Agency problem: Difference between revisions

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 [[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.
-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.
+In an organisation big enough to have its own legal function this is straightforward enough to describe.  The decision to instruct a law firm (a corporate agent) — what they are required to do and how much they should be paid for doing it — is handled by the legal department (staffed by human agents), but paid for, ultimately, by shareholders. If the legal department is evaluated for the quality of its counsel management at all, it will be impressionistically, and is unlikely be reflected in the Christmas bonus.<ref>Trading, another human agent, may complain about the legal bills’ impacting on her PN and therefore ''her'' Christmas bonus, but it won’t be an item on the agenda at the AGM.</ref>
 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.}}
+{{Quote|''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.