What do clients want from their lawyers? According to a new survey by Clemente Communications Group, middle-market companies want their professional services firms (including lawyers) to help them increase revenue growth and diversify strategically. These companies are looking for advisors who understand the key trends in their industries and their company’s strategic priorities. In short, they want good business strategy advice.
The Role Of Lawyers
Transactional and business lawyers do not typically help their clients increase revenues or reduce operating costs. Lawyers talk about how they offer economical, cost effective legal services.
There is a reason why many business people see lawyers as a cost, and not a value added service. Even in most business related practice areas, lawyers do not — or cannot — advise clients on how to increase sales, revenues, or profits.
What do lawyers do? Lawyers enable transactions. They make sure that the deals go through smoothly. They minimize the client’s exposure to legal risk going forward.
Why Most Lawyers Do Not Give Good Business Strategy Advice
To give effective strategy advice, an advisor needs a high level understanding of business. Lawyers are not usually able to give advice on core business strategy issues like competitive analysis, market positioning, merger and acquisition strategy, and aligning strategy and organization. Most lawyers do not use business analytical tools like Michael Porter’s Five Forces Model, value chain analysis, or the Strategy Canvas of the Blue Ocean Strategy approach. Knowing how to rigorously identify and exploit opportunities is critical to providing clients with sound strategies to increase revenues, to diversify or to retrench.
Here are a few reasons lawyers tend not to give good business strategy advice:
1. Lawyers do not have the business knowledge or training to advise on strategy.
Taking a few undergraduate business classes, or even majoring in business administration, does not provide the requisite depth of knowledge to provide sophisticated strategy advice. At a minimum, an MBA or substantial decision making experience in a company is required.
It is true that attorneys advising on matters like outsourcing and mergers and acquisitions may facilitate greater revenues or strategic diversification. However, attorneys typically do not advise on whether the client should outsource, or how the firm will manage the outsourced operations. Nor do attorneys analyze and recommend whether the client should pursue a merger or acquisition with respect to a specific market or target firm. The lawyers structure the deal after the business people decide to do it.
2. Lawyers focus on minimizing legal risk, not on what the business strategy should be.
Many attorneys, even when advising on business matters, tend to counsel on how a legal decision will affect their client’s business. That is different from advising the client on formulating and executing its business strategy, or on how the client’s business strategy should drive its legal moves.
Moreover, the worldviews and priorities of business people and their lawyers are not well aligned. Because of differences in training, tools, and goals, business people and lawyers speak different languages. I will discuss in future posts how Legally Informed Strategy can bridge this gap.
3. Clients do not trust lawyers to give strategy advice.
Clients sometimes do not trust lawyers to give strategy advice for the two reasons already described. Some clients want lawyers to remain in an enabling role. In this case, there is a structural problem. The client has decided that the lawyer should not play the role of business advisor.
Of course, these points do not apply uniformly to all attorneys or to all attorney-client relationships. Some attorneys are better able to provide business strategy advice than others.
As I discussed in a previous post, many business people get frustrated because their attorneys don’t understand business strategy and organizational management. In reply to that post, one of my Twitter followers (a software entrepreneur) noted that many lawyers don’t understand business yet advise “haphazardly” on business matters. I will discuss this more in a future post.
The need for lawyers to better understand and service their clients is an important topic that this blog will continue to explore.
Douglas Y. Park
Twitter: @DougYPark
(For a longer summary of the Clemente report, see Larry Bodine’s description here. Neither I nor DYP Advisors, Inc. has any relationship with Larry Bodine, his company Apollo Business Development, or with Clemente Communications Group).
Hello Doug. I just discovered your blog this morning and read this “business strategy” bit with interest. While it is a tempting opportunity to wear several hats and become more broadly needed by one’s client base, as a business lawyer, I avoid giving strategic business advice precisely for the reasons you have outlined above. My clients know, or should know, their business, their potential market, their client base and I, 90% of the time, do not. They come to me to make sure a joint venture or the granting of a license will go forward and not come back to haunt anyone. They have a BOD which, if properly chosen, will provide all the stategy they should need, and if not, then the BOD needs to change. Simply obtaining an MBA is not the answer either–one with a manufacturing expertise has little meaningful input for an international licensing contract or the possible advantage of a joint venture. While clients might want/like to have business strategy from their lawyers, having clearly defined roles and knowing to whom one should turn with a given question makes the situation less fraught with the quicksands of “too many chefs” making the meal. This is especially true with start-ups as many of the companies in the clean tech sector are.
Unless an attorney has industry specific experience relevant to the client situation presented to her/him, I am relatively sure the world of malpractice carriers would caution against offering business advice, strategic or otherwise.
I look forward to reading your upcoming articles.
Eileen, thanks for reading and your thoughtful comments. True, clients usually know their business and industry, but they can often benefit from objective advice and guidance. Board members often do not have enough time to carefully study those issues and therefore tend to rely on management’s recommendations.
For these reasons, among others, clients can greatly benefit from having an attorney who already does or can quickly understand their business. The attorney must have a firm understanding of competitive and industry analysis, organizational management, and the close connection between business strategy and legal strategy. The business lawyer should possess a firm grasp of the client’s business and industry, its strategy, and management practices. In an earlier post titled Why Business People Get Frustrated With Lawyers, I offer some explanations for the disconnect between business people and lawyers.
In my experience, startups often need strategy advice. For instance, I have personally found that many cleantech entrepreneurs come from a technical background and understand that they need good strategy advice. Emerging companies often hire, with the blessing of their investors and boards, strategy advisors of various types. However, strategy advisors lack knowledge about the legal implications of strategic decisions. Business strategy and legal advice results in wasted time and money. An integrated approach to business and law gives clients confidence that your advice is relevant and contextually informed, not just legally competent. This approach therefore provides a way to add value to clients.
I will elaborate on these issues in future posts.