June 4, 2015
Lawyers Need to Think Like Businessmen
To be effective as a business’s General Counsel–whether on staff or working as Outside General Counsel, as Executive Legal Professionals attorneys do–lawyers need to understand how businessmen think. Lawyers need to understand the incentives that dictate businessmen’s actions. Lawyers need to speak the language of business, and engage businessmen on their terms, not expecting businessmen to think or behave like lawyers; if businessmen could do that, and were inclined to do so, lawyers might not be as necessary as they are to the health and success of a business.
Fortunately for the lawyers, businessmen typically do not think like lawyers, but, in order to do what they do best, businessmen need wise counsel and legal services from competent attorneys. What lawyers need to know is that businessmen need them, but businessmen cannot be expected to engage with their lawyers on the lawyer’s terms. Lawyers have to meet their clients where they are, to take their client as they find them, as it were.
Businessmen Need to Think Like Lawyers
Whether businessmen realize it or not, they need to think like lawyers–not all the time, but at least sometimes. Businessmen are always incentivized by benefits which exceed their costs (i.e., profits). In order to profit most from their relationship with their attorney, they should try to do things they reasonably can do which lower the cost of interacting with their lawyer and increase the benefits from such interactions. The first step to increasing the profitability of a businessman’s relationship with his lawyer is adjusting his way thinking enough to be able to communicate more efficiently with his lawyer.
Here are a few “thinking exercises” to help you get started making such adjustments:
- Think about the worst case scenario. This is something business people typically do not like to do. No one likes to be “negative” or to dwell on the worst that could happen. Your General Counsel, however, is paid to think about all the things–including the worst things–that could happen to your business, and take, or advise you to take, reasonable precautions to prevent those things from happening. Your lawyer can’t do this as effectively or efficiently, if you, the client, are unwilling or unable to talk or think about the risks your business faces. Allocating a limited amount of time to focus on risk management can reap huge dividends. So, work with your lawyer to batten down the hatches before the storm comes.
- Think about all the people related to a transaction, and consider how to adjust incentives for them. Consider the game, Six Degrees of Separation. Hungarian author Frigyes Karinthy hypothesized that any two individuals could be connected through, at most, five acquaintances. In his story, “Chains” or “Chain-Links,” the characters create a game based on this notion. He writes:
A fascinating game grew out of this discussion. One of us suggested performing the following experiment to prove that the population of the Earth is closer together now than they have ever been before. We should select any person from the 1.5 billion inhabitants of the Earth – anyone, anywhere at all. He bet us that, using no more than five individuals, one of whom is a personal acquaintance, he could contact the selected individual using nothing except the network of personal acquaintances.
Imagine your business is a person, connected to every other person via these six degrees of separation. Think about who can influences the circumstances of any given transaction with your business, and how you can adjust their incentives. Your lawyer can help you to effect these adjustments through written contracts and other legal means of structuring your relationships.
- Don’t lose sight of your ARC. The acronym “ARC” stands for “Acceptable Risk Cap.” You need to place a limit on how much risk you are willing to take on any particular investment or in any relationship or transaction. Lawyers understand–or should understand–that everything you do involves some degree of risk. An important question, for a lawyer, is: How much risk is okay? Define how much risk you’re willing to accept, and limit, or cap, the risk at that amount. Keep any eye on this Acceptable Risk Cap (or “ARC”) at all times. Where do you stand in relation to your ARC on any particular transaction, in a certain relationship, or in relation to any given investment? The degree to which you are approaching an ARC should dictate how much priority you give to taking preventive [legal] measures to prevent foreseeable loss.
A Meeting of the Minds
Businessmen, thinking marginally more like lawyers, and Lawyers, thinking marginally more like businessmen, should be able to come together on common ground to reach a client’s goals more effectively than such parties each entrenched in their own ways of thinking. The thinking exercises, above, for businessmen who want to more efficiently and effectively communicate with their attorney are a great place to start, but that’s all they are: a beginning. Always try to understand that, to think like a lawyer, you have to think proactively, preventively, and protectively.
To think like a lawyer, one must be able to think analytically–without much concern for emotion, except to the degree that emotion is an adequate incentive for action. Businessmen are often people of great passion, who are energized by and emotionally invested in their business and all the things that happen in and to it. Businessmen can find it difficult to take what might seem to them to be a more clinical or academic approach to circumstances and strategies, but that’s the problem-solving arena in which a lawyer most effectively operates.
Just remember, these adjustments are marginal adjustments, not all-or-nothing changes; after all “all decisions are made at the margin.” No one is asking you to give up being the way you are, nor should they. The only suggestion being made here is to add one more tool to your mental toolbox.
1 Karinthy, Frigyes. Chain-Links. Translated from Hungarian and annotated by Adam Makkai and Enikö Jankó.
2 Gwartney, J., Stroup, R., Lee, D., & Ferrarini, T. (2010). Twelve Key Elements of Economics. In Common Sense Economics: What Everyone Should Know About Wealth and Prosperity (Rev. ed., 1st ed.). New York, NY: St. Martin’s Press.
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