Tuesday, January 26, 2010

The (Early) Triumph of Law and Entrepreneurship

Posted by D. Daniel Sokol

Because there is some overlap between entrepreneurship and antitrust, I include a cross post that I wrote for the Faculty Lounge.

How do you know that a field has "made it" in the legal academy?  The answer is when a school creates an LLM program in the area.  Luckily, this past week the Wall Street Journal Law Blog reported that not one but two schools are in the process of starting up Law and Entrepreneurship LLM programs - Duke and Colorado.

This semester in my own Law and Entrepreneurship class we just finished a unit on what is distinct about entrepreneurship as well as law and entrepreneurship.  I suspect that with the Kauffman Foundation providing the funding for cutting edge research in the area, within the next few years the field will look a bit more coherent to those outside of it.  

So, what is Law and Entrepreneurship? 

Generally speaking, “entrepreneurship” involves new products or services, new ways of organizing, or new geographic markets (collectively, “entrepreneurial opportunities”). A key feature of entrepreneurial opportunities is their novelty. Entrepreneurial opportunities may be novel in a strong sense, which typically implies a technological breakthrough, or they may be novel in a weak sense, such as opening a new restaurant in a vacant building. We define entrepreneurship as “engaging in a novel activity that carries substantial risk or uncertainty, in a sustained manner with the intent of creating an ongoing enterprise.” Operationally, this usually translates to “founding a new firm.” Understanding law is relevant to understanding entrepreneurship.

Focusing on “law” as it relates to entrepreneurship can mean various things, but the basic idea of “law and entrepreneurship” is to find either (1) a unique set of legal rules or legal practices in the entrepreneurial context, or (2) the unique expression or interaction of more generally applicable legal rules in the entrepreneurial context. “Legal rules” include constitutions, statutes, regulations, and common law doctrines. “Legal practices” include contracts or other forms of private ordering. Further, we include “legal bodies.” By “legal bodies” we mean the personnel, technologies, facilities, operational routines, etc. that implement legal rules and practices including the legal profession. For example, professions are organizers and rationalizers of the organizational environment. Legal bodies include the linkages to work on law firm management, legal ethics, and the nature of corporate legal work.

In my own research in this area for an article in which I am writing with Gordon Smith(BYU Law), we note that lots of the existing literature in entrepreneurship is fundamentally about legal issues.  Nevertheless,  academics in other fields that have been active in entrepreneurship research (sociology/org theory, accounting, finance and economics) for the most part have yet to make these connections explicit in their work.

As I explained to a colleague on Friday who wondered why the "law" part is so important if it has not been explicit in much of the non-legal research to date, my answer to him is that the "law" is like the Book of Esther.  Unlike other books of the Bible, God (in all possible variations of the name) does not appear even once in the Book of Esther.  However, as we learned in Hebrew School, this does not mean that God is not ever-present in the story. 

Biblical allusions aside, law and entrepreneurship is a hot field and one that I think will continue to grow in part because the study of entrepreneurship  has taken off in many universities.  With BIGLAW jobs perhaps no longer guaranteed for students, law and entrepreneurship allows students to access an area of law where jobs might be possible for those who are willing to take on some risk.  Additionally, increasingly the structure of BIGLAW might make a number of current BIGLAW associates and partners more willing to take the plunge into a fascinating area of law that is a driver of US innovation and growth. 


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