Winning Legally: The Value of Legal Astuteness

Constance Bagley

This paper explores the value of actively managing the legal dimensions of business. It draws on the dynamic capabilities approach and postulates that "legal astuteness"-defined here as the ability of a management team to communicate effectively with counsel and to work together to solve complex problems and to protect and leverage firm resources-is a valuable dynamic capability.

This paper posits that law and the tools it offers are an enabling force legally astute management teams can use to manage the firm more effectively. In particular, it proposes that legally astute management teams can, inter alia, use formal contracts as complements to relational governance to define and strengthen relationships and reduce transaction costs, enhance the realizable value of knowledge assets and certain other resources, and convert regulatory constraints into opportunities.

Although empirical work is needed to determine whether and under what circumstances legal astuteness can be a source of sustained competitive advantage, there is anecdotal evidence to suggest that failure to integrate law into the development of strategy and of action plans can place a firm at a competitive disadvantage and imperil its economic viability.

Executive Summary:

Are you legally astute? Four components of legal astuteness are described: (1) attitudes that respect the law, but don't rely on counsel to make business decisions; (2) a proactive approach to identifying risks and opportunities; (3) the ability to exercise informed judgment; and (4) context-specific knowledge of the law and the appropriate use of legal tools. The author makes recommendations on integrating legal counsel into different aspects of the business process such as branding and trademarks, negotiating contracts and building relationships, and integrating legal counsel into the upper management team to give a new perspective to strategic decisions. Key concepts include:

• There are legal dimensions of business, and managers can learn to manage them more effectively.
• Managers who view lawyers as partners in value creation and risk management are more likely to increase realizable value than those who view lawyers as a necessary evil to be consulted only after managers have decided what to do.

 

Constance Bagley is an associate professor in the Entrepreneurial Management unit at Harvard Business School.