Business school candidates are often required to demonstrate a work history as a part of their admission process. According to some schools, a work history demonstrates potential career success. For others, a work history ensures that incoming students have a context for interpreting classroom material and an ability to contribute to class discussions. For most, a candidate’s work history demonstrates his/her leadership potential.
Law schools, however, do not employ this method. Law schools value demonstrated and potential cognitive abilities in their students because the “job” of a law school student is to process information. Law school students, read, write and, occasionally, regurgitate. The student is also valued on his/her ability to compete with others in a stressful environment with tight deadlines, too much work and not much teamwork.
While law schools do offer classes in negotiation, mediation and alternative dispute resolution, these are often “side notes” to core classes in contracts, torts, criminal procedure and corporations. Some law schools go so far as to offer accounting and opportunities to cross-specialize by obtaining a joint masters. These are great programs — perfect for training the next batch of judges, constitutional law gurus and more professors. And society will always need talented jurists, gurus and professors.
However, for restructuring and commercial lawyers, business schools got it right. No matter how talented, experienced and thoughtful a law professor is, only “work” teaches the critical skills that are needed by counsel who negotiate for a living. And this does not mean negotiating with just adversaries.
One of the author’s associates, a “recovering” litigator, analogizes chapter 11 to litigation to a moon mission. As a litigator, if the client states that he/she wants to go to the moon, counsel pulls out a pad and pen and asks, when? However, if a client makes that same statement to a restructuring attorney, counsel puts the pad down and asks, why? If the client answers, “I want to go somewhere white, cold and flat,” restructuring counsel will likely ask a few more questions and suggest Alaska as an alternative destination.
Clients demand efficiency. Work is work; whether you bag groceries, make lattes, bus tables, clean stalls or sell makeup, it is all the same. Ultimately, someone is paying another to accomplish a task that they do not have the time or desire to complete themselves. Good employees learn quickly to accomplish the task that has been set out; excellent employees find better ways to accomplish that very same task. Clients need attorneys to help them figure out when it is time to pick Alaska over the moon and why that choice makes sense for their situation.
Clients have changed how they purchase legal services for their companies. In-house counsel, like his/her managerial counterparts, must demonstrate value, service, quality and, ultimately, effectiveness in their work product. The more effective a lawyer is, the more efficient. Clients increasingly demand efficiency.
A good lawyer uses a variety of skills to be effective. Results are sometimes softened elegantly with a bit of psychology, financial savvy, some tax benefit(s) and a dab of courtesy. An upset client sometimes needs to be listened to first, as opposed to being told that the business is failing and there is no hope. The most effective lawyers increase a client’s likelihood of gain by considering nonlegal elements, long-term plans, motivation and personal needs.
Common value propositions are fixed fees, lower hourly rates, blended rates and contingency arrangements. However, “value” for a business lawyer — especially one that specializes in debtor/creditor matters — must also include a holistic understanding of business, finance, taxation and psychology. Most importantly, the lawyer must understand how to use these disciplines when providing a client with legal advice and strategies.
In a chapter 11 restructuring, there are numerous issues over which a debtor can disagree with another party in interest. At times, the positions of the parties flip-flop. Understandably, each constituent has its own motivation and agenda. Running a chapter 11 case is often more akin to a 3-D chess game than a rank-and-file “Law and Order” episode.
So, if the key to a successful bankruptcy case is lawyers knowing how and when to cut a deal, does this mean that all law school students must learn such skills on the “fly” in between briefing cases and memo-writing? Is there an alternative?
First, law schools should consider adopting, in part, the business school model. Some work experience is key for the majority of lawyers to be successful. Having to deal with an “unfair boss” and “unruly customers” can teach more about how to negotiate (and not) than any classroom project. Law schools should also consider requiring mandatory internships, externships or clerkships with a variety of institutions to emphasize cross-disciplinary skills.
Second, law firms employing summer associates should rethink the projects given to these associates who wish to work in restructuring and/or commercial law after graduation. Instead of having all associates write memos and research for eight weeks in between “lunch dates” and firm events, why not require a longer period of service? Why not have summer associates also intern for the firm during the school year so that they can work on projects emphasizing big-picture issues and strategy? There is a huge learning curve gained from being a part of a deal instead of pretending to negotiate one in a class.
Third, clients should also contemplate “soft” skills when considering the retention of counsel. Rates are important, along with subject-area expertise and case experience. However, in restructuring, the ability to cut a deal can save a client more than being bogged down in litigation. It all goes back to Alaska vs. the moon. Sometimes clients, on principal, want to reach the moon, but ultimately, we all know that reaching Alaska has a better success rate.
It has been said that a mediocre settlement is better than good litigation. A wise mentor once said that in bankruptcy cases, aim for a settlement with which the client can “live” and then move on. Teddy Roosevelt’s philosophy of walking softly and carrying a big stick is consistent with this philosophy. In restructuring, the “big stick” in this analogy is a thorough understanding of the law. However, how attorneys walk around with the stick is the difference between an acceptable settlement and the “Punch and Judy Show.”[1]
Too often, commercial and restructuring attorneys “know” the law, work hard and have a great attitude, but their lack of understanding of key concepts in finance, business, psychology and taxation are implicated in crafting settlements. As a result, clients spend unnecessary time, resources and energy in litigation.
In business school, students are taught that one way to evaluate litigation is by multiplying the likelihood of success by the value of the likely outcome. Thus, if there is a 50 percent chance of winning $1 million, the appropriate settlement is $500,000. Several years ago, the author handled the reorganization of a large real estate developer. Whenever we considered the sale or surrender of property, we analyzed how much state and federal taxing authorities would effectively “subsidize” the sale or surrender of property based on the original purchase price, discharge of indebtedness and sale price. These analyses facilitated many decisions.
The other key skills that work experience can teach include motivation, perspective and image. What does your client need and want? What does the adversary really want and need? What does the situation look like from the adversary’s perspective? How can a resolution be fashioned that makes both sides appear reasonable and also appear to be winners? These factors can be more important than the law in crafting settlements.
Editor’s Note: For more insight on this topic, purchase Survival Guide for the New Lawyer: What They Didn’t Teach You in Law School, now available in the ABI Bookstore (abi.org/bookstore). Members must log in first to obtain reduced pricing.
[1] See, e.g., “Santa Claus’ Punch and Judy,” available at archive.org/details/santa_claus_punch_and_judy (a clip from a 1940s movie with a well-known puppeteer performing both characters; last viewed July 23, 2015).