's conviction by the U.S. Supreme Court in Arthur Andersen LLP v. United States, 544 U.S. 696 (2005), came too late to save the firm. In an industry built largely on reputation and trust, an indictment can be tantamount to a death sentence.
136. Teece, Pisano, & Shuen, supra note 16.
137. J.A. Schumpeter, Theory of Economic Development (1934).
138. Edith Penrose, The Theory of the Growth of the Firm (1959).
139. Oliver E. Williamson, Markets and Hierarchies (1975).
140. Jay B. Barney, Strategic Factor Markets: Expectations, Luck and Business Strategy, 32 Mgmt. Sci. 1512, 1512-14 (1986).
141. Richard Nelson & Sidney Winter, An Evolutionary Theory of Economic Change (1982).
142. David J. Teece, Technological Change and the Nature of the Firm, in Technical Change and Economic Theory 256-81 (G. Dosi et al. eds., 1988).
143. Teece, Pisano, & Shuen, supra note 16, at 509.
144. Carliss Y. Baldwin & Kim B. Clark, Capabilities and Capital Investment: New Perspectives On Capital Budgeting, 5 J. Applied Corp. Fin. 67, 68 (1992).
145. Teece, Pisano, & Shuen, supra note 16, at 518-21.
146. Bagley, supra note 3. Legal astuteness requires (1) a set of value-laden attitudes, (2) a proactive approach, (3) the exercise of informed judgment, and (4) context-specific knowledge of the relevant law and the appropriate application of legal tools. Id. at 379. Legally astute managers acknowledge the "right and responsibility [of inside counsel] to insist upon early legal involvement in major transactions."Abram Chayes & Antonia H. Chayes, Corporate Counsel and the Elite Law Firm, 37 Stan. L. Rev. 277, 281 (1985). They view their lawyers as partners in value creation, not as a necessary evil. Bagley, supra note 2, at 224.
147. Tom Hinthorne, Predatory Capitalism, Pragmatism, and Legal Positivism in the Airlines Industry, 17 Strat. Mgmt. Rev. 251, 251 (1996).
148. Teece, Pisano, & Shuen, supra note 16, at 518.
149. Bagley, supra note 2, at 50.
150. See supra notes 43-62 and accompanying text.
151. See, e.g., Stengart v. Loving Care Agency, Inc., 990 A.2d 650, 664 (N.J. 2010) (noting in dicta that even an unambiguous employer policy providing that otherwise privileged attorney-client communications sent via a company computer using a password-protected Internet account are subject to employer inspection would not be enforced because it violated the public policies underlying attorney-client privilege).
152. Jay B. Barney & Mark H. Hansen, Trustworthiness as a Source of Competitive Advantage, 15 Strat. Mgmt. J. 175, 175 (1994).
153. Danny Ertel, Getting Past Yes: Negotiating as if Implementation Matters, Harv. Bus. Rev., Nov. 2004, at 60
154. See generally Robert Mnookin et al., Beyond Winning: Negotiating to Create Value in Deals and Disputes (2000).
155. Apple Computer, Inc. v. Microsoft Corp., 709 F. Supp. 925, N.D. Cal., 931-32 (1989).
156. Apple Computer, Inc. v. Microsoft Corp., 717 F. Supp. 1428, 1430-32 (N.D. Cal. 1989).
157. Apple Computer, Inc. v. Microsoft Corp., 799 F. Supp. 1006, 1041 (N.D. Cal. 1992).
158. John Seabrook, A Reporter at Large: E-Mail from Bill, New Yorker, Jan. 10, 1994, at 48, 59.
159. See, e.g., Carl W. Kester, Today's Options for Tomorrow's Growth, Harv. Bus. Rev., Mar.-Apr., (explaining that firms can use a variety of resources to create value and generate growth) 1984, at 153.
160. See, e.g., Dorothy A. Leonard, Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation (outlining the importance of innovation for firm growth).(1998)
161. See Boualem Aliouat, Patents and Trademarks: From Business Law to Legal Astuteness, in Legal Strategies: How Corporations Use Law to Improve Performance 293 (Antoine Masson & Mary J. Shariff eds., 2010) (explaining how legally astute firms can use intellectual property protection to increase realizable value).
162. Constance E. Bagley, Managers and the Legal Environment: Strategies for the 21st Century 387 (4th ed. 2002).
163. Louis V. Gerstner, Who Says Elephants Can't Dance? 149 (2002).
164. Alexander Krasnikov, Saurabh Mishra, & David Orozco, Evaluating the Financial Impact of Branding Using Trademarks: A Framework and Empirical Evidence, 73 J. Mktg. 154, 161 (2009).
165. Michael J. Roberts & Constance E. Bagley, Priceline.com and Microsoft (B), Harvard Business School Case No. 802-82 (2001).
166. Priceline.com successfully sued Microsoft Corporation and Expedia for violating its patent on using bidder-driven commerce to sell airline seats, hotel rooms, and other services. Id.
167. David Orozco & James G. Conley, Shape of Things to Come, Wall St. J., May 12, 2008, at R6.
168. Constance E. Bagley & Reed Martin, BitTorrent, Harvard Business School Case No. 806-169 (2004).
169. Orozco & Conley, supra note 163, at R6.
170. UMG Recordings, Inc. v. MP3.com, Inc., 92 F. Supp. 2d 349, 352-52, (S.D.N.Y. 2000). MP3.com had made digital copies of the music on its customers' compact discs, which customers could access from personal computers, using the Internet, after demonstrating that they owned a copy of the music to be downloaded. The company argued that this "space shifting" was protected fair use. The U.S. District Court for the Southern District of New York rejected this argument and held MP3.com liable for direct infringement. UMG Recordings, 92 F. Supp. 2d at 352-53.
171. Stevenson, Roberts, and Grousbeck broke down the entrepreneurial process into five steps: (1) evaluating the opportunity, (2) developing the business concept, (3) assessing required resources both human and capital, (4) acquiring needed resources, and (5) managing and harvesting the venture. Howard H. Stevenson, Michael Roberts, & Harold I. Grousbeck, New Business Ventures and the Entrepreneur 17-21 (2d ed. 1985). The five stages of business development in Table 4 are based on this model with modifications to reflect the fact that very different but significant legal issues arise in the course of marshaling human resources and raising money and in the course of managing the development, production, marketing, and sale of the product or service and in harvesting the venture. Table 4 was published in Bagley, supra note 2, at 16-17.
172. Bagley, supra note 3, at 386.
173. Real options theory posits that there is value inherent in the right to defer decisions characterized by uncertainty. See, e.g., Bruce Kogut & Nalin Kulatilaka, Capabilities as Real Options, 12 Org. Sci. 744 (2001).
174. Vesting arrangements are discussed in Constance E. Bagley & Craig E. Dauchy, The Entrepreneur's Guide to Business Law 93-94 (3d ed. 2008).
175. See Bagley, supra note 2, at 50-86 (setting forth a nine-step program for promoting legal compliance as a source of strategic advantage).
176. Darcy L. MacPherson, A Legal Strategy Case Study: Trusts in Securitization, in Legal Strategies, supra note 153, at 267.
177. See, e.g., CSX Corp. v. Children's Investment Fund Management (UK) LLP, 562 F. Supp. 2d 511, 552 (S.D.N.Y. 2008) (holding that hedge funds that entered into equity swap agreements beneficially owned the shares that their counterparties had acquired to hedge their short positions). Hedge funds can also easily run afoul of insider trading laws. SeeTed Kamman & Rory T. Hood, With the Spotlight on the Financial Crisis, Regulatory Loopholes, and Hedge Funds, How Should Hedge Funds Comply with the Insider Trading Laws?, 2009 Colum. Bus. L. Rev. 357, 359 (2009).
178. Doreen McBarnet & Chris Whelan, The Illusive Spirit of the Law: Formalism and the Struggle for Legal Control, 54 Mod. L. Rev. 848, 848-49 (1991)
179. See also Doreen McBarnet, After Enron Will 'Whiter than White Collar Crime' Still Wash?, 46 Brit. L.J. Criminology 1091, 1091 (applying the concept of creative compliance to the Enron debacle)2006
180. Timothy P. Terrell, Professionalism on an International Scale: The Lex Mundi Project to Identify the Fundamental Shared Values of Law Practice, 23 Emory Int'l L. Rev. 469, (defining "creative compliance" as "complying with the letter of the law but defeating its spirit and purpose").,536 (2009)
181. Daniel T. Ostas, Legal Loopholes and Underenforced Laws: Examining the Ethical Dimensions of Corporate Legal Strategy, 46 Am. Bus. L.J. 487, (noting that "using the law for private gain raises a number of potentially thorny ethical issues.").487 (2009)
182. Richard Breedan, Restoring Trust, report to the Hon. Jed S. Rakoff, U.S. District Court for the Southern District of New York, submitted in connection with the WorldCom bankruptcy proceeding on Aug. 26, 2003.
183. Bagley, supra note 3, at 378-79.
184. Irwin Ross, How Lawless Are Big Companies?, Fortune, Dec. 1, 1980, at 56.
185. Ryan, Swansen, & Buchholz, supra note 1, at 167-68.
186. Melissa S. Baucus & Janet P. Near, Can Illegal Corporate Behavior Be Predicted: An Event History Analysis, 34 Acad. Mgmt. J. 9, 27 (1991).
187. Karen Schnatterly, Increasing Firm Value Through Detection and Prevention of White-Collar Crime, 24 Strat. Mgmt. J. 587, 587 (2003).
188. Melissa S. Baucus & David A. Baucus, Paying the Piper: An Empirical Examination of Longer-Term Financial Consequences of Illegal Corporate Behavior, 40 Acad. Mgmt. J. 129, 131 (1997).
189. Philip P. Drotning, Organizing the Company for Social Action, in The Unstable Ground: Corporate Social Policy in a Dynamic Society 260 (S. Prakash Sethi ed., 1974). As former General Electric General Counsel Ben Heineman put it: "The stirring call for performance with integrity at the large company meeting can be eroded by the cynical comment an executive makes at a smaller meeting, by the winks and nods that implicitly sanction improprieties, by personal actions (dishonesty, lack of candor) that contradicts company values." Ben W. Heineman, Jr., Avoiding Integrity Land Mines, Harv. Bus. Rev., Apr. 2007, at 102.
190. Drotning, supra note 188, at 259.
191. Barry M. Staw & Eugene Szwajkowski, The Scarcity-Munificence of Organizational Environments and the Commission of Illegal Acts, 20 Admin. Sci. Q. 34 (1975).
192. Baucus & Near, supra note 181, at 31.
193. see also Melissa S. Baucus & Caryn L. Beck-Dudley, Designing Ethical Organizations: Avoiding the Long-Term Negative Effects of Rewards and Punishment, 56 J. Bus. Ethics 355(cautioning against over-reliance on rewards and punishments when seeking to promote ethical behavior), 356 (2005)
194. Intel's antitrust winning streak appears to have ended in 2009. The European Commission levied a $1.45 billion fine against Intel in May 2009 for allegedly abusing its dominant position by trying to coerce personal computer manufacturers not to buy chips from rival firm Advanced Micro Devices (AMD). That same year Intel agreed to pay AMD $1.25 billion to settle similar civil claims. Steve Johnson, Federal Agency Gives Santa Clara Chipmaker More Time to Settle Antitrust Suit Before Trial, San Jose Mercury News, July 22, 2010, at 1C. On December 16, 2009, the U.S. Federal Trade Commission announced that it was investigating Intel for allegedly engaging in anticompetitive behavior to preserve its market power. Joe Brodkin, AMD vs. Intel: After Years of Court Battles, an Ancient Rivalry Continues on the Processor Front, Network World, 2010 WLNR 11588814 (June 7, 2010). Intel was reportedly close to settling the case in July 2010. Thomas Catan, Intel, FTC Need More Time to Talk, Wall St. J., July 22, 2010, at B5.
195. Bagley & Savage, supra note 74, at 681-83.
196. David B. Yoffie & Mary Kwak, Playing by the Rules: How Intel Avoids Antitrust Litigation, Harv. Bus. Rev., June 2001, at 119, 119-21.
197. Playboy Interview: Bill Gates, Playboy, July 1994, at 63.
198. Bagley, supra note 3.
199. Diane L. Swanson, Addressing a Theoretical Problem in Reorienting the Corporate Social Performance Model, 20 Acad. Mgmt. Rev. 43, 51 (1995).
200. Edmund P. Learned, C. Roland Christensen, Kenneth R. Andrews, & William D. Guth, Business Policy: Text and Cases 578 (1969).
201. Kalman J. Cohen & Richard M. Cyert, Strategy: Formulation, Implementation, and Monitoring, 46 J. Bus. 349, 352 (1973).
202. Figure 2 was first published in Constance E. Bagley, Business, Law, and Society: The Systems Approach to Law and Management, Harvard Business School Case No. 9-806-086 (2006), at 2.
203. Mark Shanley & Margaret Peteraf, Deploying, Leveraging, and Accessing Resources Within and Across Firm Boundaries: Introduction to the Special Issue, 25 Managerial & Dec. Econ. 291, 293 (2004)
204. See generally Mason A. Carpenter, Marta A. Geletkanycz, & William Gerard Sanders, Upper Echelons Revisited: Antecedents, Elements, and Consequences of Top Management Team Composition, 30 J. Mgmt.(reviewing research on upper echelons perspective) 749 (2004)
205. Donald E. Hambrick & Phyllis A. Mason, Upper Echelons: The Organization as a Reflection of its Top Managers, 9 Acad. Mgmt. Rev.(positing that organizations are a reflection of their top management team) 193 (1984)
206. Pub. L. No. 107-204, 116 Stat. 745 (codified in scattered sections of 1, 15, 18, 28, and 29 U.S.C.).
207. Bagley & Savage, supra note 74, at 54-56.
208. Lauren B. Edelman & Mark C. Suchman, The Legal Environments of Organizations, 23 Ann. Rev. Soc. 479, 501 (1997).
209. John-Philippe Bonardi, Guy Holburn, & Rick Vanden Bergh, Nonmarket Strategy Performance: Evidence from U.S. Electric Utilities, 49 Acad. Mgmt. J. 1209, 1209 (2006).
210. Ben W. Heineman, Jr., High Performance with High Integrity 135-36 (2008).
211. See Jaclyn Rodriguez, The Credit Card Act of 2009: An Effective But Incomplete Solution Evidencing the Need for a Federal Regulator, 14 N.C. Banking Inst. 309(outlining abuses leading to passage of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, Pub. L. No. 111-24, 123 Stat. 1734 (to be codified in scattered sections of 15 U.S.C.)), 313-23 (2010)
212. The Federal Reserve has proposed broader restrictions on executive compensation by bank holding companies. Proposed Guidance on Sound Incentive Compensation Policies, 74 Fed. Reg. 55, 227 (Oct. 27, 2009).
213. Peer C. Fiss & Edward J. Zajac, The Symbolic Management of Strategic Change: Sensegiving via Framing and Decoupling, 49 Acad. Mgmt. J. 1173, 1173 (2006).
214. William Glaberson, Of Manville, Morals and Mortality, N.Y. Times, Oct. 9, 1988, at F1. As seen with the Securities and Exchange Commission's (SEC) 2010 enforcement action against Goldman Sachs, the reputation of a venerable firm can be besmirched by the appearance of impropriety even if it ultimately wins the legal case. Joseph Stiglitz, The Fraught Road to World Financial Reform, Indep. Fin. Rev. (NZ), 2010 WLNR 11759320 (June 10, 2010). The SEC alleged that Goldman committed securities fraud when it sold derivative contracts based on subprime mortgages without disclosing that another Goldman client, who had taken a short position in the subprime market, had helped select the mortgage-backed securities on which the derivatives were based. The complaint is available at (last visited Aug. 10, 2010). Goldman also allegedly spread negative rumors about the Greek sovereign debt market while simultaneously serving as an advisor to the Greek government. Stiglitz, supra. CEO Lloyd C. Blankfein added fuel to the fire when he responded to criticism of the high levels of executive compensation by claiming that Goldman was doing "God's work."Id. According to economics Nobel laureate Joseph Stiglitz, "That Goldman's chief executive saw himself as doing 'God's work' as his firm sold short products that it created, or disseminated scurrilous rumours about a country where it was serving as an 'adviser,' suggests a parallel universe, with different mores and values."Id. On July 15, 2010, Goldman and the SEC announced a settlement in which Goldman agreed to pay a $550 million fine to settle the subprime fraud case. Sewell Chan & Louise Story, Goldman Pays $550 Million to Settle Fraud Case, N.Y. Times, July 15, 2010, at B1. Conduct by Goldman and other investment banks involved in the meltdown of the subprime mortgage market contributed to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the most sweeping financial reform since the Great Depression. Brady Dennis, Obama Ushers in New Financial Era, Wash. Post, July 22, 2010, at A13.
215. See, e.g., Donna J. Wood, Corporate Social Performance Revisited, 16 Acad. Mgmt. Rev. 691 (1991)
216. see also Swindell, supra note 212.
217. Christine Oliver, Sustainable Competitive Advantage: Combining Institutional and Resource-Based Views, 18 Strat. Mgmt. J. 697, 699 (1997).
218. See, e.g., Thomas Donaldson & Lee E. Preston, The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications, 20 Acad. Mgmt. Rev. 65 (1995).
219. Michael E. Porter & Mark R. Kramer, Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harv. Bus. Rev., Dec. 2006, at 78.
220. Robert J. Bies, Jean M. Bartunek, Timothy L. Fort, & Mayer N. Zald, Introduction to Special Topic Forum: Corporations as Social Change Agents: Individual, Interpersonal, Institutional, and Environmental Dynamics, 32 Acad. Mgmt. Rev. 788, 788 (2007).
221. Joshua Margolis & James Walsh, Misery Loves Company: Rethinking Social Initiatives by Business, 48 Admin. Sci. Q. 268, 268 (2003)
222. General Electric characterized its ecomagination initiative to create more environmentally friendly products and to reduce its own waste as "Green is green." Heineman, supra note 208, at 134.
223. Porter & Kramer, supra note 216, at 88.
224. Jeffrey Pfeffer, Building Sustainable Organizations: The Human Factor, 24 Acad. Mgmt. Perspectives 34, 43 (2010).
225. See generally James G. March & Howard A. Simon, Organizations (explaining how managers' cognitive frames affect their decision making).(1958)
226. ABC News Now/Special Reports, 2008 WLNR 22829867 (ABC television broadcast Nov. 27, 2008).
227. Fabrizio Ferraro, Jeffrey Pfeffer, & Robert I. Sutton, How and Why Theories Matter: A Comment on Felin and Foss, 20 Org. Sci. 669, 669 (2009).
228. Harvey I. Molotch & Deidre Boden, Talking Social Structure: Discourse, Domination, and the Watergate Hearings, 50 Am. Soc. Rev. 272, 273 (1985).
229. Pfeffer, supra note 221.
230. See generally Fabrizio Ferraro, Jeffrey Pfeffer, & Robert I. Sutton, Economics Language and Assumptions: How Theories Can Become Self-Fulfilling, 30 Acad. Mgmt. Rev.(summarizing research showing that economics courses can increase students' likelihood of defecting in prisoner dilemma games and engaging in other self-interested conduct) 8 (2005)
231. see also Constance E. Bagley, Gavin Clarkson, & Rachel Power, Deep Links: Does Knowledge of the Law Change Managers' Perceptions of the Role of Law and Ethics in Business, 47 Hous. L. Rev. 101, (reporting on research showing that a business law course can change students' attitudes toward ethics and the role of law in business).109-10 (2010)
232. Bagley, supra note 3.
233. See Barney, supra note 9, at 106-11
234. see generally Petaraf, supra note 70.
235. Bagley, supra note 3, at 380-81.
236. Marshall Clinard & Peter C. Yeager, Corporate Crime 20 (1980).
237. PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1271 (7th Cir. 1995); see also Bimbo Bakeries USA, Inc. v. Botticella, Civ. No. 10-0194, 2010 WL 571774 (E.D. Pa. Feb. 9, 2010) (applying the inevitable disclosure doctrine to the "nooks and crannies" in Thomas's English muffins).
238. PepsiCo, 54 F.3d at 1272.
239. Peter Drucker, Post-Capitalist Society 69 (1993).
240. Barney & Hansen, supra note 143.
241. Causal ambiguity makes it more difficult for competitors to imitate another firm's strategy. SeeRichard Reed & Robert J. DeFillippi, Causal Ambiguity, Barriers to Imitation, and Sustainable Competitive Advantage, 15 Acad. Mgmt. Rev. 88, 88 (1990).
242. Kim B. Clark & Steven C. Wheelwright, Organizing and Leading Heavyweight Development Teams, Cal. Mgmt. Rev., Winter 1992, at 9.
243. See generally Graham Allison & Philip Zelikow, Essence of Decision: The Cuban Missile Crisis 307 (explaining that the recommendations of key decision makers involved in the Cuban missile crisis were highly correlated with their functional responsibilities), 325-47 (2d ed. 1999)
244. Robert L. Nelson & Laura B. Nielsen, Cops, Counsel, and Entrepreneurs: Constructing the Role of Inside Counsel in Large Corporations, 34 L. & Soc. Rev. 457, 461 (2000).
245. Michele D. Beardslee, If Multidisciplinary Partnerships Are Introduced into the United States, What Could or Should Be the Role of General Counsel?, 9 Fordham J. Corp. & Fin. L. 1, 20-23 (2002)
246. See also Norman Veasey & Christine T. Di Guglielmo, The Tensions, Stresses, and Professional Responsibilities of the Lawyer for the Corporation, 62 Bus. Law. 1(describing interactions between inside counsel and managers), 13-18 (2007).
247. Sydney Finkelstein, Power in Top Management Teams: Dimensions, Measurement, and Validation, 35 Acad. Mgmt. J. 505, 505 (1992).
248. Michael L. Tushman & Elaine Romanelli, Organizational Evolution: A Metamorphosis Model of Conveyance and Reorientation, in 7 Research in Organizational Behavior 171, 171 (Larry L. Cummings & Barry M. Staw eds., 1985).
249. Deborah G. Ancona & David P. Caldwell, Demography and Design: Predictors of New Product Team Performance, 3 Org. Sci. 321, 323 (1992).
250. Sara L. Keck, Top Management Team Structure: Differential Effects by Environmental Context, 8 Org. Sci. 143, 143 (1997).
251. C. Chet Miller, Linda M. Burke, & William H. Glick, Cognitive Diversity Among Upper-Echelon Executives: Implications for Strategic Decision Processes, 19 Strat. Mgmt. J. 39, 39 (1997).
252. Keck, supra note 245, at 145.
253. Clark & Wheelwright, supra note 238.
254. Ancona & Caldwell, supra note 244, at 336-38.
255. See generally Chris Argyris, Reasoning, Learning and Action: Individual and Organizational (1982).
256. Matthew Parsons, Effective Knowledge Management for Law Firms 107 (2004).
257. Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization 6-7 (1990).
258. See Gilson, supra note 46, at 894 n.23 (citing Victor Fleischer, Deals: Bringing Corporate Transactions into the Law School Classroom, 2002 Colum. Bus. L. Rev. 475(describing several "deals" courses)), 490-92 (2002)
259. Andrew M. Pettigrew, On Studying Organizational Cultures, 24 Admin. Sci. Q. 570, 575 (1979).
260. Jonathan Weil & Alexei Barrionuevo, Duncan Says Fear of Lawsuits Drove Shredding, Wall St. J., May 15, 2002, at C1.
261. Richard A. Oppel Jr. & Kurt Eichenwald, Arthur Andersen Fires an Executive for Enron Orders, N.Y. Times, Jan. 17, 2002, at A6.
262. Thomas A. Schweich, Protect Yourself from Business Lawsuits (...and Lawyers Like Me) 54-58 (1998).
263. Jeffrey Pfeffer & Gerald R. Salancik, The External of Organizations: Resource Dependence Perspective 242 (2003).
264. Susanna M. Kim, Dual Identities and Dueling Obligations: Preserving Independence in Corporate Representation, 68 Tenn. L. Rev. 179, 206 (2001).
265. Mike France & Louis Lavelle, A Compelling Case for Lawyer-CEOs, Bus.Wk., Dec. 13, 2004, at 88. Of course, having a lawyer as CEO does not necessarily insulate a firm from legal problems, as seen most recently in the case of AIG and its lawyer-CEO Maurice (Hank) Greenberg (see Am. Int'l Group, Inc. v. Greenberg, 965 A.2d 763 (Del. Ch. 2009)). Firm culture can be very difficult to change, especially when the new lawyer-CEO was hand-picked by his or her predecessor. For example, Citigroup's lawyer-CEO Charles Prince was hand-picked by former Citigroup CEO and Prince's client Sandy Weill. See Loren Steffy, Citi Settlement Doesn't Mean Lesson Learned, Houston Chron., May 16, 2004, at 1.
266. Michael E. Porter & Victor E. Millar, How Information Gives You Competitive Advantage, in Porter, On Competition, supra note 7, at 75.
267. Linda M. Applegate & Joyce J. Elam, New Information Systems Leaders: A Changing Role in a Changing World, 16 MIS Q. 469, 486-87 (1992).
268. Jeanne W. Ross & Peter Weill, Six IT Decisions Your IT People Shouldn't Make, Harv. Bus. Rev., Nov. 2002, at 84.
269. Mark D. Lutchen, Managing IT as a Business: A Survival Guide for CEOs 8 (2004).
270. See generally Barney & Hansen, supra note 143.
271. Deborah A. DeMott, Colloquium Ethics in Corporate Representation: The Discrete Roles of General Counsel, 74 Fordham L. Rev. 955, 955 (2005).
272. Joseph Auerbach, Can Inside Counsel Wear Two Hats?, Harv. Bus. Rev., Sept.-Oct. 1984, at 80. Of course, even outside counsel are susceptible to client capture. SeeHugh P. Gunz & Sally P. Gunz, Client Capture and the Professional Service Firm, 45 Am. Bus. L.J. 685, 688 (2008) (explaining that capture occurs when "clients become so important to the professionals serving them that they lose the professional independence that is presumed by the profession to govern the relationship").
273. Kim, supra note 262, at 206.
274. See Sung Hui Kim, The Banality of Fraud: Re-Situating the Inside Counsel as Gatekeeper, 74 Fordham L. Rev. 983, (discussing the difficulty for inside counsel who are part of senior management to serve as adequate gatekeepers).998 (2005)
275. Corporate Counsel Face "Doing More With Less," 17 Corp. Counsel Weekly (BNA) 133 (Apr. 29, 2009).
276. See generally Jay B. Barney, Organizational Culture: Can It Be a Source of Sustained Competitive Advantage?, 11 Acad. Mgmt. Rev. 656 (1986).
277. Richard L. Daft & Robert H. Lengel, Organizational Information Requirements, Media Richness and Structural Design, 32 Mgmt. Sci. 554, 564 (1986).
278. Nelson & Nielsen, supra note 240, at 468.
279. Krasnikov, Mishra, & Orozco, supra note 159, at 164.
280. Bagley, supra note 3, at 384.