My previous post (or stream of consciousness rant) on the classic Ronald Gilson value creation article generated a number of interesting comments here and from Mike Madison and Mike Risch.  These are all interesting and fair comments, and most are not inconsistent with my thesis. Rather than bury this in the comments, I thought I would do a follow-up.

Let me be clear.  I am not suggesting lawyers do not create value for their clients.  That would be foolish.  My project is instead to propose a counter-explanation that deals in value and meaning, and one that plays off what Bob Ellickson referred to (in a wonderful coinage - it's in the Yale Journal of Law and Humanities somewhere) as the creative tension between the yin of social-science universalizers and the yang of humanistic particularizers.  I spent 26 years out in the world of transactions, and my intuition is that the latter has as much explanatory power as the former, even in the world of financial returns and Kaldor-Hicks equilibria and executive compensation.  Corporations are made of people who are subjective agents, and not black boxes, but the worldview of economic analysis is to treat business and people as black boxes - hence, Richard Posner's priceless epigram that in doing economic analysis, it would not be a solecism to speak of a rational frog.

Gilson's attempt to justify the lawyers' existence is based wholly on the assumption going in that lawyers must necessarily increase value of the transaction (i.e. expand the surplus).  It's that jumping-off point I think is questionable.  To take the example of one commenter, I certainly agree that keeping up to date on forms, like the MAC clause, is something lawyers do, but I'm not as convinced that's the value clients see in hiring a lawyer.  Moreover, the casuistic nature of common law-making is that the adaptation of the law into agreements usually has the feel of generals fighting the last war.  How the social-science universalizing of economics deals with this is to start with perfect rationality, which doesn't take account of language as a social construction, and then to back off into bounded rationality. The equivalent lingo in contracts is "complete" and "incomplete" contracts.  I've written previously in some detail about why I think that concept is wrong, or perhaps more appropriately, incomplete.

Without for a minute making a judgment about the exercise (although I confess that when I was a general counsel and hired Wall Street firms to help do acquisitions, I couldn't bear to stay in the room when they were negotiating the reps and warranties), I think most things lawyers negotiate in acquisitions end up in the long run being trivial either because (a) there's no real dispute about what the deal is or what the language means, or (b) there's no real likelihood that the language will ever come into play to resolve a dispute.  Did I think negotiating the caps, baskets, and survival period of the indemnification was important?  Yes.  But the documentation of that tended to be trivial. Did I think the set of representations about the corporate bona fides to do the deal were important?  Of course.  Was there ever a dispute about the corporate bona fides?  No.  Is the negotiation of a "force-the-vote" provision in a public company takeover important? Yes.  But what it really has to do with is providing assurance or certainty, and that's equally as valid an explanation as the suggestion that somehow the lawyers created more utils along the way. 

Most disputes are opportunistic, I've argued before, in the sense that circumstances will present themselves, and parties will assess whether either under a formal approach or a contextual approach they can argue the agreement language to support their opportunism. That, despite the way I've said it, is not a judgment about the value of the lawyer to the client.  The language the lawyer drafts, and the counsel the lawyer gives, may be the only tree in the storm of uncertainty and contingency the client has. 

Shaking hands upon meeting is a ritual.  It says "I have no weapon and you are safe with me."  It's a simple one because it doesn't have to predict very far out into the future.  Shaking hands to seal a deal is a ritual.  It says "your transaction is safe with me."  But it's not a very precise ritual.  Signing a contract to seal a deal is also a ritual, and it is far more sophisticated than shaking hands, but it's still a way of saying, "subject to these terms and conditions, your transaction is safe with me."

The fundamental difference, and one that I've decided I need to put together in an essay, is whether you approach explanation from a purportedly scientific, objective perspective, or whether you approach it from an interpretative, subjective perspective.   In the former, you explain down from perfect rationality to what people do to account for uncertainty, and in the latter you explain up from individuals' reconciliation of the way the world is and the way it ought to be. What the former seems to claim is a privileged status as knowledge, and that's what strikes me as wrong.  Maybe I'm beating a dead horse to take on a 1984 law-and-economics view of the world, but it is a great and creative piece of theory.  And if indeed it's "the reigning academic account of what business lawyers actually do," then it seems to me it's fair game.

Legal Theory | Bookmark

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8345157d569e2010535b7bdc5970b

Links to weblogs that reference Some Metatheory on Justifying Lawyers' Existence: