January 14th, 2010
Thanks to Walker Corporate Law Group, a boutique law firm specializing in the representation of entrepreneurs, for supporting Venture Hacks this month. This post is by Scott Edward Walker, the firm’s founder and CEO. If you like it, check out Scott’s blog and tweets @ScottEdWalker. He’s also writing a new series on VentureBeat: Ask the attorney. – Nivi
Last week I offered 5 New Year’s resolutions for closing deals in 2010. This week, I thought I’d have a little fun and address the issue of entrepreneurs’ frustration with lawyers. A recent tweet from Bram Cohen, the inventor of BitTorrent, captures this frustration well: “Lawyers are like phone companies. Their bread and butter is in tricking you into racking up minutes.”
There’s a time in just about every entrepreneur’s career when he or she has wanted, in the words of Shakespeare, to “kill all the lawyers”. In the spirit of David Letterman, here are my Top 10 reasons entrepreneurs hate lawyers (I should point out that “hate” is too strong a word to describe the feelings of most entrepreneurs, but it makes for a catchier title than “dislike” or “complain about”). Click here for a brief video version of this post.
#10 – “Because they don’t communicate clearly or concisely”
Lawyers love speaking legalese and hearing themselves talk. I learned this first-hand as a corporate associate for nearly eight years at two large New York City firms. The tax lawyers, the employee benefits lawyers, the antitrust lawyers and the rest all spoke their own language. As a corporate associate in charge of quarterbacking transactions, I dealt with the various legal specialists and had to learn their mumbo jumbo. At times, I was as frustrated as the clients.
In the book Garner on Language and Writing, Former U.S. Solicitor General Theodore Olsen wrote, “Legalese is jargon. All professions have it. All professions use it as a substitute for thinking, and they all use it in a way that makes them appear to be superior. Actually, they appear to be buffoons for using it. The legal profession may be the worst of all professions in using jargon. It’s not necessary to communicate that way. You’re really not communicating, and you’re not really thinking.”
#9 – “Because they don’t keep me informed”
Lawyers often keep their clients in the dark. The real estate lawyer I hired to handle the sale of a property came highly recommended and seemed like a good guy. But I never knew what was happening throughout the process. I showed up to the scheduled closing only to learn it was postponed because of some wrinkles, including the buyer’s financing.
Tom Kane, a legal consultant, notes: “[A] failure to communicate often (as in constantly, frequently, persistently, regularly…) is not only foolish from a professional standpoint (as in discipline by the bar, keeping professional insurance premiums reasonable, and so forth), BUT it is just dumb marketing. One could even say it is marketing malpractice.”
#8 – “Because they are constantly over-lawyering”
Corporate lawyers often have a one-size-fits-all approach to deals. I recently represented a software company in a relatively small business sale (about $10 million). The buyer was represented by a large law firm that sent an acquisition agreement with three pages of environmental representations. When I explained that none of the environmental reps (or indemnities) was applicable to the target because it was a software company with one office lease, the corporate counsel got on a soapbox about his client “not assuming any environmental risks.” He even patched in the firm’s environmental lawyer to support his argument.
As John Derrick, a California appeals specialist, points out in his book Boo to Billable Hours, “Just as the cost-plus contractor has no financial incentive to keep the price down once hired for the job, so the lawyer who charges by the hour has little incentive — at least in the short term — to keep down the hours billed. To the contrary, the lawyer’s incentive is to bill as much as possible. The result can be unnecessary lawyering.”
#7 – “Because they have poor listening skills”
While lawyers love hearing themselves talk, they are often not very good at listening. Entrepreneurs want their lawyers to listen carefully to their concerns and address them appropriately; and they don’t want to be interrupted. I feel the same way, particularly when I am negotiating a transaction and trying to close a deal. I have sat in too many conference rooms negotiating with other lawyers as they played with their Blackberries and answered calls on their cell phones. This is not only rude, but it’s also bad lawyering.
From the Wabet Blog: “While great corporate lawyers have several different attributes, one stands apart from the rest: being an exceptional listener. First of all, it’s essential that the corporate lawyer is always ready and able to listen to the client’s description of [his or her] goals and needs. This sounds trite, but involves a set of skills that is more than simply hearing the words spoken or reading the words on the written page. The exceptional corporate lawyer looks beyond the words to delve into the facts, circumstances and other aspects that define the situation… Some of the skill is derived from training, but to a large extent the exceptional corporate lawyer applies his or her experience and the wisdom derived from that experience.”
#6 – “Because inexperienced lawyers are doing most of the work”
This is the dirty little secret at most law firms, particularly large ones. It even has a name: “leverage”. Law firms try to create the highest possible ratio of associates to partners. The higher the ratio, the more money the partners make. For most entrepreneurs, this generally means paying for the training of young associates.
I discuss this issue in my blog post Behind the Big Law-Firm Curtain: The Good, The Bad, The Ugly, “The reality is that the smaller the client — the smaller the transaction — the further down the ladder the work gets pushed at the big law firms. That’s the way these firms work. The entrepreneur may meet the senior partner at the first meeting for his $15 million acquisition or $3 million financing, but that partner then goes back to his office, calls the assigning partner and gets some young associate to start cranking out the work.”
#5 – “Because they spend too much time on insignificant issues”
Lawyers are notorious for failing to prioritize issues. This is especially true in small transactions. Since I moved to Los Angeles from New York City in 2005, I have handled predominately middle-market M&A transactions, financings and restructurings, a departure from the billion-dollar deals I handled in New York. I expected lawyers on these transactions to produce documents relatively quickly and focus on the key issues of a deal, particularly in venture capital transactions that benefit from standardized documents from the National Venture Capital Association. Instead, I found much of what I found in New York: lawyers spending needless time fighting over insignificant issues.
Foundry Group co-founder and managing director Jason Mendelson recently asked, “Why can’t lawyers know when to leave well enough alone and not feel like every piece of paper needs a mark up? Especially given how expensive lawyers are these days, why on earth would the culture of ‘must mark up documents to show value’ persist? (Answer: lawyers make more money). Especially in the world of venture financing, this is very frustrating.”
#4 – “Because they don’t genuinely care about me or my matter”
Too few lawyers are passionate about the practice of law. Before launching my own firm, I worked alongside many big-firm lawyers who didn’t seem to enjoy what they were doing. This translates to indifference toward clients.
This quote from Zappos CEO Tony Hsieh in a recent New York Times interview struck a chord with me: “I just didn’t look forward to going to the office. The passion and excitement were no longer there. That’s kind of a weird feeling for me because this was a company I co-founded, and if I was feeling that way, how must the other employees feel? That’s actually why we ended up selling the company.”
That’s how I felt at the law firms where I worked. There were a number of passionate superstars at each of my previous firms. But many others were burned out and just going through the motions. “Just another fuck’n deal,” one of my former colleagues once complained to me. That’s why I launched my own firm: to create a team of passionate, hard-working corporate lawyers who love what they do and love helping entrepreneurs.
#3 – “Because their fees are through the roof”
As I discuss in the introductory video on the home page of our website, the traditional law firm business model is broken. Legal fees have sky-rocketed over the past decade, with lawyers at some national firms billing more than $1,000 per hour and lawyers at smaller, so-called “regional” firms, billing more than $600 per hour (see “Law Firm Fees Defy Gravity, Annual Survey Shows”). The number one thing driving these outrageous rates: overhead. Traditional law firms simply pass huge overhead costs onto their clients — expensive office space with lavish artwork and dramatic views; large support staffs complete with librarians, and receptionists; and, of course, high-paid associates.
As a result of the recession and this broken business model, large law firms have recently shed associates in large numbers. LawShucks reports, “2009 will go down as the worst year ever for law-firm layoffs. More people were laid off by more firms than had been reported for all previous years combined.” But as Dan Slater argues in his recent New York Times DealBook post, Another View: In Praise of Law Firm Layoffs, “These layoffs — which in many cases have been paired with salary freezes or cuts and significant reductions in law school recruiting – are the best thing to happen to the legal industry in years. Call it a blessing amid recession. Start with the benefit to cost-conscious corporate counsel, who for too long have been bilked by a law firm compensation model that leads lawyers to prioritize their ‘hourly quotas,’ which determine year-end bonuses, over quality service.”
#2 – “Because they are unresponsive”
We’re all busy, but that’s not a viable excuse for failing to promptly return a client’s phone call or email. Clients may have differing definitions of “promptly,” but one business day is a good starting point. I experienced unresponsive lawyers as a client in personal matters, and I experience it as a corporate lawyer trying to close deals on behalf of my clients. Entrepreneurs crave immediacy (and so do I).
A recent deal I was on ran days late, requiring an all-hands conference call to finalize a few key issues in the acquisition agreement. I distributed an updated version the same day with instructions to the lawyer on the other side to call me for an update before he left for the weekend. The weekend passed. I heard back from the lawyer on Monday afternoon, over email — and he had sent a new blacklined version with all new issues raised.
#1 – “Because they are deal-killers”
Lawyers are often viewed as deal-killers because of their failure to set a positive tone and their annoying habit of raising all sorts of reasons why a particular deal won’t close or why a particular idea won’t work. One of the better lawyers I worked with at a firm often said: “Good lawyers are able to identify significant potential legal problems; great lawyers provide solutions to those problems.”
As James Freund, a professor and retired partner at Skadden Arps in New York, points out, “In a transactional practice, nothing comes easy. There are invariably two opposing points of view on significant issues, and the parties will even clash… over a circumstance that may never come to pass. Every disputed issue has to be resolved in order for the deal to take place. And the business lawyers bear the primary responsibility for getting it done. Viewed in its broader context, this activity falls under the rubric of problem solving. Unless you’re a problem solver, you’re unlikely to be an effective business lawyer. And the problems that stand in your way aren’t limited to transactional matters… they can involve dealings with regulatory agencies, tax planning, strategizing about how to protect intellectual property, and on and on.”
While much of this list includes criticisms of my industry, I hope it helps initiate dialogue among entrepreneurs and the lawyers who represent them, to improve the value of the services we offer. And, please remember, I put this list together in the spirit of having a little fun. What experiences have you had with lawyers? Feel free to share in the comments section.
If you like this post, check out Scott’s blog and tweets @ScottEdWalker. He’s also writing a new series on VentureBeat: Ask the attorney. If you want an intro to Scott, send me an email. I’ll put you in touch if there’s a fit. Finally, contact me if you’re interested in supporting Venture Hacks. Thanks. – Nivi