The New Normal
Getting Comfortable with Risk: The Agile Manifesto Revisited
Posted Dec 14, 2011 9:47 AM CDT
By Roya Behnia
Recently, I caught up with a college classmate who is a successful corporate lawyer at a major law firm. Although happy, he mused, “I’m not a risk-averse person. Yet I ended up being a lawyer, and you know how much lawyers don’t like risk. How did that happen?”
My friend’s question has been on my mind, especially since I posted my last piece on an agile manifesto for lawyers. I had called for a shift toward collaboration, flexibility, and agility in delivering legal services and for exhibiting a strong bias toward simplicity. I suggested examples of how to accomplish this, including discarding long memos in favor of meetings; and avoiding lengthy reviews of immaterial contracts and moving toward “good enough” reviews.
I heard from a lot of you. The comments raised serious questions about the current practice of law and the costs and benefits of change. To paraphrase the negative comments:
1. If we don't do lengthy reviews of contracts or write long memos, we could be committing malpractice or, at best, we’ll miss something. We can’t miss anything.
2. Agile sounds good at the beginning, but if something goes wrong, our clients blame us.
3. There is no such thing as an immaterial matter or contract. Every single contract is uniquely important.
4. Law is inherently complex, and you'll miss nuances if you try to simplify for the sake of simplicity.
These reactions reflect a basic discomfort with risk. I can't know for sure, but I believe most of these objections came from private practice lawyers. It turns out that in the New Normal, inside counsel think differently about risk.
Inside counsel live in a world where business colleagues balance risks and benefits daily. Our colleagues in operations, sales, marketing and finance run the risk that their forecasts will be wrong or that the new product launch will fail miserably.
Expanding into new markets, closing existing markets, acquiring companies, or selling businesses are all fraught with risk. Our colleagues undertake these risks in the service of bigger business goals.
Increasingly, inside counsel have adapted to risk in the context of larger business goals. One deputy general counsel of a Fortune 300 company described a recent conversation: "We had a $100,000 contract that went south. My colleague asked why we negotiated it the way we did, potentially to our detriment. I reminded him that these terms had to be put into the context of getting overall business from these customers that was worth millions of dollars. We expect some contracts to go sour, but certainly not all. We're still ahead."
This is how sophisticated inside counsel measure risk. In my case, I often asked my outside counsel to advise me as if I was on the edge of a cliff: "I know how to keep 500 yards away from the cliff, but tell me how I can get to 100, 50, or even 20 yards?"
In other words, I didn't want risk-free advice. I wanted information that allowed me and my colleagues to understand the scope of risk we were facing. This balancing of risk and reward is about the exercise of judgment.
Old normal lawyers are having trouble catching up. As Integreon senior vice president Ron Friedmann put it:
Clients often want to know if there are any major risks: “let me know if there are any boulders in this playing field.” Lawyers often hear that and think they need to find not just the boulders, but also the pebbles. The fear of being wrong—and of malpractice—runs deep. ‘Perfection thinking’ makes it hard to approximate, to apply to 80-20 rule, to guide in the right direction but with some imprecision.
The skepticism of an agile approach may have to do with an inability to depart from "perfection" thinking.
For example, claiming that there is no such thing as an immaterial contract or matter and that all contracts require close review isn't entirely accurate. It's common practice in mergers and acquisitions practice for buyers and sellers to agree to give "immaterial" contracts or litigation less scrutiny. Under an agile approach, clients and outside counsel collaborate, discuss risks, and settle on the appropriate level of scrutiny rather than defaulting to risk-free review.
Nor does a bias towards simplicity imply a naïve belief that law isn’t complex or that nuances will be missed. The question is how to handle complex situations without making them worse or more complicated for clients. I've been on the receiving end of highly intricate and heavily nuanced legal advice from outside lawyers bent on impressing me with their expertise. However smart my lawyers were, if neither I nor a judge understood what they were trying to say, it didn't really do my company any good.
If things go "wrong," will your clients blame you? Things may go wrong, whether or not you take an agile approach. With agile, however, you are presumed to be communicating with your clients in a deeper and more regular way. More communication will reveal what your clients' goals are and when they expect or want a deeper review. But it should be their choice.
Adopting an agile approach isn't entirely comfortable. In many ways it requires more work. But this is where the New Normal is heading. Friedmann said it best:
My hypothesis is that firms that overcome ubiquitous ‘perfection thinking' will do better. They will be the ones to communicate clearly with clients to learn the client’s risk parameters (not their own). Of course we need general counsels who think this way too. They must understand the risk their companies are willing to take. How else can they limit the demand for lawyering? Of course, all this means living in the universe most of the rest of us inhabit—one full of approximations and imperfections. Welcome to the real world.
Roya Behnia was senior vice president, general counsel and secretary of Rewards Network Inc. (NASDAQ: DINE) until December 2010 after completing the sale of the business. She led the legal, human resources, and compliance functions and served on the company's executive management committee where she was centrally involved in developing and implementing business strategy for the company. She has been an in-house lawyer since December 1998, working with Brunswick Corporation and SPX Corporation. Before that, she was a partner at Kirkland & Ellis.
Editor's note: The New Normal is an ongoing discussion between Paul Lippe, the CEO of Legal OnRamp, Patrick Lamb, founding member of Valorem Law Group and their guests. New Normal contributors spend a lot of time thinking, writing and speaking about the changes occurring in the delivery of legal services. You're invited to join their discussion.