Vet Your Lawyer

4 of 5 parts, by Richard J. Goossen.

III. Lawyers: Managing Or Managed

The third aspect of managing the legal process is the relationship between the entrepreneur and his legal counsel. Despite the differences in the entrepreneurial and legal subcultures, the entrepreneur will need the services of a lawyer at some time. But the entrepreneur will undermine the profitability of his business if he does not manage his legal counsel.

Know What You Need

Entrepreneurs can manage their legal counsel by understanding the differences among the types of legal advice they need. Preventive? Ongoing? Remedial? Preventive advice assists the entrepreneur to avoid issues. An area where this makes the most sense is tax advice, which will assist an entrepreneur before entering into a transaction. One lawyer friend of mine is a tax specialist who is worth every penny of his $400 an hour. With fifteen years of specialized training, he can save his clients hundreds of thousands of dollars.

But lawyers always recommend that a client see them before they enter into any transaction. This may be a worthwhile approach in theory. In reality, most entrepreneurs cannot afford to do so, and a lawyer’s involvement at an early stage can increase the entrepreneur’s cost of doing business.

Lawyers also can provide advice as part of the corporation’s steady activities — maintain corporate records, review contracts, or handle property transactions. But most lawyers can do this legal work. No specialized expertise is required, so the hourly fees can be less.
Another form of advice is remedial — fixing something that has gone wrong. The lawyer may think that his entrepreneur-client is constantly getting himself into a pickle. But for the assistance by their legal counsel, untold misfortune would rain upon him. And this is true.
The only time the lawyer sees the entrepreneur client is when he needs assistance. The lawyer might think “I told you so” and “Why didn’t he talk to me before he entered into this transaction?” No matter how much preventive and ongoing advice lawyers may recommend, they render far more remedial advice.

Entrepreneurs are better able to manage their legal counsel and assess the value and need of the advice when they can determine whether it is preventive, ongoing, or remedial. Like insurance or preventive medicine, preventive advice needs to be judiciously used. Ongoing advice is needed — one needs to maintain corporate records. Remedial advice is needed to devise comprehensive solutions.

Know Your Lawyer
Entrepreneurs must assess the advice they receive. The competence, personality, and motivation of their lawyer will always affect their legal matters. Often a client will blissfully state, “My lawyer said…” as if the pronouncement came from the Oracle of Delphi.

Clients often think that since they paid for the advice, it must be infallible. This misses understanding that the lawyer will provide his interpretation of the issue. The lawyer may not even be competent. And, if he is not, how will the client, who is relying on the lawyer, know? The reality is that a lawyer may not be particularly good at his chosen specialty. State bar membership does not equate with experience in the type of law where you require expertise.
Further, the personality of your lawyer will affect your case. Is he a dignified bully or a skillful conciliator? A bullyboy approach can bring out the worst in all the parties. An unskillful conciliator may not extract the best settlement.

Another factor to consider is the motivation of your lawyer. Your lawyer may be juggling 10-20 cases — is yours a priority? An entrepreneur has to bear in mind that no lawyer is as interested in his file as the entrepreneur himself. A lawyer may even lose interest, depending upon how the case is proceeding and how he is being remunerated.

I once had lawyers represent me where partial payment was shares of a publicly traded company. As we proceeded toward trial, the value of the shares of the company dropped dramatically and so did the lawyer’s interest in pursuing the matter.

Because of these foibles, a lawyer can mismanage a case. The likelihood of this increases when the entrepreneur does not do what he can to manage the file. An entrepreneur who keeps the lawyer accountable serves his own legal matter well.

Don’t Give Away the Process
An entrepreneur must manage the role of his lawyer in communications with an opposing party. Having lawyers communicate with one another is dangerous for several reasons. It can be an expensive process — the client will be pay for all phone calls, correspondence, and meetings. There will be little opportunity to assess the value of the communications. The client will not know whether time is being well spent and will get the lawyer’s spin on the value of this communication. The cost of the communication process can be dramatically heightened through posturing or personality conflicts. Some lawyers have a need to demonstrate their expertise at the expense of their clients.

The communications may focus on all imaginable issues, not just on the relevant ones. Lawyers will anticipate issues and consider all the ways those issues might be dealt with if they occur. Lawyers will keep asking questions, coming up with every last contingency. This is when the clients may begin to question the value of their relationship to each other. Reviewing all the details is important in one-off transactions where you are not likely to run across the party again. By contrast, where you are likely to have an ongoing relationship, the nature and extent of the questioning may be too much for the relationship to bear.

The entrepreneur must be clear on what advice he wants from legal counsel. Interestingly enough, many law firms present themselves as “business lawyers,” to convey that they are hybrids between lawyers and businesspersons. In certain industries, law firms may present themselves as kindred spirits, such as some law firms in Silicon Valley that mimic their high-tech clients.

More experienced lawyers can add value in creative problem solving, having gained business knowledge throughout their legal careers. These firms are the exception, because underlying any superficial attempts to identify with clients is the underlying legal culture. What do lawyers know about business? In my experience, very little. And why would they? In a similar vein, do business people profess to advise others about legal matters, simply because they have observed lawyers in action? The legal profession would not allow this, of course.
When I was an articling student (intern), I heard a senior real estate lawyer ask a client whether he was sure he wanted to buy a property, as the market was in the dumps. The client did a double take — this comment was coming from a respected professional. He went ahead with the purchase, despite this veiled advice, and the market turned upwards in a four-year cycle.

Entrepreneurs need to be vigilant that they are getting what they are paying for and not show the lawyer undeserved deference. Lawyers tend to render business advice, deliberately or inadvertently, in a context of psychological leverage.