We write to ask two small (but important) favors of you that are directly related to law schools' pedagogical mission as well as the rapidly changing future of legal education.
As you may know, an ABA task force has recently proposed to establish minimum requirements within ABA-accredited law schools for "experiential" learning related to building practical skills and competencies. (Similar proposals are percolating up from state bar association task forces as well.) We believe this endeavor to be an intriguing and important invitation for law schools to re-imagine how they deliver legal education, and on this basis we are generally supportive. At the same time, a challenging question that the ABA and other task forces face is the question of what topics constitute "skills and competencies." Within business law, this challenge is perhaps greatest for attorneys whose practice is principally "transactional" in nature (in contrast to work that is oriented around litigation). It is unclear how much input transactionally-oriented business law practitioners (attorneys, other professionals, educators) have had on the process of drafting the proposed guidelines, or whether there has been much systematic analysis of what topics constitute important "skills" for entering transactional attorneys.
To address these gaps, we have developed an on-line survey instrument to help gauge what sorts of core competencies established professionals in transactional practice areas consider important. We hope the results of the survey will help both practitioners and legal educators assess (and if necessary, work to amend) the current proposed guidelines. Although largely directed to practicing attorneys, the survey is also open to other professionals who work closely with practicing attorneys in transactional practices (such as bankers, accountants, financial advisers, etc.).
Here are the two favors we ask of you:
(1) Please take a few moments yourself to fill out the survey. It will not take longer than 5-10 minutes of your time.
(2) Please ask your colleagues, partners, associates, co-workers, and other professional contacts to consider filling out the survey.
The survey is available on-line, at
When complete, results of the survey will be made available on the website for the Berkeley Center for Law, Business and the Economy (BCLBE), at http://www.law.berkeley.edu/bclbe.htm.
Just before Christmas the Washington Law Review published a symposium issue honoring Larry Cunningham's new book, Contracts in the Real World. The issue is a good read for Contracts teachers. You can read my contribution, "Contracts as Pattern Language" here. The abstract for this essay is below:
Christopher Alexander’s architectural theory of a "pattern language" influenced the development of object-oriented computer programming. This pattern language framework also explains the design of legal contracts. Moreover, the pattern language rubric explains how legal agreements interlock to create complex transactions and how transactions interconnect to create markets. This pattern language framework helps account for evidence, including from the global financial crisis, of failures in modern contract design.
A pattern represents an encapsulated conceptual solution to a recurring design problem. Patterns save architects and designers from having to reinvent the wheel; they can use solutions that evolved over time to address similar problems. Contract patterns represent encapsulated solutions within a legal agreement (or set of agreements) to a specific legal problem. This problem might consist of a need to match the particular objectives of counterparties in a discrete part of a bargain or to address certain legal rules. A contract pattern interlocks, nests, and works together with other contract patterns to solve more complex problems and create more elaborate bargains. Interlocking patterns enable scalability. Just as Alexander’s architectural patterns for rooms create patterns for buildings, which create patterns for neighborhoods and cities, patterns of individual contract provisions form legal agreement patterns, which interlock to create patterns for transactions, which, mesh to create patterns for markets. For example, contract patterns help lawyers draft real estate contracts. These contracts interlock in sophisticated real estate transactions, which mesh with other contract patterns to form securitization transactions. Securitization patterns create markets for asset-backed securities, which, form part of the larger shadow banking system.
This scalability differentiates contract patterns from boilerplate. However, legal scholarship on boilerplate – including Henry Smith’s work on the modularity of contract boilerplate – patterns allow certain debt contracts to become what Gary Gorton calls "informationally insensitive" and to enjoy many of the economic features of money.
The pattern language framework explains not only how sophisticated contracts function, but also how they fail. The pattern language framework provides a lens for examining recent contracts law scholarship on the failures of sophisticated contract design, including "sticky" contract provisions in sovereign bond agreements, "Frankenstein" contracts in mortgage-backed securitizations, and the "flash crash." If modularity and contract design patterns foster the development of new financial instruments and markets, then their features can also contribute to the unraveling of these markets. For example, by restricting the information content of contracts, patterns and modularity not only midwifed the creation of liquid markets for those contracts, they also played a role in "shadow bank runs" and the catastrophic freezing of these markets. The failure of contracts can have systemic effects for entire markets when a particular contract enjoys widespread use or when it is so connected to other critical contracts that cascading failures occur.
This essay was a contribution to a symposium for Larry Cunningham’s book, Contracts in the Real World.
The Section on Transactional Law and Skills is still emerging, but we have another great program this year ...
Researching and Teaching Transactional Law and Skills in an Increasingly Global World
Moderator: Brian JM Quinn, Boston College Law School
Deborah Burand, The University of Michigan Law School
John C. Coates, IV, Harvard Law School
Claire M. Dickerson, Tulane University School of Law
Juliet M. Moringiello, Widener University School of Law
Marco Ventoruzzo, Pennsylvania State University, The Dickinson School of Law
Stephen Zamora, University of Houston Law Center
The business world is facing continuing challenges related to globalism and cross-border open electronic access through the Internet. Many transactions cross national borders and almost all – including traditional goods and services purchase orders and real property transactions – have international significance. Some legal structures have begun to encompass international business supervision and enforcement efforts, while others remain grounded in traditional nation-state-based regulatory systems. As a result of these changes in the market for business transactions, international and comparative law scholarship has broadened to include a robust and growing business transactional element. All of these changes have increased our challenge as legal scholars and instructors in educating our students in the theory, policy, doctrine, and skills that they will need as participants in the transactional business law setting.
This two-part panel features (1) two academic paper presentations on international, comparative, or cross-border transactional law topics culled from a Call for Papers, and (2) an expert panel of law teachers commenting on the program theme, implemented in a roundtable discussion format with a moderator, focusing on transactional law scholarship and teaching in this current, dynamic business transactional environment.
A note from Joan Heminway, chair of the Section on Transactional Law and Skills:
Cynthia Adams, Patricia Lee, and Afra Afsharipour are working on our second section newsletter. We would like to include in the newsletter transactional law news and a list of recent transactional law or skills books, book chapters, and articles. Accordingly, please send us any information you may have about, e.g.:
(i) new developments at your law school in transactional law or skills, such as the establishment of a new transactional law curriculum or the hiring of new scholars in the field;
(ii) highlights from 2012 transactional law events or conferences or announcements about upcoming 2013 transactional law events or conferences; and/or
(iii) a list of recent papers or other publications (theoretical, empirical, doctrinal, pedagogical, etc.) that, defined broadly, relate to transactional law or skills.
Thanks, in advance, for your submissions. I look forward to seeing many of you in New Orleans in January.
As in a bad horror movie (or a great Rolling Stones song), observers of the current crisis may have been disquieted that one of the central characters in this disaster also played a central role in the Enron era. Is it coincidence that special purpose entities (SPEs) were at the core of both the Enron transactions and many of the structured finance deals that fell part in the Panic of 2007-2008?
Bill Bratton (Penn) and Adam Levitin (Georgetown) think not. Bratton and Levin have a really fine new paper out, A Transactional Genealogy of Scandal, that not only draws deep connections between these two episodes, but also traces back the lineage of collateralized debt obligations (CDOs) back to Michael Millken. The paper provides a masterful guided tour of the history of CDOs from the S&L/junk bond era to the innovations of J.P. Morgan through to the Goldman ABACUS deals and the freeze of the asset-backed commercial paper market .
Their account argues that the development of the SPE is the apotheosis of the firm as “nexus of contracts.” These shell companies, after all, are nothing but contracts. This feature, according to Bratton & Levin, allows SPEs to become ideal tools either for deceiving investors or arbitraging financial regulations.
Here is their abstract:
Three scandals have fundamentally reshaped business regulation over the past thirty years: the securities fraud prosecution of Michael Milken in 1988, the Enron implosion of 2001, and the Goldman Sachs “Abacus” enforcement action of 2010. The scandals have always been seen as unrelated. This Article highlights a previously unnoticed transactional affinity tying these scandals together — a deal structure known as the synthetic collateralized debt obligation (“CDO”) involving the use of a special purpose entity (“SPE”). The SPE is a new and widely used form of corporate alter ego designed to undertake transactions for its creator’s accounting and regulatory benefit.
The SPE remains mysterious and poorly understood, despite its use in framing transactions involving trillions of dollars and its prominence in foundational scandals. The traditional corporate alter ego was a subsidiary or affiliate with equity control. The SPE eschews equity control in favor of control through pre-set instructions emanating from transactional documents. In theory, these instructions are complete or very close thereto, making SPEs a real world manifestation of the “nexus of contracts” firm of economic and legal theory. In practice, however, formal designations of separateness do not always stand up under the strain of economic reality.
When coupled with financial disaster, the use of an SPE alter ego can turn even a minor compliance problem into scandal because of the mismatch between the traditional legal model of the firm and the SPE’s economic reality. The standard legal model looks to equity ownership to determine the boundaries of the firm: equity is inside the firm, while contract is outside. Regulatory regimes make inter-firm connections by tracking equity ownership. SPEs escape regulation by funneling inter-firm connections through contracts, rather than equity ownership.
The integration of SPEs into regulatory systems requires a ground-up rethinking of traditional legal models of the firm. A theory is emerging, not from corporate law or financial economics but from accounting principles. Accounting has responded to these scandals by abandoning the equity touchstone in favor of an analysis in which contractual allocations of risk, reward, and control operate as functional equivalents of equity ownership, and approach that redraws the boundaries of the firm. Transaction engineers need to come to terms with this new functional model as it could herald unexpected liability, as Goldman Sachs learned with its Abacus CDO.
The paper should be on the reading list of scholars in securities and financial institution regulation. The historical account also provides a rich source of material for corporate law scholars engaged in the Theory of the Firm literature.
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The AALS Section on Transactional Law and Skills will meet during the AALS Annual Meeting in New Orleans, Louisiana, from 1:30 pm – 3:15 pm on Saturday, January 5, 2013. Please note this program in your calendar. We hope to see you there.
We are soliciting papers for presentation at the Annual Meeting. The topic for this year’s session is: Researching and Teaching Transactional Law and Skills in an Increasingly Global World.
Two presenters will be chosen on the basis of paper summaries submitted in response to this Call for Papers. The topic encompasses the scholarship and teaching of international and comparative transactional law and cross-border transactions. The Executive Committee encourages submissions on a broad range of transactional law and skills issues related to this year’s topic. Paper proposals focused on the teaching of international and comparative transactional law and skills are welcomed, but the Executive Committee is especially interested in papers that explore international and cross-border transactions from an empirical, doctrinal, or theoretical perspective. The Executive Committee specifically encourages submissions from junior scholars.
If you are interested in presenting a paper, please submit a summary of no more than three double-spaced pages, by e-mail, on or before Monday, July 30, 2012. You also may submit a complete draft of your paper. Send your submission to Joan Heminway at The University of Tennessee College of Law ([email protected]). Papers will be reviewed and selected for presentation at the program by members of the Executive Committee of the Section on Transactional Law and Skills:
Afra Afsharipour, Treasurer (U.C. Davis)
Eric Gouvin, Chair-Elect (Western New England)
Joan Heminway, Chair (Tennessee)
Lyman Johnson (Washington and Lee/St. Thomas)
Therese Maynard (Loyola Los Angeles)
Gordon Smith, Secretary (BYU)
Tina Stark, Past Chair (Boston University)
Authors of accepted papers will be notified by August 31, 2012. Please pass this Call for Papers along to any colleagues who may be interested.
Here is a highly productive way for business law professors to procrastinate from grading exams:
The National Bureau of Economic Research just circulated a new version of a paper that provides a medieval complement to the law & finance literature and to Gilson's lawyer as transaction cost engineer idea. The paper by Davide Cantoni and Noam Yuchtman presents evidence that the training of commercial lawyers by new universities contributed to the expansion of economic activity in medieval Germany. Here is the abstract:
We present new data documenting medieval Europe's "Commercial Revolution'' using information on the establishment of markets in Germany. We use these data to test whether medieval universities played a causal role in expanding economic activity, examining the foundation of Germany's first universities after 1386 following the Papal Schism. We find that the trend rate of market establishment breaks upward in 1386 and that this break is greatest where the distance to a university shrank most. There is no differential pre-1386 trend associated with the reduction in distance to a university, and there is no break in trend in 1386 where university proximity did not change. These results are not affected by excluding cities close to universities or cities belonging to territories that included universities. Universities provided training in newly-rediscovered Roman and Canon law; students with legal training served in positions that reduced the uncertainty of trade in medieval Europe. We argue that training in the law, and the consequent development of legal and administrative institutions, was an important channel linking universities and greater economic activity.
A very interesting read.
Permalink | Economic Development| Europe| Globalization/Trade| Law & Economics| Law & Society| Law Schools/Lawyering| Legal History| Religion| Teaching| Transactional Law | Comments (0) | TrackBack (0) | Bookmark
Some of you may have been planning to attend the Boston University Transactional Conference, which was scheduled for November 2nd and 3rd of this year. Please note that the conference has been cancelled, and a new date is not anticipated.
This semester, Afra Afsharipour (UC Davis) and I are organizing a virtual workshop featuring transactional law scholarship. Unlike the many workshops on law and economics or other topics that are housed in particular law schools, this workshop is independent of any particular law school. We meet online every other week, and scholars present working papers to a group of ten core faculty via video conference technology. It's an experiment in low-cost scholarly community building, and while the technology is not perfect, I was encouraged by our first session on January 13.
In that session, Brian Quinn (BC) presented his working paper, Putting Your Money Where Your Mouth Is: The Performance of Earnouts in Corporate Acquisitions. Brian tests the claim that earnouts are a contractual response to adverse selection in corporate acquisitions. The empirical data in the paper is available because of the disclosure of fair value accounting data now required by the Financial Accounting Standards Board. Brian concludes, "Rather than resolve the problem of adverse selection, earnouts are probably better explained by an alternative hypothesis: that they resolve the problem of uncertainty present in corporate acquisitions."
If you are interested in transactional scholarship, this paper is worth a read.
Tina Stark is leaving the academy, and Boston University is looking for a new Director for the Transactional Law Program. The position annoucement is here.
The only negative from the first meeting of the Section on Transactional Law and Skills this afternoon was the absence of Section Chair Tina Stark, who was unable to attend. Tina provided the energy and leadership for the creation of this new section. We are all indebted to her, and we missed her today.
The section meeting had two parts. First, two speakers who were selected from the call for presentations described their efforts in transactional education. Carol Morgan talked about corporate counsel externships at the University of Georgia, and she rekindled my interest in this form of transactional education. When I interviewed for my first academic job in 1993, I talked about the need to bring transactional training to law students, and shortly after arriving at Lawis & Clark, I created the "Clinical Internship Seminar: Corporate Counsel," which seems similar to the Georgia externship program. It's a great context for students to learn something about business and law.
Karl Okamoto followed by describing his incredible LawMeets competitions, MiniMeets tools, and ApprenNet program. I am not sure if I can claim to have been there at the creation, but I remember Karl floating some of these ideas at a dinner just three or four years ago, and I am astounded by the amount of progress he and his team have made. You can read more about all of this in The National Law Journal. After hearing Karl's presentation, I have decided to use a couple of his MiniMeets in my Business Associations course this next semester. If you want to include some transactional lawyering in one of your courses, I know he would be eager to discuss his products.
In the second part of the program, I moderated a panel discussion on "Getting it Done." Law schools have embraced the teaching of transactional skills, but many questions remain about how best to execute this strategy, and this panel featured people who were implementing transactional training on a grand scale. Scott Burnham of Gonzaga described the first-year Transactional Skills and Professionalism Lab; Jim Moliterno of Washington and Lee discussed transactional immersion and other components of that school's well-known third-year program; Bob Rasmussen of USC talked about the importance of interprofessional education for business lawyers and efforts at USC to encourage such training; and Janet Thompson Jackson related her experiences as transactional clinician at Washburn. The panelists were uniformly excellent.
While we touched on many subjects during the panel session, one point of emphasis among the panelists and the audience was the importance of adjunct professors. Eric Gouvin referred us to his ABA Report on Best Practices Report on the Use of Adjunct Faculty, which is essential reading for academic deans and others who work with adjunct professors. Eric noted that the ABA encourages law schools to employ adjunct professors. While that is true, the AALS has a membership requirement limiting the use of adjunct professors. My sense is that this requirement is not well known among law professors who have no experience in administration. AALS Bylaw 6-4(d) provides:
In each division of a member school's program, each student shall have the opportunity to obtain substantially all of his or her instruction leading to the Juris Doctor degree from the school's full-time faculty.
The interpretation of this bylaw appears in Executive Committee Regulation 6-4.1:
Full-time Faculty Requirement. A member school demonstrates compliance with Bylaw 6-4(d) if in each division of its program, the school's full-time faculty offer at least two-thirds of the credit hours or student-contact hours leading to the J.D. degree. (emphasis added)
Most plans for increasing transactional training rely heavily on the use of adjunct professors, but truly ambitious programs run the risk of pushing a school into dangerous territory with regard to this provision. I hope the AALS' emphasis on full-time faculty is not merely a protectionist measure from law professors. In any event, if we are serious about encouraging experiential learning during law school, the Executive Committee will need to revist this interpretation.
The emphasis of this year's program was on transactional education, and I think it was terrific. Tina should be proud. However, I know that Tina, our new chair Joan Heminway, and the other officers and executive committee members of the Section are committed to the promotion of transactional scholarship, too. If you are interested in transactional teaching or scholarship, I hope you will support this Section.
The Third Annual Transactional Lawyering Meet is expanding to five cities with regional rounds being held on February 17, 2012. The national championships will be hosted by the Earle Mack School of Law at Drexel University in Philadelphia on March 29 and 30th. The Transactional Lawyering Meet is a novel “moot court” experience for law students interested in transactional practice. For more information, go to www.lawmeets.com or contact Professor Karl Okamoto at [email protected].
This post comes to us from Erin O'Hara, Professor of Law and FedEx Research Professor at Vanderbilt University Law School. The post is a follow-up to our Roundtable on Teaching Contracts. You can view all the posts in this Roundtable here.
In the Fall of 2007, I undertook to teach my Contracts course in a way that helps students to develop transactional skills. It seemed shameful that most students leave the first-year course without ever seeing an actual contract. I wanted to expose students early to the work of transactional attorneys, especially given that about one third of practicing lawyers earn their livelihood in this way.
Like the earlier contributors to this discussion, I began to think about changing the course on the margin. Maybe I could show the students some real contracts or add a negotiation or drafting exercise, but as mentioned already in this discussion, it was indeed difficult to add materials to an already crammed four-hour course. When I expressed frustration to my then dean Ed Rubin, he responded by suggesting that I needed to throw out the traditional contracts course and start over in order to make room for a modern approach to the subject. The suggestion seemed ludicrous to me at first, but once the message had time to sink in, I realized that Ed was right.
Contracts may be the only law school course that spends nearly all of the semester at the edge of the subject and almost no time at the subject’s center. Professors teach about distinctions: the difference between promise and contract, between contract and tort, between contract and property, and between enforceable and unenforceable promises. With all of these topics, the course attempts to define the boundaries of the subject matter of contract, and in the end students learn far more about what contract is not than they do about what contract is. Ed convinced me to start at the center of contract and move outward from there.
The center of contract is about negotiating and drafting an agreement and/or a change in anticipation of the fact that one day the parties (with or without the aid of a court or arbitrator) will have to determine what that contract means. The vast majority of contracts that lawyers draft do not result in formal disputes, and, when they do, the parties fight much more often about what the contract provides than they do about whether they have a contract. These are the issues that should dominate in Contracts.
These issues are difficult issues for first-year students to grapple with because most have no experience with the subject matter at hand. Stories about hairy hands and Harrier jets and promises to marry resonate with the students, but warranties and conditions and due diligence seem far more remote. Students needed context to begin to grapple with these issues, so I began to look for a simple story that could draw the students into the world of transactions and the role of the lawyer and the contract in that transaction.
Claire Hill provided me with the best possible story: a play that comprised the last chapter of James Freund’s book, Anatomy of a Merger. The play enabled the students to imagine the transactional setting and to begin to understand the role of the lawyer in that setting. The play enabled the students to better grapple with the concepts of risk assignment and conditions and warranties. It gave the students an appreciation for the importance of carefully crafting contractual language and of gently focusing the client on possible problems that can be avoided or minimized with contract language. This play, along with some supplemental materials, provided the basis for a short one-week unit introducing students to The Contracting Environment.
Unit II focused on Contract Interpretation, a subject we covered for 4-5 weeks. We focused on the distinction between promise and condition early and often in this course. I will confess that I left my first-year Contracts course not really understanding what a condition was. In contrast, my students truly understood their function by the end of the semester. We explored the difficulties that can arise with ambiguous contract language, and in the process covered the canons of construction and the use of evidence outside the writing. We then covered default rules and explored the difficulties and benefits of silence in contract drafting. Finally, we covered change and modification and the good faith obligations.
Unit III covered Breach and Remedies (including both damages and self-help provisions). Unit IV covered Contracts of Adhesion. The syllabus included a separate unit on these contracts because in the first several weeks of the course we had studied the negotiation and drafting of contracts by sophisticated commercial parties and their lawyers, and I wanted the students to focus on the important differences between the two contract settings. A final unit, about 3 weeks long, explored contracts/promises that are not enforced. We covered lack of agreement, lack of consideration, formalities, public policy, and impossibility, impracticability, and frustration of purpose in this last unit. In the end, the students were exposed to virtually all of the concepts that they need for their upper-level courses and for bar-exam study (we unfortunately did not cover third-party rights).
Throughout the course we looked at actual contract provisions. In addition, three exercises were used to force the students to apply the course concepts. In week 4 students critiqued a very basic band booking agreement (this is Nashville!), in week 7 students drafted a simple requirements agreement (after giving them a detailed factual scenario), and in week 10 they negotiated and drafted a provision covering the circumstances under which the tenant could withhold rent from the landlord in a commercial lease setting. In week 12 students were invited to attend a lunchtime panel with 5 transactional lawyers who described their practices and talked with students about the world of transactional lawyering. Some of the panelists have served as mentors to the students interested in a transactional practice. The final exam asked students to critique and propose changes to two different contracts. In one, the lawyer was representing the client who was one of the parties to a commercial transaction where the other party had produced the first draft. In the other, the student was placed in the role of new in-house counsel asked to explain to a corporate officer the significance of the provisions in her predecessor’s draft sales agreement and to comment on any provisions that might not be legally valid (many of the customers were ordinary consumers).
I expected the students to excoriate me in their evaluations at the end of the semester. Surely the students would conclude that they had been turned into guinea pigs for some strange pedagogical experiment that robbed them of the sense of comfort that accompanies their reliance on textbooks and study aids (not to mention my old Contracts exams). I was prepared for the beating because I believed in the worth of the course change. In fact, however, I received the highest teaching ratings I have ever received at Vanderbilt. Students completely understood that 21st century law practice was based much more closely on the materials to which they were exposed than they were on the cases studied in the other Contracts section. Student comments indicated that they believed that the innovation was valuable and that their professor was working extremely hard to deliver to them a better educational experience.
The students did not just appreciate the effort being made to reform the course. They actively engaged the materials in a manner that showed that they understood what could be exciting and rewarding and yet difficult about transactional legal practice. For example, a number of students raised practice-relevant ethical issues during the course of the semester, including the circumstances under which the client should be advised to disclose disadvantageous information to the other party. And several expressed interest in transactional practice because it seems like a positive sum game. Others have written about how law schools manage to turn student excitement into cynicism and depression in just one year of law school. The causes for dissatisfaction with the prospect of practicing law are many, but one surely is that litigation is at best a zero-sum game and often a negative sum game. A transactional course enables the students to envision a legal practice in which the parties that they represent can all benefit from the transaction and the lawyers’ efforts. For several of my students, this was both comforting and energizing. I didn’t intend to engage the students on ethical issues or career satisfaction, but the approach of the course did produce these consequences. Enrollment in our upper-level transactional courses has skyrocketed, and my students tell me that they feel much more comfortable in these courses than do the students who were not exposed to a transactional perspective in Contracts.
The materials assigned were terrible in the sense that they required both the students and the professor to work harder than necessary. I assigned the Farnsworth hornbook to give the students a sense of the black letter law that they would need to respond to with their contracts. Unfortunately, however, the extensive detail of the hornbook when used as primary material rather than as review material caused unnecessary stress for the students and countless hours of explanation back in my office. Those materials were supplemented with Restatement and UCC provisions as well as a few cases. (I left to the other first-year professors the task of learning to read a case to distill its legal principles and instead primarily used the cases in Contracts to show students some of the situations that can arise and the ways that courts can treat contract language in addressing those situations.) Nothing tied these materials together, so I wrote a series of unit memos to provide them with needed thematic direction.
At Vanderbilt I had the luxury of being granted a semester’s research leave as my reward for my investment in the course. Without that bargain I frankly would have continued to muddle along with the traditional casebooks because the cost to my research while revising the course was significant and I needed to know that I would get that research time back somehow. My goal in the next two years is to produce the course materials necessary for others to teach Contracts from a transactional perspective without giving up substantial research time. Currently available course materials make it possible to add transactional garnish to a litigation-based course, but we can and should provide out students with more than just a garnish in the first year.
This roundtable has gotten so juicy that I am going to exercise my prerogative as convenor to step in briefly and talk about a theme that underlies many of the posts so far. I do so with humility: I have taught corporate finance only in the context of a Business Planning course organized around numerous long drafting and negotiation exercises. These exercises involve entrepreneurs starting a company and (in later exercises) venture capitalists. The class seems a lot like what Joan describes she does at Tennessee and what I know Karl has done in many of his classes.
For me, the real joy of the class is having the students fit puzzle pieces together. I hope most of them have the following "aha" moment. Instead of arguing that the there is a "right" answer that is works for the corporation, they realize that whether a particular feature -- whether it is a conversion right, a liquidation preference, or whatever -- is "good" depends on where their client falls in the firm's capital structure. It is a leap beyond the management-shareholder relationship that is central to business associations. And it goes beyond debtors versus shareholders. (I think it also goes to the questions in Eric's class on AIG bankruptcy versus bailout.) Even two shareholders with the exact same preferred shares (or bonds) may have different interests with respect to a particular provision depending on their holdings, time horizons, discount rates, degree of risk aversion, and estimates of the firm's prospects.
As I mentioned in the Contracts roundtable, the negotiation dynamic is key for me in teaching. Not because I aim to teach negotiation skills, but because I think this lens helps students see how these concepts apply in practice. There are few times a transactional lawyer just drafts an agreement of any complexity without some negotiation. There are going to be some room for value creation in crafting the terms of debt or preferred stock (which can throw off students inclined to fight every inch). There is also a large domain of distributive/zero sum issues (which is discomfiting for students who want to find a win/win in everything).
Knowing which issues are important, for whom, when, and why involves some facility with math.
This can be borne by two handles. Here's the negative spin: there is a large helping of "eat your vegetables" in this kind of course. But being innumerate means someone will steal your lunch money on the playground and you won't even know it. I agree with Karl, that this is true not only for transactional lawyers - but for any lawyer. Not understanding the time value of money means potential malpractice in the context of settlement agreements.
Here's the positive spin: being familiar with corporate finance helps lawyers create enormous value for clients, it helps students get jobs in a tough market, and the puzzle solving dimension can be immensely gratifying intellectually.
If students leave a class with a deep understanding for the "where you stand depends on where you sit in the capital structure" point and having sharpened some quantitative reasoning and realized why that is so critical, I'm a lot closer to happy.
Today and tomorrow we continue the Conglomerate's series of summer roundtables on teaching business law courses with a roundtable on "Teaching Corporate Finance." (Here are links to our earlier roundtables on teaching Contracts and Banking Law/Financial Institutions.)
We are joined by the following roster of distinguished scholars and teachers in the corporate finance area: Brian Broughman (Indiana -Bloomington); Trey Drury (Loyola - New Orleans); Eric Helland (Claremont McKenna); Joan MacLeod Heminway (Tennessee); and Karl Okamoto (Drexel).
Our panelists may take different approaches to teaching the course. Some of them may not teach a "corporate finance" course. Indeed many schools offer courses in Venture Capital, Entrepreneurship and Finance, Deals, or Analytic Methods for Lawyers that still incorporate core concepts involving the capital structure of firms.
But there are still many choices to be made in approaching this subject matter. Should the course focus on case law? Should it introduce students to quantitative aspects of finance? What should we expect students to get out of the course? (A question perhaps we could ask of every roundtable panel.)
As with earlier roundtables, we give our panelists free rein to talk about any aspect of teaching corporate finance. Some of the topics they may discuss include:
- What are the core topics of the course as you teach it?
- Do you have a transactional focus to the course?
- Do you use simulations or problem sets? Case studies?
- How do you integrate finance theory and quantitative analysis into the class?
- Do you orient the course towards a particular type of transaction or type of company raising capital (e.g. start-up companies seeking financing, or venture capital)? How important is debt?
- How does you course cover (or integrate with other courses in the curriculum that cover) topics like accounting?
- How much do you focus on the powers and duties of boards? The rights of shareholders and debt holders?
- Where do you draw the boundaries among what should be taught in your course and what is/should be covered in other courses, like corporations, corporate governance, or securities regulation?
- How, if at all, has the financial crisis changed your course?
- Do you cover derivatives, asset-backed securities, and other structured instruments?
- How do negotiate the needs of students with no finance background with those with vast experience?
- What advice would you give to a rookie teacher?
Let's get started!