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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. | 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 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> | |||
So, to take our three examples: | |||
====Advisory [[M&A]], [[DCM]], [[ECM]] etc.==== | |||
The business of mergers and acquisitions is generally handled on behalf of target and acquiror by appointed banks. Each bank will appoint law firms to advise it — principally on the underwriting, regulatory and reputational risks posed by being involved in the proposed transaction. The banks legal advisors will conduct due diligence, negotiate contracts, shareholders agreements, draft prospectuses, advise on all kinds of competition issues that may arise, and will issue batteries of [[legal opinion]]s — enforceability opinions, fairness opinions, security opinions, 10b5 opinions — you name it — all of which are designed to give the arrangers and syndicates — the ''banks'' comfort that their risk of shareholder action or regulatory censor is minimal. Who pays for all this legal advice? The bank’s client, of course. This will be in the first blushing exchanges of the [[engagement letter]]. | |||
One the client has agreed to this, the bank’s internal lawyers have little incentive beyond basic compassion for defenceless multinationals to constrain their legal spend. They are exempt from the usual rubber glove inspection — competitive tenders, law firm panels, that accompanies requests from other parts of the legal department to incur “own legal spend”. | |||
====[[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. | |||
{{Sa}} | {{Sa}} | ||
*[[Stakeholder capitalism]] | *[[Stakeholder capitalism]] | ||
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*[[Shift the axis of dispute]] | *[[Shift the axis of dispute]] | ||
{{ref}} | {{ref}} | ||
{{C|Newsletter draft}} | |||