Agency problem: Difference between revisions

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 In this view, the in-house [[legal department]] — a bank function all but unknown thirty years ago, but now so monstrous that it needs its own chief operating officer<ref>our [[history of inhouse legal]] refers.</ref> — really only exists to make life as easy as possible for the law firms to optimise recovery of recorded chargeable time.
-[[Big law]]’s neat evolutionary trick big here is to ''weaponise'' the [[agency problem]]. It does this by imposing yet more structural intermediation.
+[[Big law]]’s neat evolutionary trick big here is to ''weaponise'' the [[agency problem]]. It does this by imposing  structural intermediation between those who instruct the lawyers, and those who ultimately pay for them.
-Corporations, represented by their staff (human agents) — appoint advisory banks (corporate agents), themselves represented by their staff (human agents), who appoint professional advisers (corporate agents),<ref>Once upon a time there was no corporate agency here and individual professional advisers had unlimited personal liability. Just imagine!</ref> themselves represented by their staff (human agents)  — to advise on a transaction with another corporation, similarly represented. There arises therefore a delicate chain of agencies — six would be standard in the simplest bilateral transaction — between those who ''instruct'' the firms and those who are, ultimately, expected to ''pay'' for the services rendered. By design, none of the intermediaries — agents — have personal [[skin in the game|skin]] in the [[infinite game]] and have only one conflicting interest: to ''keep playing''.<ref>See {=author|James P. Carse}}’s {{br|Finite and Infinite Games}}.<ref> But it is a powerful interest indeed.
+In an organisation big enough to have its own legal function this is straightforward enough to describe.  The decision to instruct lawyers — what they are required to do and how much they should be paid for doing it — is handled by the legal department, but paid for, ultimately, by shareholders. If in-house legal is evaluated for the quality of its counsel management at sll, it is impressionistically, and is unlikely to show up in the pay packet. Trading may complain about the legal bills impacting it's PNL, but it won't be an item on the agenda at the AGM.
+But in bigger organisations this disintermediation becomes ever more baroque. Once a firm appoints a bank to advise it, all bets, and controls, are off. Here is the scenario:
+{{Quite|''Corporation, represented by its legal department (human agents) — appoints its own law firm (a corporate agent),<ref>Once upon a time there was no corporate agency here and individual professional advisers had unlimited personal liability. Just imagine!</ref> but also an advisory bank (a corporate agent), itself represented by its legal department (human agents), who appoints its own law firm (another corporate agent) itself represented by its staff (human agents) — to advise on a transaction between the first corporation and another corporation, similarly represented.}}
+There arises therefore a delicate chain of agencies — six would be standard in the simplest bilateral transaction — between those who ''instruct'' the firms and those who are, ultimately, expected to ''pay'' for the services rendered. By design, none of the intermediaries — agents — have personal [[skin in the game|skin]] in the [[infinite game]] and have only one conflicting interest: to ''keep playing''.<ref>See {{author|James P. Carse}}’s {{br|Finite and Infinite Games}}.</ref> But it is a powerful interest indeed.
 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.