Friday, December 1, 2006

Lipshaw on Rationalization, Business Ethics, and the Art of Empathy and Dialog

Posted by Alan Childress

Just out on SSRN's Law & Society: The Legal Prof. journal edited by Bill Henderson is an article by Jeffrey M. Lipshaw (Tulane Law, and also LPB and MoneyLaw), entitled: "Law as Rationalization: Getting Beyond Reason to Business Ethics."  It is published at 37 University of Toledo Law Review Lipshawpic_3 959-1020 (2006).  Its abstract:

Embedded in the way we use the law is the tendency of human reason to justification; in the words of one philosopher, a thirst for rationality [that] is a major source of lies. I contend that this tendency is exacerbated by the conflation of what is knowable as a matter of science, and that which we might believe is normative. I rely on Kant's critique of theoretical and practical reason to assess claims to objectivity in social science approaches to law, and to suggest it is not surprising that the operation of theoretical and practical reason would tend to the conflation of the descriptive and the normative. When we understand the illusions of which reason is capable, we may be more circumspect about claims of objective knowledge and more willing to challenge assertions of a single right answer on normative issues (the modus operandi of most legal argumentation).

Nevertheless, we have a sense that there are objective standards of right and wrong, bespeaking right answers, if not single right answers, on difficult issues, and these are the basis for ethics, if not law. How does one bring broad universalisms down to practical application, and have the confidence one's judgments are right, and not someone else's view of dogmatism? I discuss the mystery that lies behind the process 300pxhindenburg_burning of judgment, and conclude that the best check against the illusions of reason is our ability to have a relation with, and understand the viewpoints of, others. In particular, I consider Buber's concept of dialogue, and how it might affect common types of ethical decisions in business.

December 1, 2006 in Abstracts Highlights - Academic Articles on the Legal Profession, Economics, Ethics, Lipshaw | Permalink | Comments (1) | TrackBack (0)

Is It Okay to Fudge to the Judge (If Your Opponent Misses It)?

Posted by Jeff Lipshaw

I've just been transfixed by a war story about a witness getting skewered on cross-examinationBeldar_150x183 because of a false statement in an affidavit prepared by his lawyer.  The war story comes from the cross-examiner, Bill Dyer, right, who goes under the nom de blog of Beldar (Conehead, I presume), to which Professor Hricik links over at Legal Ethics Forum.  Professor Hricik concludes with the warning that "it's always a 77nconeheads3 mistake to fudge the truth." 

It turns out that this story, with a couple tweaks by yours truly, fits nicely into a thesis I've been discussing at various law schools over the past little whileAn older and incomplete version of the thesis has been up on SSRN for a while now, but we can boil it down to the following:  when the contract says that you can only rely on its affirmative representations as to the state of a business you are buying, and cannot rely on anything outside the contract, what is the effect of the "anti-reliance" clause if it turns out the the contractual representation is literally true, but is a fudge?

The most articulate response to my thesis, which is that the contractual disclaimer has to be construed narrowly, is that contract negotiations among sophisticated parties are a stylized, ritualized business, and the ordinary use of language defers to the particular language of lawyers (and I suppose business people) in that particular setting.  Indeed, one responder said that the reason for the writing was to speak to a judge some day if necessary; hence, even more support for the notions that the only words with meaning were those expressly set forth, at least in the face of the disclaimer.  Indeed, on several occasions when I have strayed (no, that's misleading, I have charged) into a Coaseian default rule analysis, I have stirred significant response with the assertion that in that circumstance it is the fudger, not the fudgee, who is the best cost avoider, at least as to later disputes around whether the statement was a lie.  So it is incumbent (or the burden rests) on the fudger, not the fudgee, to make it clear that the parties have negotiated around the default rule.

I think what I am saying is controversial because it tends to undercut the lawyer's self-image of value creation (something on which it is difficult to have a balanced perspective if you've always been a lawyer, looking at the world through lawyer's eyes).  In particular, one response to the thesis is that making the language clear and precise is what we do as lawyers, and why do we bother if that's all for naught?  To the contrary, say my colleagues, we operate in a special community of language technicians, in which the relative cost-avoiding positions of the receiver of the statement (the fudgee) and the maker of the statement (the fudger) are up for grabs.

That is a cogent criticism, and I have heard it now on several occasions.  So with due credit to Mr. Beldar, I mean Dyer, let's take his war story, but with just a tweak to make it fit my purposes.  But it's long, so we'll do it below the fold.

Continue reading

December 1, 2006 in Abstracts Highlights - Academic Articles on the Legal Profession, Ethics, Law & Society, Lipshaw | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 29, 2006

Moving Laterally, Out-House to In-House

Julie Goldberg, right, a recruiter from Korn/Ferry, has a post over at on what it takes forGoldberg an in-house law department to recruit lawyers away from law firms, particularly given the escalation in salaries at big firms in large financial centers.

I agree with most of it - though there is a certain irony to reading about the attractiveness to lawyers of precisely the stock-based compensation that academic corporate lawyers are wont to debate - but one paragraph caught my eye as being wrong:

Although in-house lawyers put in long hours, their schedules have one big advantage over those of lawyers working in firms -- predictability. Do not underestimate the appeal of knowing that weekend and vacation plans will not be ruined. Work/life balance is now openly acknowledged as a factor in employment decisions, and top-notch lawyers demand time for life outside the office.

I don't know which corporation Ms. Goldberg is thinking about.  I'm pretty sure that if you counted up all the hours I would have billed, had I been billing them, in the first year after I left the law firm to go in-house, it would have been somewhere in the 2,700 hour range (compared to my high water mark, as I recall, in the law firm, of about 1,950).  That year also included something like eleven trips to Germany in ten months negotiating a joint venture, one of which was on about four hours' notice in the middle of a vacation - on a Tuesday morning, I was sitting by a beach in northern Michigan, and at 1:00 p.m. on Wednesday, I was in a conference room in Munich.

Taxi_meter_retro The great difference, to me at least, was the primacy of the result versus the primacy of the clock.  I know there are lawyers who can generate passion around what they do for others in the big firm context, but I couldn't.  The billable hour clock was always ticking in the background.  The 2,700 hours were fulfilling in a way the law firm hours never managed to achieve, and became something like the sense of time when you are fully engrossed in something other than watching the clock.

[Jeff Lipshaw]

November 29, 2006 in Billable Hours, Hiring, In-House, Lipshaw | Permalink | Comments (0) | TrackBack (0)

Courts, Contracts, Entrepreneurship, and Cognition

Posted by Jeff Lipshaw

Over at Conglomerate, Gordon Smith (Wisconsin), provides an update on his law and entrepreneurshipMueda piece, co-authored with Masako Ueda (Wisconsin - Business, right).

More to come somewhere somehow someday from me on this, but the subtitle of the piece "do courts matter?" evokes a fascinating (to me, at least) dialogue I had with a law and economics scholar in the last few days about the purpose of a written agreement.  When sophisticated business people think about agreements, and send their lawyers off to scriven, are they writing the agreements for courts or for each other?  Whether or not contracts are interpreted textually or contextually, it's probably fair to say that the lawyers, if you asked them, were doing their best to make the entire agreement textual, and not contextual.  And the reason for textuality is that the writing will be read and interpreted by others.  Or will it?  Have you ever set aside a draft and re-read it a year later?  Or re-read an old article that you wrote five or six years ago?  Who wrote it?

So I think there is something far more nuanced going on than the rational model that we write contracts because we are addressing the hypothetical judge who will resolve our disputes, and in doing so, apply ex ante the rules that have been laid down legally or linguistically, as a way now of controlling the future.  Hence, I've asked the question whether there is any real linkage between what the court ends up saying in a close case of interpretation and what the parties may have intended. 

I am very interested in, yet remain to be convinced of, the Smith-Ueda working thesis that courts as common law developers of a more flexible, adaptable law, as compared with the civil law, have a material effect on the facilitation or hindrance of entrepreneurial activity.  Here I return to my nascent meanderings about lawyerly styles of cognition from a few days ago as well as the post from November 20 on Schumpeter and entrepreneurship.  I would suggest that the way common law judges process data and apply rules in adjudication bears little resemblance to the way a Schumpeterian entrepreneur would process data and apply rules, including the rules, where he or she aware of them, laid down by the common law judges.  And if the response is, yes, but they have lawyers to make them aware of the rules, I ask, "Really?  How do you know?  And if they do have lawyers, do they listen to them?"  (Without giving it nearly the due it deserves, let's just play with the title of Frederick Schauer's Playing by the Rules.  What does playing by the rules mean to a court?  What does playing by the rules mean to an entrepreneur?  And what does playing by the rules mean toAyres_ian the entrepreneur's lawyer?  This is a little bit of a tease, but one of the management books boxed up in my self-storage unit is entitled First, Break All the Rules.  Here's more of a tease.  One of the few books authored by a law professor about entrepreneurial problem-solving itself has a rule-contrarian title: Why Not? How to Use Everyday Ingenuity to Solve Problems Big and Small by Barry Nalebuff and Ian Ayres (Yale, left).)

My intuition is that the rule of law, or more precisely, a society that values the rule of law, is an element of a social environment that fosters entrepreneurship.  No, it's more precise than that:  a society that builds the rule of law from Lockeian assumptions about the primacy of property, and the freedom to own it and trade it, fosters entrepreneurship.  There is a strong libertarian theme here - entrepreneurial communities are the wild west, wherein the notions of personal autonomy and freedom run deep, not just politically, but epistemologically and morally as well.  Is there a relationship between that underlying libertarianism and the presence of a common, rather than civil, law?  I'm not enough of a political theorist to know.  Judges could put a crimp in the economic incentives to creative destruction, but so could legislatures and executives.  But to me, that's like holding the tiller of a small boat on the crest of a tsunami, and thinking that because you can impede or enhance the progress of the boat, you control the tsunami.  Do tiller-people matter?  Yes, but not nearly as much as the tiller-people think.  In this analogy, the entrepreneurs are the seismic causes of the tsunami.

So I await this work eagerly!

November 29, 2006 in Economics, Law & Society, Lipshaw | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 28, 2006

New Jersey Ethics Opinion on In-House Lawyers Signing Non-Competes Leaves Me Puzzled

David Hricik (Mercer, right, and I swear that's the picture on his bio page!) over at Legal Ethics ForumHricik2_1 had a brief note on a recent New Jersey ethics opinion.  The opinion (if not Professor Hricik's picture - one assumes it was taken in connection with "International Talk Like a Pirate Day") is worth at least a little bemused puzzlement.

The question is whether it is ethical for an employer to require an in-house lawyer to sign what looks to me like the fairly standard employment non-disclosure agreement, which in this case, also includes the fairly standard non-compete clause.  (Let's assume the non-compete is otherwise enforceable in terms of geography and time.)

1.  The question itself, it seems to me, is problematic:  "whether an employer's request that its in-house counsel execute restrictive covenants. . .violates the Rules of Professional Conduct."  I can see that if I were the general counsel and a member of the New Jersey bar, my request to another lawyer would fall within the ambit of the RPC.  But if I am the general counsel, and the agreement is presented to me by the Senior Vice President of Human Resources (after approval by the CEO and the Board of Directors), how are the lawyers' professional rules in any way incumbent on these non-lawyers?

2.  The opinion says "it is conceivable that an in-house lawyer could obtain confidential information and/or trade secrets which would not be protected by RPC 1.6 or the attorney-client privilege.  Therefore, it may be reasonable for a corporation to request its lawyers to sign a non-disclosure or confidentiality agreement, provided that it does not restrict in any way the lawyer's ability to practice law or seek to expand the confidential nature of information obtained by the in-house lawyer in the course of performing legal functions beyond the scope of the RPCs."  I do not understand this at all.  I knew lots of stuff at Great Lakes that undoubtedly came to me other than in my capacity as a lawyer.  It has to be reasonable to expand the definition of confidential information beyond that which I learn in the course of giving legal advice.  If the impact is that I may not be able to be the general counsel for my direct competitor, why should I get a pass, as a lawyer, that other senior executives don't get?

3.  The opinion says that the "assignment of inventions" clause does not impact any ethical considerations.  That may be, but what if you design, on the company's time, a neat system for monitoring outside counsel?  Or develop your own store of Sarbanes-Oxley flow charts that you use in explaining the requirements of the law to the board of directors?  Are those "designs, processes or know-how" (patentable or not), and thus the sole property of the Employer?

[Jeff Lipshaw]

November 28, 2006 in In-House, Lipshaw, Professional Responsibility | Permalink | Comments (3) | TrackBack (0)

Monday, November 27, 2006

Lawyers as Cognitive Constitutivists: Reflections on the Sunday New York Times

Posted by Jeff Lipshaw
Two articles in the Sunday New York Times (Nov. 26, 2006), seemingly unrelated, made me think of Law in Everyday Life by Austin Sarat and Thomas Kearns (discussed in an earlier post), and, in particular, the particular world view, common among lawyers, that if I process sensory data in a cognitive way, so must everybody else.  Indeed, I find it interesting how lawyers (or people who "think like lawyers") over and over and over again, either pose non-cognitive issues as cognitive, or propose cognitive solutions to non-cognitive problems.

Here's what provoked me in the Times this morning.  (I will give a couple other examples below theMorgenson fold.)  Gretchen Morgenson (right, receiving her Pulitzer Prize) continues her Sunday Business section campaign on the subject of excessive executive pay.  I don't seem to be able to work up the bile for Morgensen's work that you can find over at Larry Ribstein's Ideoblog or in Holman Jenkins' column in the Wall Street Journal (see Alan's previous post on this), but I have to say I scratch my head every time I read her reporting on the subject.  I'm willing to accept as a given that the spread between top CEO pay and the lowest paid workers is increasing.  But (a) I don't really know what that means in terms of general social welfare, (b) is it any different than pay scale spreads in other areas where the market seems to identify "superstars" (like sports)? and (c) assuming that CEOs make too much money by somebody's standard, what is the alternative proposal? 

Morgenson's proposal appears to be more cure by the cognitive approach:  we determine value by heuristics, including comparables, so let's put in the proxy statement an incredibly detailed description of the heuristics by which the board determined CEO pay, and that will somehow cause the spread to shrink.  Hmm.  I seem to recall throwing a line in the proxy statement every year that said shareholders should be aware that we paid a bunch of our executives compensation in amounts that would cause the corporation not to be able to deduct all of it for tax purposes, and I don't think it made one whit of difference on what we paid people, or on what our shareholders thought of the company.  If the cognitive approach really worked, then we ought to be able to reduce housing prices in California by making every house buyer read a prospectus on the likelihood that the house is overpriced in relation to equivalent homes in Milwaukee or Des Moines, and in danger of destruction by tsunami, earthquake, or high force Santa Ana winds.  (I do remember the cognitive approach working once:  when Alene and I were doing Lamaze in her seventh month of pregnancy with our daughter, now 22, we saw the movie about all the things that can go wrong, and on the way home, she said, "okay, I've decided I don't want to be pregnant."  I suggested she take a cleansing breath and she smacked me across the head.)

More below the fold.

Continue reading

November 27, 2006 in Economics, Law & Society, Lipshaw | Permalink | Comments (0)

Wednesday, November 22, 2006

Heteronomy and Autonomy in Small Business Practice

Posted by Jeff Lipshaw

The USA Today delivered to my hotel room on November 20 had a special Money section devoted to the topic of small business.  The cover story is about Aaron Wolfson, who took five years to open The Savvy Gourmet, a cooking school, catering house, and kitchenware store in New Orleans, just in time to see it washed away by Hurricane Katrina.  And yet he came back with "a newHack business plan to suit the needs of a largely abandoned city."  (For more on the subject of urban entrepreneurship in New Orleans, visit Idea Village's website.  Or buy a CD from street artist and jazz musician, Hack Bartholomew, right, after sipping your cafe au lait and nibbling on your beignet at the Cafe du Monde.)

My students would accuse me here of being "emo," but I can't help but wax philosophic about it.  If heteronomy is the philosophical term for the world of physical cause-and-effect, of the inexorable tide of economic, demographic, and social forces, then autonomy, at least in small business, is the 180px1schumpeter spirit of the entrepreneur, who decides, as a autonomous agent, to intervene, as a matter of free will, in the face of those forces.  (It's fair here to accuse me of being a trumpeter of Schumpeter, left.  For a Schumpeterian view of legal education in general, see Jim Chen's post over at Money Law.)

I want to make the argument that neither the profession nor the academy has yet figured out how lawyers best assist this unusual creature.  Take the article by Rhonda Abrams entitled "9 Problems to Avoid by Planning Ahead:"  the categories are cash flow problems, partner break-ups, natural disasters, loss of a major customer, new competition, industry change, loss of key personnel, theft and embezzlement, and family problems.  Who more equipped than a well-trained lawyer to assist a client in planning ahead?  But how many of these contingencies are addressable in advance by the tools we teach lawyers?  I have argued before (in the DePaul Law Review, a publication I am gratified to find has achieved "top fifty status") that the prime means by which business lawyers attempt to impose order on the contingency of the heteronomous world is the institution of contract, which notwithstanding rational actor and behavioral economic theory to the contrary, is feeble at best.  If we fly-speck the specific recommendations in "Planning Ahead," only a few are expressly legal:  draw up a partnership agreement with a buy-sell mechanism, have adequate insurance policies against natural disaster, fraud, and theft, develop an estate plan for the owner-operator.

A lawyer's lawyer sees the world, I think, in simple models by which contracts are supposed to inhibit opportunism - the futures contract for the purchase and sale of wheat that gives the buyer a remedy against the seller's opportunism when the contract price was $100, and the market price on the date of sale is $120.  Indeed, the law is an element of the heteronomous world; it controls, restricts, limits the choices of the free agent.  The entrepreneur, on the other hand, sees the world as a moveable feast of phenomena, posing danger and opportunity to be seized and exploited, and choices to be made, over and over again.  "There is no rule for the application of a rule" teach the philosophers, and it might be the entrepreneurs' creed, because what the philosophers are really telling us is that what we think are rules for the application of a rule are not inherent in the rule, but in our social constructs around it.  Most of us believe the rule of 2-4-6-8 means that the answer is 10; the entrepreneur sees it as 12 or 19 or 1-5-6.

Does that mean there is no place for the traditional tools of the lawyer in representing the small business person or entrepreneur?  Of course not.  Those tools are part of the planning ahead.  But in my dream curriculum, the entrepreneur's lawyer has also honed her skills in "lawyer as conceptual blockbuster," in "lawyer as friend," in lawyer as counselor, in lawyer as ethicist (not just a legal ethicist, but deontological and consequential ethicist as well).  That lawyer is one who understands the process of judgment looking forward is far more complex and mysterious than the application of the legal algorithm embodied in a contract.

November 22, 2006 in Economics, Law & Society, Lipshaw, The Practice | Permalink | Comments (0) | TrackBack (0)

Sunday, November 19, 2006

Winning, Burn-Out, and Other Random Thoughts in an Airport on Sunday Morning

Posted by Jeff Lipshaw

My philosophical musings several weeks ago on the joy of winning were tested severely last night as Bogdanski my beloved Wolverines fell to Ohio State 42-39.  I remember watching the Stanford moot court finals many years ago (in which, as I recall, Lewis & Clark Professor Jack Bogdanski, left, was a finalist) where one of the judges was the late A. Leon Higginbotham of the Third Circuit Court of Appeals.  Either in post-argument or pre-argument comments, the judge said "a well-prepared lawyer never loses; the client may not prevail, but the lawyer never loses."  Is it mere rationalization, am I getting more mature (unlikely if you have seen me teach!), or does the outcome just not matter as much to me as heart and valor, even in defeat, and respect for a great opponent?  Congratulations to the Buckeyes.  You earned it.

On a completely different matter, the New York Times Business section this morning has a profile on Philip Kent, currently the chairman and CEO of Turner Broadcasting.  What struck me was the peripatetic nature of his career, from ad sales in the media business, to producing and selling news inserts for TV stations, to being a Hollywood agent at CAA (of Michael Ovitz and Disney fame), to running a book publishing and video distribution business at Turner.  I don't think the track of the typical law professor's career encounters this, and perhaps it is just me, but I've concluded after all these years that spending an entire law career, as many do, in the same firm, doing the same kind of work, progressing in the level of oversight and client contact, is still not a natural act.  There was kind of an unwritten rule in the corporate world that three to five years in most jobs was about the time it took to learn the job, do it well, and then begin the slide toward boredom (or in the extreme case, burnout).  I don't know if there is empirical data, but it seems to me that career angst - boredom, combined with attractive incomes that make it difficult to change - is relatively more common among lawyers than perhaps other professions (though I wonder what keeps filling cavities as a dentist new and fresh year after year).  But it always seems like the ex-yuppies running a B&B in Maine were big firm lawyers.

November 19, 2006 in Billable Hours, Law Firms, Lipshaw, Straddling the Fence, The Practice | Permalink | Comments (0) | TrackBack (1)

Friday, November 17, 2006

Lessons in Passion, Joy, and Energy from Professor Schembechler

Perhaps he did not teach things as consequential as we purport to teach in the legal academy, but Professor Schembechler taught and modeled character in a way that made us proud to be associated with him.   The team first, aspirations to excellence, respect for the person, and above all a teacher.  I can only hope that four days before I go I have this much passion, joy, and energy about what has been important to me in my life.

[Jeff Lipshaw]

November 17, 2006 in Lipshaw | Permalink | Comments (0) | TrackBack (0)

Thursday, November 16, 2006

Goodbye Peer Ranking; Hello Brain Volume!

Posted by Jeff Lipshaw

A good friend who is a federal judge in Detroit does the New York Times crossword puzzle every day to keep the mental juices flowing.  (I do it for the same reason, but only from Thursday throughSchool13 Saturday, but that is because, as my seventeen year-old son puts, "you are an arrogant ass.")

The Wall Street Journal is reporting this morning that physical, not mental, gymnastics are what keep the old noodle in shape.  According to a study published in the November issue of the Journal of Gerontology:  Medical Sciences, Prof. Arthur Kramer of the University of Illinois (Urbana-Champaign) and colleagues claimed that people who exercised as little as three hours a week "had the brain volumes of people three years younger."

We need to be clear here on the definition of brain volume, as reported by the WSJ:  "the brain's volume of gray matter (actual neurons) and white matter (connections between neurons)."  You measure brain volume with magnetic resonance imaging, and studies have shown that the bigger the brain, the better the thinking, the remembering, the cognitive flexibility, and the perseveration (although I did not see whether brain volume was related to a man's ability to see the butter when opening a refrigerator). 

There is research opportunity here.  How about a new empirical study in which we determine the average brain volume of law school faculties and law firm partnerships?   Wouldn't it be something to find out the USNWR rankings either correlate or do not correlate to average brain volume?  Think about the advantages.  Instead of the annual deluge of glossy law porn, we'd be rolling MRI machines into the lobbies in Palo Alto, Cambridge, Morningside Heights, Ann Arbor, New Haven, and Hyde Park.  Deans would be organizing calisthenics in the faculty lounge.  Faculty workshops would be replaced by brisk walks around the campus.  Aspiring lower tier schools could spend less time on lateral hiring and more time on Pilates.

Hutchins And the University of Chicago would have to disavow the famous line (which I recall being in the application materials when I applied to the law school back in 1975) of its former president Robert M. Hutchins (left, with Maude Phelps Hutchins): "Whenever I get the urge to exercise, I lie down until the feeling passes away."

November 16, 2006 in Lipshaw, The Practice | Permalink | Comments (0) | TrackBack (0)

Sunday, November 12, 2006

Back By Popular Demand - The Quadrant Matrix Theory

Posted by Jeff Lipshaw

Back by popular demand (well, maybe not popular, but one person keeps asking me about it), dredged up from the deep, dark recesses of the PrawfsBlawg archives, is my post on how to succeed as a consultant (or as a Harvard Business School prof).

* * *

There is a trick to establishing oneself as a wildly successful management consultant.  Here's how itTh_man24_1 works.

1.  Identify two necessary,  mutually interdependent, yet conflicting attributes or values.
2.  Plot one attribute low to high on the x-axis, and one low to high on the y-axis.
3.  Draw a rectangle with the x-axis on the bottom and the y-axis on the left.
4.  Bisect the rectangle vertically and horizontally to create four quadrants as a matrix.
5.  Identify examples for each quadrant of people, organizations, or whatever it is on which you are consulting that, in your opinion, have the two attributes in the following combinations:  low-low, high-low, low-high, and high-high.
6.  Make it clear that the correct progression in the matrix is from low-low to high-high (i.e., southwest to northeast).
7.  Offer a list of ten things the group hiring you can do to move from low-low to high-high.
8.  Close to thunderous applause, find the bar, and hope they have one of those huge bowls of boiled cocktail shrimp.
9.  Mail your bill for $5,000 for the day's work.

A less cynical take on this below the fold.

Continue reading

November 12, 2006 in Lipshaw | Permalink | Comments (1) | TrackBack (0)

Saturday, November 11, 2006

Antinomies and the Life of a Corporate Lawyer

Posted by Jeff Lipshaw

I will work with the Wikipedia definition of an antinomy as developed in Kant's work:  "the equally Kant rational but contradictory results of applying to the universe of pure thought the categories or criteria of reason proper to the universe of sensible perception."  So, for example, starting from the same empirical data, pure reason is capable of deducing the thesis that the universe has a beginning point, and the antithesis, that it does not.  Or reason is capable of deducing the thesis that causality means everything is determined, and the antithesis, that we have free will.

And so we find the corporate lawyer and the corporate executive faced with such antimonies, as pointed out in an eminently sensible way by Joe Nocera in the New York Times (November 11, Business Today) under the headline "The Paradoxes of Business as Do-Gooders."  The occasion is the annual Business for Social Responsibility conference in New York this weekend, at which companies like Starbucks, Time Warner, Chevron, Pfizer, and others are explaining why being good corporate citizens makes business sense.

Nocera observes, sensibly, that it is much easier to be a good citizen in a profitable company.  Indeed, that's consistent with the observation that environmentalism is a luxury of the developed countries; you don't worry too much about externalities when you are struggling just to house and feed people.  But the paradoxes and antinomies of the real world, faced by corporate lawyers and executives every day, are hardly the stuff of a solid, non-contradictory theory of human behavior.  SoPost from an empirical base, one side, represented in Nocera's article by Isaac Post (right) of the Competitive Enterprise Institute, says that corporate social responsibility "is a misguided attempt by a subcategory of business managers to deal with the crisis of corporate legitimacy."  Russell Roberts, an economist at George Mason University, adds "Doesn't it make sense to have companies do what they do best, make good products at fair prices, and then let consumers use the savings for the charity of their choice?"

But the nature of antinomy is that you can't win.  According to Nocera, "[f]rom the left, the essential criticism of corporate social responsibility is that it is little more than window dressing, intended to give companies a good name without having to back it up with real deeds."  Ah, would that the world were simple enough to explain by resort to the fruits of pure reason, notwithstanding that the same set of circumstances allows us to reason to wholly antithetical conclusions.

Last night, I had the pleasure of speaking for an hour, mainly answering questions about the life of a Apage_1 corporate lawyer, to the mergers and acquisition class taught by Professor Antony Page (left) at the Indiana University School of Law - Indianapolis.   The central question was - what does a general counsel do during an acquisition?  My response was that the general counsel has to understand the business deal and its importance to the company well enough to overrule high-powered Wall Street lawyers who are recommending that such-and-such a provision really should go into the agreement "to cover you just in case this-and-that happens," but also at the same time to understand when the language of a particular provision is important enough to stop the deal in its tracks.  That is the antimony of deal lawyering, because from the center of any such problem, you can always argue your way to either antithetical conclusion.  And so the students asked:  "how do you know which way to go?"  My only response is that of the Geoffrey Rush character in Shakespeare in Love who explained why everything in the hectic production of a play always works out, despite that "the natural condition [of the theater business] is one of insurmountable obstacles on the road to imminent disaster."

"I don't know; it's a mystery."

November 11, 2006 in Economics, Ethics, General Counsel, Lipshaw, The Practice | Permalink | Comments (0) | TrackBack (0)

Friday, November 10, 2006

Being Right Redux: Is Demonizing the Fruit of Modernization?

Posted by Jeff Lipshaw

The morning after the election there was an interesting column in the Wall Street Journal by a former Boston Globe columnist turned Sand Hill Road venture capitalist (hmm, interesting) named John Ellis on the strange death wish that seemed to underlie negative political advertising. 

Entitled "All Slander All the Time," it focused on Gallup polling showing that the overwhelming majority of voters in six states with closely contest Senate races viewed the advertising "as either 'somewhat negative,' 'very negative' or 'extremely negative.' Roughly a third of those surveyed in each state said 'extremely negative.'"  And Ellis notes the ironic effect:

What makes our politics so sensationally awful is not just the amount of money spent denigrating the category and the profession, but the equally stunning amount of energy that is expended by party apparatchiks to amplify the negative in news-media coverage of politics. And the news media are only to happy to comply. The truth is they can't get enough of it.

The net effect of this constant and unrelenting assault on politicians and the political process is voter resignation and ultimately a kind of doomed acceptance. It must be true. They must all be hypocrites, fools, thieves and scoundrels. They're talking about themselves, after all. It's $1 billion of self-portraiture.

For what it's worth, I couldn't help but juxtapose this with a blog post on combativeness and demonizing Andreaschneider_1 from several weeks ago:  the paper by Andrea K. Schneider (left, Marquette) and Nancy Mills entitled What Family Lawyers are Really Doing When They Negotiate.  To repeat, this was survey data indicating that in twenty-five years (1976 to 2000), the number of lawyers perceived as being adversarial/competitive versus problem-solving/cooperative has risen from 27% to 36% as a percentage of the total bar, and the number of perceived ineffective lawyers has risen from 12% to 22%.  Moreover, the aggressive lawyers are getting "more negative and nastier.  Twenty-five years ago, the effective competitive lawyers still had plenty of positive adjectives describing them, including convincing and experienced.  Today, that situation is quite different - the top seven adjectives describing adversarial lawyers are stubborn, headstrong, arrogant, assertive, irritating, argumentative and egotistical."

I'll add one more anecdote from practice.  Back in the eighties, I was a young pup lawyer on an antitrust case in which a dealer of a consumer product accused the manufacturers in that particular industry of a concerted refusal to deal, on the theory that the dealer was a price cutter.  Each of the defendants had the antitrust guru of one of the big local firms representing it, and there was a longstanding relational aspect to the interaction of defense counsel.  They had been in this position in other cases in other industries, and would likely be so again in the future.  At a certain point, one of the defendants decided this perceived coziness was not in its interest, and a lawyer from one of the big Chicago firms substituted in on its behalf.  He proceeded to conduct the litigation with an almost psychopathic obnoxiousness, which was obviously intended to provoke a quick settlement so as not to have to deal with him anymore.  The irony of all this is the lawyer ended up on the wrong end of a grievance, as a pro hac vice member of the U.S. District Court bar no less, in our jurisdiction.

I know my JSP-educated co-editor Childress gets nervous when I stray into sociology, but is this obnoxiousness and demonizing the fruit of the gemeinschaft (community) to gesellschaft (organization) modernization theory articulated by the German sociologist Ferdinand Tönnies (note we are not umlaut-challenged here at LPB)?  As the community ties break down, there is less social norming, less compromising, less "life is too short for this fight."  Remorse and sympathy are as much forms of conflict resolution as proving that one is right.  To tie back into Professor Schneider's area (as to which I retain my amateur standing!), think about how you might have successfully resolved a fight with a spouse or partner.  I suspect it had more to do with remorse or sympathy than proving to the other that you were right.  (On the political side of things, think about the organized effort to reconciliation in post-apartheid South Africa.)  But there is increasing reliance, within in the family or without, on systems and mechanisms of formal win-lose resolution, whether they are Robert's Rules of Order, litigation, or popular vote.

Ironically, Tönnies also observed that the community to organization trend of modernization is not consistently linear in that direction.  If we can think about stemming the tide of global warming, or the erosion of wetlands in the Mississippi delta, maybe it's not beyond our capacity to do some mid-course corrections on our need to be right and to show opponents not only to be wrong, but to be demons.

November 10, 2006 in Abstracts Highlights - Academic Articles on the Legal Profession, Law & Society, Lipshaw | Permalink | Comments (1) | TrackBack (0)

Thursday, November 9, 2006

Small Ball, the Dead Zone of Entrepreneurship, and a Capstone Opportunity for Business Law

Posted by Jeff Lipshaw

There is some interesting data about the bursting of the bubble in yesterday's Wall Street Journal, and it plays to what I think is a fascinating curricular possibility.  Consider this part of the dialogue Gordon Smith started over at Conglomerate on the subject of law and entrepreneurship.  Gordon's post is a take on the scholarship of entrepreneurship; I want to focus on the programmatic and curricular setting into which that scholarship might be placed.

In his "Portals" column (Nov. 8, 2006), Lee Gomes highlights a paper coming out in the Journal ofKirsch Financial Economics, authored by David Kirsch (Univ. of Maryland Business School, right) and others, suggesting that the actual failure rate of start-ups was far lower than popularly perceived, and in line with failure rates of firms in other industrial booms (like the development of the automobile industry).  According to the article, Kirsch says the popular conception, no doubt fueled by mega-failures like Webvan, eToys, and, is that only a few dot.coms survived the bursting of the bubble.  But, in fact, there is something like an 80% survival rate.

Most of these survivors, though, aren't the titans like Amazon or eBay, but much smaller efforts such as, which sells equipment to high-school and college wrestlers, what Prof. Kirsch called precisely the sort of demanding niche market for which Web shopping was invented.

These far more modest achievements stand in contrast to the "we are the next Microsoft" philosophy prevalent among those in the start-up and venture capital communities in the late nineties.  The study zeroed in on something I saw:  the Get Big Fast strategy.  Now I was not in one of the real hotbeds:  Silicon Valley, Austin, the Dulles Corridor, Boston.  I was trying to develop a practice in the Ann Arbor area, leveraging tech transfer out of the University of Michigan.  I'm not sure how many deals ever got done as a percentage of the ideas that got floated in our community, but there was a lot of venture capital money looking for investment, including Arbor Partners, a group that had come out of Comshare, Inc.; Avalon Partners, founded by the ex-president of Gateway; Woodland Ventures, looking for investments in the health care area; and the Enterprise Development Fund, founded by my friend, Tom Porter, and his business partner, Mary Campbell, the two of them really the godparents of early stage funding in the area.

How this translates into an opportunity for law school curricula below the fold.

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November 9, 2006 in Economics, Law Firms, Lipshaw, The Practice | Permalink | Comments (1) | TrackBack (0)

Monday, November 6, 2006

Legal Fee Audits, Document Retention Programs, Tired Solutions, and Blockbusting for Lawyers: Part I in a Continuing Series About Creativity in Problem-Solving

Posted by Jeff Lipshaw

The Money and Investing section of the Weekend Edition of the Wall Street Journal (Saturday/Sunday, Nov. 4-5) has a piece on corporate audits of the bills that outside law firms submit for services rendered.  This is but one example of the kind of fee-based offer of service you get as the generalWsj_header_408_62 counsel to a big company.  Document retention (euphemistic for document destruction) programs were another (a quick Google search shows you can buy one from Hunton & Williams, as an example and the ABA has materials out on them as well.)  We would regularly get high-powered sales pitches from vendors who specialized in flyspecking bills (as to the audits) and the law firms themselves (as to the document retention).  It was always a classic case of data against intuition, because it always seemed to me a real question whether there was any payoff, in either case, to what was sure to be a time and cost intensive activity.   

This is too big a topic to handle in one blog post, but I want to lay some groundwork first, and then in later posts come back to the relationship between business law, business lawyers, and the theory and pedagogy of creative solutions to complex problems.  Not to hide where I stand (because it may be a while before I get back to it), there's nothing wrong, per se, with legal audits or document retention programs.  I merely think that they are tired and uncreative solutions to problems.*  I have been thinking about the theoretical issues for a long time; nascent ideas about pedagogy are the result of a conversation I had yesterday about the courses you might build into a cutting edge business law curriculum, one of which might be an advanced seminar in creative problem solving techniques.   

Let's start with some basics in organization and management learning and come back in subsequent posts to the professional (and I will argue, theoretical and pedagogical) issues for lawyers.   This segment is devoted to what is known over in the business schools as "lean production" or "lean enterprise," a subset of which is the exercise in reduction of process variability (and therefore defect reduction) called "six sigma."  These terms are, in no small part, the upshot of a global revolution in thinking and action that dwarfs relatively "easy" problems like law school curriculum reform.  Over the last thirty years or so, an entire world (one in which most lawyers do not traffic) looked at the Blair_1accepted and traditional ways of doing things in human organizations, and realized they were outdated.  Talk about paradigm shift.  If one has been in that world (and law firms generally don't count), then reading an article about auditing law firm bills as the solution to a problem is like having someone's fingernails run across a blackboard.Stout  (The closest I am aware of any legal scholars tapping into this area is the Virginia Law Review article by Margaret Blair (Vanderbilt, left) and Lynn Stout (UCLA, right):  A Team Production Theory of Corporate Law.)

The first lesson, a description of the lean organization, and a couple relatively simple examples of the techniques, comes below the fold.

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November 6, 2006 in Economics, In-House, Law Firms, Lipshaw, The Practice | Permalink | Comments (0) | TrackBack (0)

Friday, October 27, 2006

Pine Tar, Zealous Advocacy and the Disney Case - More on the Ethics of Exercising One's Rights

Posted by Jeff Lipshaw

A few days ago, I commented on the Kenny Rogers-Tony LaRussa pine tar (or clump of dirt) incident in Game 2 of the World Series.  Steve Lubet (Northwestern and Legal Ethics Forum) commented: 

Let's assume that Larussa did make a spontaneous decision to defer to his own sense of justice as opposed to the positive law. The problem is that he wasn't exactly playing poker with his own money. He was acting as the employee of an organization, managing a team of professional athletes. Everyone involved has a serious stake in the outcome of the series, financial and reputational. what would give Larussa -- a lawyer, after all -- the right to privilege his own sense of justice over the positive law, in a situation where others (whom he did not consult) may suffer the consequences?

AperlmanAndrew Perlman (left, Suffolk) also over at Legal Ethics Forum has advanced the discussion with an analogy to the professional requirements of zealous advocacy.   I was a litigator for ten years before I moved into the corporate and M&A world, but one of my aphorisms of practice was "every time I thought I was either sublimely clever in pressing a rule-based advantage, it turned around to kick me in the ass."  But that's me, and it could well be I just wasn't very clever.

Yesterday, in BE class, we launched into teaching the Delaware Supreme Court opinion in Brehm v. Eisner, better known as the Disney shareholder lawsuit, concerning the compensation paid to Michael Ovitz upon termination after his fourteen month stint as Disney's president.  (I confess:  at one point, I couldn't help it and this came out:  "certain as the sun, rising in the east, tale as old as time, Beauty and the Beast,"* at which point I teared up, sighed deeply, and moved on.) 

One of the heretofore little-discussed professional issues was Sanford Litvack's conclusion that trying to assert that Ovitz could be terminated for cause was a "no-brainer:"  there was simply no basis for bringing Ovitz's conduct, even if obnoxious or insubordinate, within the clause.  And mind you, this was no small decision:  fighting the "non-fault termination" aspect of the contract could well have saved Disney a portion of that $140 million in severance cost.  Indeed, one of the plaintiffs' theories was that Litvack and Eisner breached the fiduciary duty of care by not asserting the claim.

Under the Lubet view, or under Andrew's zealous advocacy view, if Litvack concluded that Disney could pass Rule 11 muster (or the straight face test), did he have an obligation, moral or otherwise, to all the uninformed stakeholders (i.e. the shareholders) to pursue the claim, even if as nothing more than bludgeon to knock ten or twenty or thirty million dollars off the pay-out?  The similarity between the LaRussa judgment and the Litvack judgment, it seems to me, is the extent to which you are willing to employ EVERY means at your disposal to win (no pun intended - but playing hardball).

That was always the toughest kind of call for me as a general counsel.  Like Litvack, I would conclude that contesting a particular issue was a "no brainer" because in my judgment we had no case.  But I always wondered in those instances:  was I too nice?  or too ethical?  Somebody could cobble together enough of a position to cause some grief for the other side (because it seemed like people were always taking marginally ethical positions against us, and finding lawyers who would sign the pleadings!)  And a distinction as between LaRussa and Litvack, perhaps, that the latter disclosed his view to his principals but the former didn't, doesn't hold - because if I reached a legal conclusion and expressed it to the board, it was the rare case that anybody would question it.  In essence, my sense of ethics or my moral judgment, as the GC, became the moral judgment of the corporation.  I am sure it was the same for Litvack (well, maybe not - the case says Eisner checked with everybody!)

*Trivia bonus:  the voice of Lumiere, the singing candlestick ("Be Our Guest"), was Jerry Orbach, better known as Lenny Briscoe, the long-time detective on Law & Order.

October 27, 2006 in Ethics, General Counsel, In-House, Lipshaw, The Practice | Permalink | Comments (1) | TrackBack (0)

Monday, October 23, 2006

Tony LaRussa and the Mystery of Moral Judgment

Posted by Jeff ("My Favorite Number was Six Because It Was Al Kaline's") Lipshaw

I concede to nobody (well, maybe an individual - not a business - who actually kept season tickets for Comericathe last thirteen years or so) more Detroit Tiger fan bona fides than my own (see typically handsome Tiger fan, below right*), but my Old English D cap is off this morning to that lawyer (yes, folks, he has a law degree from Dan Markel's permanent gig, Florida State) who also happens to manage the St. Louis Cardinals, Tony LaRussa.Tiger_1

For those of you who weren't watching, or missed the sports report this morning, Kenny Rogers, a 41 year old pitcher, whose skill lies in his craft rather than sheer power, threw a gem last night, as the Tigers tied up the World Series at one game a piece.  But the big story is that the Fox television cameras picked up, in the first inning, a substance on the fleshy part of Rogers' palm that looked suspiciously like pine tar.  Now pine tar is a substance that is around just about every dugout, because batters use it to help provide a better grip on the bat.  But the rules in baseball are absolutely and unambiguously clear:  a pitcher may not use any foreign substance to affect the flight of the ball, or have it anywhere on his person.

8.02 The pitcher shall not . . . (b) Have on his person, or in his possession, any foreign substance. For such infraction of this section (b) the penalty shall be immediate ejection from the game. In addition, the pitcher shall be suspended automatically for 10 games.

There is no doubt in my mind that LaRussa knew the text of this rule by heart.  Yet he did not demand an inspection by the umpire, merely "complaining" between innings.  It appears that the home plate umpire said something to Rogers, and the substance was gone by the time Rogers came out for the second inning.  Rogers, by the way, after the game, was a paragon of inconsistency, but claimed it was a "clump of dirt" that he did not realize was there.  Right.  And I'm not sure if I'm wearing my glasses right now.

Now cheating in baseball (and I don't mean steroids) is the stuff of lore and legend, whether it has been emery boards, Vaseline (usually stored in the pitcher's nether regions), corked bats or stolen signs.  In his classic book, Ball Four, Jim Bouton claims that the Hall of Fame pitcher Whitey Ford could make a baseball dance funny if the league president's name was stamped crookedly on the ball.

Why then do I think LaRussa, as lawyer, deserves accolades for a sublime moral judgment?  More on that below the fold.

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October 23, 2006 in Ethics, Law & Society, Lipshaw | Permalink | Comments (10) | TrackBack (1)

Sunday, October 22, 2006

Being Right Redux

In the post that began the dialogue between David McGowan and me, I talked about the Sarat & Kearns take on law in everyday life, and their description of instrumentalists and constitutivists.  David appropriately jabbed me (horrors!) for my snarky reference to law and economics professors as an example of constitutivists, those who see the law as actually shaping society.

For a less Posnerian and more Willistonian-Langdellian constitutivism, see the series of comments to Gordon Smith's Training Business Lawyers over at Conglomerate.  I am happy to see that my point is not mere abstraction; there are people in the world who believe that all can be made right with a well-drafted contract.  Scriveners of the world, unite!  You have nothing to lose but your writer's cramp!

[Jeff Lipshaw]

October 22, 2006 in Ethics, Lipshaw, The Practice | Permalink | Comments (0) | TrackBack (0)

Friday, October 20, 2006

Missing Pro-posites*

Okay, enough with the serious stuff.  Let's play a game,  like Miriam Cherry's version of Sniglets over on PrawfsBlawg last month. This is a word game, and we are lawyers or law professors or law students (or in the case of my two readers, children of law professors) who rely on language to keep the dogs in Alpo, so it has something to do with the profession.  (I assume everyone who reads this blog is so literate they do the Saturday New York Times crossword puzzle in ink without mistake inside of fifteen minutes.)

The game is called Pro-posites.  In the last post I used the word disgruntled, which sounds like it ought to have an opposite:  gruntled.  Is anyone ever gruntled?  This is the missing pro-posite. 

Here's another:  inept.  I have broad experience in being inept.  If I practice more, will I become ept?

The format of Legal Profession Blog, being a part of the Law Professor Blogs Network ("our editors focus their efforts, in both the permanent resources & links and daily news & information, on the scholarly and teaching needs of law professors"), requires one of us to approve your comment before it's posted.  Any good faith attempt to supply missing pro-posites will be published.  (Sorry there are no other prizes.  All I could think of was the unused tube of Boudreaux's Butt Paste I used in Secured Transactions as an example of trademarks and copyrights.)

[Jeff Lipshaw]

*I'm sorry, Paul.  I know this is outside the scope of the blog, but I couldn't help it.  Don't fire me!

October 20, 2006 in Lipshaw | Permalink | Comments (11) | TrackBack (0)

"Them": Availability Heuristics and the Scholarship of Corporate Demons

Yesterday in my Business Enterprises I class, we moved into the fiduciary duties of corporate directors, a subject close to my heart, having counseled a public company board from 1999 to 2005, a period that spanned the burst of the Internet bubble, the Enron fiasco and its ilk, the passage of Sarbanes-Oxley, and the New York Stock Exchange's adoption of the governance standards in it revised listing requirements.  During that period, we did an partial IPO of an wholly-owned subsidiary, resulting in a controlled public company listed on NASDAQ, and later acted on behalf of all of the shareholders of the subsidiary to sell it in a cash-out merger.  We also pondered significant strategic redirection, saw the resignation of a CEO, and then merged the company out of existence.

So, as I observed to my class, I have perhaps a harder time seeing corporate directors as "them," and prefer to think not of directors as demons, or even as Richard Posner's faceless and automatonic "rational frogs," but as real human beings faced with difficult choices, and without the benefit of the hindsight that either litigators or law professors bring to the table.  Perhaps that is why I was taken with the even-handed approach of Professors Rasmussen and Baird in the article I highlighted several days ago.  I also suggested to the class, whether someday they are in the position of counseling, defending, or suing directors, they would be well served to appreciate the complexity of the ex ante decisions (whether or not it is a calculation) facing corporate directors.  Indeed, my pedagogical point is that this is at least some basis for the deference that courts give to directors, absent breach of the duties of care and loyalty, for actions taken in good faith under the business judgment rule.

Should we look at corporate directors with the glass half full or half empty?  I confess, having watched a white male conservative Republican director (one of our curmudgeons) argue that our non-discrimination policy should include a ban on discrimination on account of sexual orientation, and similar displays of independent-mindedness against type on a fairly regular occasion, I incline toward the former.  But I cannot deny the reality of what seems to me good judgment gone awry in what viscerally seems to be a non de minimis number of backdating cases.  (I have already expressed my view on that issue:  I would have criticized a general counsel who did not go beyond the strictly legal in pointing out the issues of truth-telling - or its opposite - in undertaking the practice.)

More below the fold.

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October 20, 2006 in Abstracts Highlights - Academic Articles on the Legal Profession, Clients, Economics, General Counsel, Lipshaw, Straddling the Fence, The Practice | Permalink | Comments (0) | TrackBack (0)