How to Kill a Business Deal – Try to Eliminate All Risks
Contracts and Negotiations Series
“You cannot make an omelet without breaking eggs.”
- Robert Louis Stevenson
This is the second in a series of posts about when lawyers get in the way of successful negotiations and agreements. To read other posts in this series, see the links below. Clearly, there are many lawyers out there who are great at getting things done. But in my career, I have also encountered many lawyers who either aren’t as clear as they could be about how to get things done or have other priorities that can get in the way.
When I was in law school I had a class in practical lawyering, taught by a local attorney who practiced law full time, in contrast with most of my professors who had a more academic focus on research, writing, and teaching on legal topics. Early in her career, she had been part of the legal department of a large company. She said that, inside that company, the lawyers were known as the deal-killers. They would find everything wrong with or risky about a possible deal, try to fix absolutely everything that was wrong, and also try to foresee and cover everything that could possibly go wrong.
That may sound like diligent lawyers doing their job carefully. But all too often, somewhere in that process, the feasibility and attractiveness of the deals got lost, the other side gave up, and the deals never happened. The legal department essentially saw its job as eliminating risk instead of advising the business leadership about the risks and how to manage risks while still getting deals done and helping the business succeed. The culture within some legal departments, and some companies, is such that the lawyers are more concerned about being blamed for things that go wrong than they are about the company’s practical success.
Of course, there must be a balance. Lawyers should not be cavalier about risks, and should be clear with whom they represent, about the nature of all the major identifiable risks, and even many of the minor ones. But if their practice as lawyers or legal departments is to insist on agreements that eliminate all risks, they will be deal-killers, and the company’s growth and success will be hurt in the process.
Part of the onus here should also be with the business team. They need to press their lawyers about what language is holding up completion of an agreement, and why it is so important. What is the problematic provision intended to accomplish? The business team may well decide that a given provision, which is killing the deal, addresses a risk that is small enough to be acceptable, or is a risk that can be insured against or otherwise managed or minimized.
Don’t use a ten-dollar solution on a ten-cent problem.
To get things done in the real world, businesses often have to accept some risks. A good lawyer who is not a deal-killer will help his/her clients understand the risks and may need to be willing to eliminate problematic contract language when it addresses a minor, acceptable risk.
Good lawyering, when it comes to contracts and negotiations, needs to involve identifying risks and, where possible, quantifying them or at least ranking or classifying them in terms of their significance. Then it involves educating the client on those risks and advising as to various scenarios in which the risks are not eliminated with an overdone agreement. Ultimately, it involves helping the business to succeed, which is usually not fully compatible with eliminating all risks.
Good business leaders should know how to communicate this principle to their lawyers and also to foster a culture that is not primarily blame-driven. When fingers are pointed as soon as anything gets complicated, the natural reaction of the lawyers is to interpret that as a mandate to eliminate all risks so they are not blamed later. If the culture of a legal department is to eliminate risk instead of to understand and manage it, the lawyers in that department will be seen as deal-killers.
Other posts in this series: