• “There are just a handful of contract clauses that are critical”

    I’ve been enjoying Kingsley Martin’s blog for quite a while, but his latest post really resonated with me. Broadly, the point that attracted me is the often-suspected but little understood (by clients – business lawyers understand this very well) notion that many of the words that some lawyers try to sell them in their forms of contracts are essentially useless – overpriced insurance for perils of almost inconceivably improbable likelihood, if you will. Kingsley quotes a paper by two Jones Day lawyers that makes a few points in this regard:

    “Many lawyers no longer add real value to dealmaking. That’s perhaps a startling and somewhat harsh allegation – especially from a couple of M&A lawyers – but we’re afraid it’s true. Let us explain.

    Although the investment banks, private equity players, and M&A boutiques have kept pace with the fundamental technological and corporate governance changes in dealmaking, most deal lawyers have played the game in form but not in substance. Most of us are doing things much the same way we did back in the days when M&A was a decidedly more genteel affair.

    Look at all the representations, closing certificates, and due diligence documents prepared for the banks that wrote more than $6 billion in checks to get out of the Enron securities class actions – and don’t forget all that carefully worded “we-never-depart-from-it” indemnity boilerplate.

    Those documents really didn’t come in handy at all. Think about it – there was very little in what the deal lawyers did that ultimately protected the secondary defendants in the Enron class action cases.

    Plainly, merger papers for public company deals have become the intellectual equivalents of deeds in a real estate deal. Half of the words merely repeat what has been said somewhere else. Really now, has anything bad ever happened because all the Form 5500s weren’t filed? Half of the remaining paperwork is boilerplate, leaving only a handful of provisions that are important: the money, closing, social, and fiduciary provisions.

    Come To Terms With The New Realities Of Dealmaking

    Our corner of the profession must come to terms with the new realities of dealmaking. We’ve got to see that the deal documents themselves are no longer the primary focus. The basic forms of merger, divestiture, and similar transaction documents haven’t changed in decades. Once the absolute domain of the big law firms, deal document creation has become a decidedly commoditized process. Deal documentation thus can be done just as easily from Nebraska as from New York. The Internet has made this so – “flattening the world,” in Tom Friedman’s words. So, while the process of documenting deals has remained unchanged, the business world these documents describe has been turned upside-down. Today, the emphasis is on risk, and the language of risk is a language in which deal lawyers must become fluent. That is where we can, and should, best add value.”

    I haven’t heard this basic notion expressed so well in quite a while. And while the practical implications of this idea may vary outside of a M&A practice, which is the subject of the article, the core idea is the same across a wide variety of practices. Why does this happen? Well, the business model that has developed in law over the past few generations involves training and employing an army of highly leveraged young lawyers to do rote document assembly work at massively inflated prices. Technology is finally fighting back, though it has been slow to gain traction.

    How do we handle this at Hyndman | Law? Well, first, we don’t delegate work to untrained personnel. It’s done by experienced personnel who can work efficiently. Second, we recognize that there “are just a handful of contract clauses that are critical” – our core values are simplicity and common sense. We understand where complexity makes sense, and are allergic to it everywhere else. Third, we spend time training our clients to not need our help. And we think we do that very well.

    With any luck, before too long we’ll be obsolete.

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