« Institutional Investors Do Not Make Claims | Main | Spitzer's Office Wins a Big One »
February 21, 2006
Professor Crespi Question
Professor Crespi from SMU has asked me to include the following observaton about law teaching:
TOPICAL COVERAGE IN THE INTRODUCTORY
LAW
SCHOOL
BUSINESS LAW COURSE
I regularly teach the four-credit Business Enterprise course at the SMU School of Law, our basic introductory course to corporation law. I have found that I have to spend two full weeks at the outset covering in some detail the basic principles of agency law and partnership law, since those topics are essential for understanding most of the relevant governing frameworks for the many other entity forms, and are no longer covered in a dedicated Agency and Partnership-type course in our curriculum. In addition, I have to spend at least one class covering basic accounting principles, one or two classes covering basic federal and state entity taxation principles, and two full weeks of basic finance and statistical concepts (discounting, expected values and variances, risk analysis, diversification and portfolio theory, the capital asset pricing model, option pricing theory, the efficient capital market hypothesis, etc.), since as Bernard Black, Roberta Romano and numerous others in the field have made clear at least a basic grasp of all of those concepts is now absolutely essential for one to be able to provide competent transactional and legislative/administrative representation in the large law firm setting. This all means that fully 20 of my 56 50-minute class periods are already committed before I can begin to delineate the major features of each of the now many proliferating legal entities, and to address corporation or securities law issues. The price that I and my students must pay for this breadth of introductory treatment is obviously more limited coverage of significant corporate and securities law issues. It is unfortunate (and probably inadvertent) that the basic business law course at SMU (and, I suspect, elsewhere as well) has had to become in recent years the primary locus of very concentrated and consequently somewhat superficial remedial education for aspiring corporate lawyers who either do not have other access to, or are not advised of the importance of, or who simply unwisely choose not to first take more extensive preparatory courses in these areas I have noted above before enrolling in corporation law courses that necessarily must presuppose some such background if cutting-edge issues are to be discussed. I welcome comments regarding my observations. Greg Crespi
February 21, 2006 in Business in Law Schools | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341bfae553ef00d834ab6eb869e2
Listed below are links to weblogs that reference Professor Crespi Question:
Comments
These are valid points, but corporate law education in law school must start somewhere. We cannot really have pre-reqs for Business Associations. We cannot expect or even desire students to start thinking about exactly what they want to practice before coming to law school. This course needs to be broad (so that many new lawyers can learn these important details) and available early (to provide a foundation for other corporate and securities law courses). It is right to worry that anyone taking only this class must get broad exposure to many pertinent topics. But, maybe law schools need to understand the importance of many of these concepts and incorporate them somehow into the first year cirriculum (which could be greaty enhanced at many schools). Or, perhaps some BA professors need to take a more realistic look at what students need to get out of this course: concepts, issues, real understanding of what a corporate lawyer has to do for his/her client but maybe not a complete introduction into accounting or present value or triangular reverse mergers, for instance. Those are all important concepts and the conscientious aspiring corporate lawyer will know to look elsewhere for such education (hopefully the law school offers such content in other courses), but BA professors need not feel like they have to turn out a completely equipped, ready-to-go corporate lawyer based on one semester of BA. No law firm expects them to anyway.
Then again, maybe law schools could demand more of students and teach them more of this stuff in one class. But, I doubt that most BA professors who really teach all of these kinds of important topics really test on them, and if you are not going to require the students to really learn it (and how else to require it if you do not test on it) how to you expect them to retain all of this stuff that you think is so necessary?
Do not get me wrong, I had a very fulfilling and very deep BA class in my law school and it was probably my favorite law school class (making some later business classes not as fulfilling). And, I am in favor of deep intense law school classes. We need to teach law students more law, especially more corporate law, finance, and realities, but for most schools, that needs to come from a broader business curriculum or a more practical and up-to-date first year cirriculum.
I do not know that the author above intended to blame the students, but I think there are other solutions to consider before blaming the students from stopping the professor from being able to get into "cutting-edge" topics in what has to be their first corporate law exposure. That initial corporate education has to start somewhere in law school; many of those students will not face those "cutting-edge" issues (heck, many cutting edge lawyers do not face them, no matter how interesting they seem to professors); and maybe what we are really talking about is more advanced classes in business/corporate law, which hopefully more faculties and law schools will call for. Though, admittedly, my hopes are low.
Posted by: Steve | Feb 22, 2006 8:42:32 AM
I'm curious about the empirical basis for the observation that the following are necessary for basic competence in transactional legal work: "finance and statistical concepts (discounting, expected values and variances, risk analysis, diversification and portfolio theory, the capital asset pricing model, option pricing theory, the efficient capital market hypothesis, etc."
As interesting as I think all of those are from an academic perspective (and I mean that - it is not sarcastic), I spent 26 years in law firm and in house corporate practice (including 6 as the GC of a Fortune 850, NYSE company whose treasury department was doing complex and GAAP compliant transactional and balance hedging), doing deals in the billions of dollars, and hiring elite law firms. Never once did the firm's, much less any individual lawyer's, competence in diversification and portfolio theory, statistical concepts, capital asset pricing models, etc., etc. ever come up. More likely what one was looking for was the ability to deal with the more prosaic issues of basic business associations, particularly around the fiduciary duties of directors and around the structuring of transactions (which almost always involved tax issues, but those issues were always addressed by tax specialists).
Even the reams and reams of investment banking pitches, including valuations, that you see in the course of a transactional career are capable of being understood with a modicum of exposure and education.
I agree it's not possible to be a competent corporate transactional lawyer (or a corporate, antitrust, securities or commercial litigator for that matter) without understanding the basic concepts of accounting and financial statement presentation, but it seems to me trying to jam all of that in a basic BA course is 100 pounds of potatoes in a 25 pound sack, for a recipe in which you don't need 100 pounds of potatoes.
I think the more sophisticated theory and practice issues belong in upper level courses. I have taught advanced venture capital courses, but even there the closest we got to option pricing theory was to understand the different assumptions, for example, that go into Black-Scholes versus binomial. Indeed, I think it's really the predilections and skills of the teacher more than what will be required in practice by way of content.
Two final thoughts: I taught a basic UCC Article 2 course and thought I could break the tedium by doing occasional lectures on things like how a finance lease is priced, and why it benefits both sides (and hence why some of the provisions of Article 2A are important), or commodities hedging. One group of students loved it because it was real world; another group hated it because it wasn't going to help them on the bar exam. So you can't win.
Finally, I would be interested in the results if a survey were sent to general transactional big firm lawyers (not people doing exotic derivatives) in which the questions were something like (a) whether they called upon those subjects in practice, (b) whether they had any education or training in those subjects in law school, and (c) if not, they should have. My intuition (and casual empiricism) tells me these are subjects (at least the deep theory) of far more interest in academia than in practice.
Posted by: Jeff Lipshaw | Feb 22, 2006 9:33:22 AM
"Finally, I would be interested in the results if a survey were sent to general transactional big firm lawyers (not people doing exotic derivatives) in which the questions were something like (a) whether they called upon those subjects in practice, (b) whether they had any education or training in those subjects in law school, and (c) if not, they should have."
I've been teaching Business Associations (3 credit hours) for only 3 years, but prior to that I was a corporate lawyer in one of the ten largest law firms in the country. It was a broad-based corporate practice, not confined to exotic derivatives or even to public companies.
So to answer Jeff Lipshaw's proposed survey questions regarding the topics of discounting, expected values and variances, risk analysis, diversification and portfolio theory, the capital asset pricing model, option pricing theory and the efficient capital market hypothesis:
(a) whether they called upon those subjects in practice -- Not as part of the function of rendering legal services. Occasionally a corporate lawyer will read about those issues in a valuation appraisal, or accounting footnotes, or the MD&A of a registration statement. However, the attorney is not expected to be the expert on those issues. Financial experts of one ilk or another are charged with those tasks in a transaction. It is nice to know what those mean, but not meaningful to the corporate attorney's role.
The benefit to understanding those concepts is that you will appear more literate to your clients. However, some clients are actually offended when you cross the line and play financial analyst when you are charging them a huge hourly rate for legal services.
Of the subjects listed, I think discounting would be the most valuable, assuming it is used in a time value of money framework.
(b) whether they had any education or training in those subjects in law school, -- Absolutely none, apart from factual descriptions in opinions reprinted in the casebooks. Most of what I know about those subjects came from (1) outside reading, in connection with understanding personal financial issues and (2) reading collateral documents as part of my job as a corporate lawyer -- though as explained above, it was not my responsibility to comment on, correct or even understand those documents in most cases. Like Jeff Lipshaw says, you just pick it up.
(c) if not, they should have. -- I suppose if they were free it would be nice to know those subjects, but by no means essential to a corporate practice. By "free" I mean the opportunity to learn those subjects without the loss of more essential topics (financial statement understanding + tax basics and other transactional legal issues).
In hindsight, what I was most underprepared for when I left law school were (1) transactional structuring (i.e., how deals are put together in the real world), (2) what actual deal documents look like and (3) how to facilitate the transaction for clients so that your legal services are viewed as "value added" rather than as "deal killers."
Posted by: Jeff McFarland | Feb 28, 2006 12:31:21 PM
