Friday, October 14, 2016
As a professor who moved from a law school to a business school, I remain amazed how little the two legal scholarly worlds overlap. I do, however, think the overlap is increasing somewhat, as more professors move between the two types of schools and the conferences and journals becoming a bit less segregated. That said, I imagine that many of our law professor readers may have missed legal studies professor Larry DiMatteo's (University of Florida, Warrington College of Business) 2010 American Business Law Journal article on strategic contracting. I had not read it until I moved to a business school and met Larry at a legal studies conference. Larry's article is proving useful in my current work, so I thought I would share it here with our readers. Abstract reproduced below:
This paper uses sources taken from the legal literature, as well as literature from strategy and human resource management. It explores Professor Gilson’s noted remark in the Yale Law Journal that “business lawyers serve as transaction cost engineers and this function has the potential for creating value.” This exploration focuses on the strategic use of contract law in gaining a competitive advantage and to create value. It begins by differentiating two frames of the contract paradigm. One is the internal frame in which contract law’s inherent flexibility allows for its use as a source of competitive advantage. The second frame is external since it focuses on the use of the contract paradigm in non-contractual contexts.
The paper examines the use of contract to create value and uses for examples, the commodification of information, licensing and IT outsourcing, and franchising. From there, the paper explores the use of contracts to sustain a competitive advantage (strategic contracting) and to create shared competitive advantages (strategic collaboration). It uses the creation and use of patent pools to illustrate both strategic uses of contract law. The next part focuses on the use of contracts to mitigate uncertainty in business transactions. It explores the strategic use of existing contract doctrines, the use contracts to insure performance and to deter opportunistic behavior, and the use of contracts to develop a preventive legal strategy. This is followed by the examination of contracting for innovation and contracts’ role in creating private governance structures, such as strategic joint venturing.
The final parts explore the use of contract as metaphor in nexus of contact theory in corporate law, psychological contract theory in employment law, and the potential abuse of the freedom of contract paradigm in limited liability company law. The paper then examines strategic responses to regulation by asking whether strategic avoidance or non-compliance to regulations has a place in a company’s legal strategy? The paper concludes by asking how does strategic contracting impact contract law? It answers the question by arguing that contract law change is inevitable due to a feedback loop.