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Berkonomics

The value of legal advice isn’t measured by a law degree.

                Over the years in business and as a member of over forty boards, I have received good advice from corporate attorneys and on occasion bad advice as well.  There is a line that should be drawn in a relationship between corporate attorney and CEO or board.  Attorneys are paid to protect the corporation, not to give business advice.  Some are experienced enough to provide great business advice. But the law degree they earned does not assure that, even though most CEO’s respect the advice they receive from their attorney highly enough not to doubt the conclusions or the experience behind the conclusions offered. 

                And since attorneys are paid to protect, often they will give a litany of warnings about what could go wrong when accepting a contract clause they have been trained to challenge.  There comes a time when a CEO must decide to reject what may seem like important good advice from the attorney and chance acceptance of terms within a contract that may cause risk, but controllable risk or risk that is so remote as to be worth the acceptance of the business represented by the contract at hand.

[Email readers continue here…] I was chairman of a company that had been offered an investment by a Fortune 500 company making a strategic investment in our business, which was capable of driving new demand to the large company though a series of new web services creating a greater need for the large company’s products.  The business terms had been agreed to between the business development officer of the investing company and our board, as both companies turned the details over to their respective attorneys for documentation. 

               The attorney for the investor was a member of a large, respected law firm in Silicon Valley, and certainly was full of himself as sole legal protector of the rights of his very significant investor.  As drafts of the otherwise standard investment agreements passed from him to our attorney and our management, we immediately spotted a significant number of terms we not only had not agreed to but were contrary to the spirit of the investment.  The attorney held fast at every challenge, stating that “these terms are standard for our client and cannot be changed.”  We appealed to the business development executive, who deferred to the attorney restating that the terms were unchangeable as far as the big company was concerned. 

               After conferring between our attorney and board, we walked away from what would have been a fine strategic partnership, killed by an attorney who probably understood the client requirements but was unwilling to offer flexible solutions to problem areas. That attorney had made what we considered business decisions on behalf of his client.  By the way, we immediately found a willing replacement that had an attorney not quite so full of himself and quickly concluded a similar deal to the acceptance of all.  And to this day, I caution my CEO’s not to deal with that Fortune 500 firm because of the experience we had with its attorney.  You never know how much far reaching an action can be, given the speed and extent of communication between CEO’s today.

  • Rich Greenhalgh

    How very true. I was fortunate when I worked at Paramount Pictures. Their legal people were very good. I spent so much time in their legal department reviewing contracts, they wanted to give me an honorary law degree.

  • Huw Jones

    Dave-
    Once more you have hit the nail squarely on the head. Your story is so true. I am an Attorney, but having both been through an MBA and spent 15 years’ in the corporate world I know both sides of the story. The one bit of advice I would have offered is that the inside business development guy should have pushed the matter up to the COO/CEO to make the decision and override outside counsel. If he didn’t, shame on him for passing the buck to outside counsel.

  • JJ Richa

    I agree with Dave. This is a great example of the influence attorneys have on their clients.

    As I’m very sensitive to this matter, I’ll just add few words to reflect my experience on the opposite side of the spectrum. Early on, I had gotten burnt couple times by receiving the wrong advice from my attorney in the spirit of getting things done and protecting the company’s interest. The attorney was loose and cooperative with his counterpart. From a legal stand point, he was shortsighted and failed to look at the entire picture and the long term interest of the company – resulting eventually in imposing irreparable harm along with significant financial burden.

  • Dave:

    Great post–an attorney who understands how to get business done is worth their weight in gold.

    I have had the good fortune to work with several, and the common thread seems to be keeping a balance between managing risk and actually concluding transactions. The good ones make the risks clear, offer solutions to address them, and then stand back to let the management team make a decision.

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