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Agency problem: Difference between revisions
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[[Big law]]’s neat evolutionary trick big here is to weaponise the agency problem by imposing structural intermediation between those who ''instruct'' them and those who are, ultimately, expected to ''pay'' for them. That intermediary —agent — has no [[skin in the game|skin]] in the [[infinite game]] and only one interest: to ''keep playing''.</ref>See {{br|Finite and Infinite Games}}.<ref> | [[Big law]]’s neat evolutionary trick big here is to weaponise the agency problem by imposing structural intermediation between those who ''instruct'' them and those who are, ultimately, expected to ''pay'' for them. That intermediary —agent — has no [[skin in the game|skin]] in the [[infinite game]] and only one interest: to ''keep playing''.</ref>See {{br|Finite and Infinite Games}}.<ref> | ||
A second “tell” is for the size of money at stake to be so large that even a legal bill in the tens of millions will amount to a rounding error. | |||
So, to take our three examples: | So, to take our three examples: | ||
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Once the client has agreed to this — and, for the most part, clients have no choice — the bank’s internal lawyers have little incentive, beyond basic compassion for defenceless multinationals, to constrain their legal spend, and will allow themselves to be led down every open manhole cover that any deal lawyer can contrive to fall into. | Once the client has agreed to this — and, for the most part, clients have no choice — the bank’s internal lawyers have little incentive, beyond basic compassion for defenceless multinationals, to constrain their legal spend, and will allow themselves to be led down every open manhole cover that any deal lawyer can contrive to fall into. | ||
Inhouse teams are likely exempt from the usual rubber glove inspection — competitive tenders, law firm panels, methodological justifications —that follow requests from other parts of the legal department to incur “own legal spend”, even in nugatory amounts. | Inhouse advisory teams are likely exempt from the usual rubber glove inspection — competitive tenders, law firm panels, methodological justifications —that follow requests from other parts of the legal department to incur “own legal spend”, even in nugatory amounts. | ||
====[[Litigation]]==== | ====[[Litigation]]==== | ||
The sorts of litigation banks get into tend to involve claims of art least hundreds of millions of pounds, and typically banks are on the wrong end of them — it is an unusual investment bank that makes a habit of suing its own, solvent clients — meaning that, unless it is prepared to just admit everything and pay up— this happens a lot more than you would think, thanks to an inverted instance of the agency problem — the bank has little control of the process. Unlike a commercial transaction, there is no critical path, since you don't know how the other side will play, so it is hard to fix or even estimate fees, so “[[time and attendance]]” tend to be the order of the day. | The sorts of litigation banks get into tend to involve claims of art least hundreds of millions of pounds, and typically banks are on the wrong end of them — it is an unusual investment bank that makes a habit of suing its own, solvent clients — meaning that, unless it is prepared to just admit everything and pay up— this happens a lot more than you would think, thanks to an inverted instance of the agency problem — the bank has little control of the process. Unlike a commercial transaction, there is no critical path, since you don't know how the other side will play, so it is hard to fix or even estimate fees, so “[[time and attendance]]” tend to be the order of the day. | ||
Anyone who has contemplated litigation — that is, most people who have had a loft conversion — will know how dismal the experience of seeking summary judgment for a straightforward and relatively small claim can be. There are no end of artefacts of civil procedure — pleadings, discovery, interlocutories, counterclaims, requests for further and better particulars, witness statements — that exist only for lawyers to spin each others’ wheels, and render litigation utterly futile. There is an absolute floor — we put it at about 10,000,000 — below which it absolutely makes no sense to pursue, or defend, a litigation claim, as the cost of doing so will outstrip the possible dividend of success. Beyond that threshold this is no longer true, and there is a hazy interregnum where lawyers know that can be paid handsomely, indefinitely, for carrying on an argument that most likely will never get to court. | |||
So unique | |||
{{Sa}} | {{Sa}} | ||