In a private email, Jordan Furlong observed that most lawyers begin law school with little to no business experience or business education. Law School adds no relevant business knowledge. Yet when most lawyers begin to practice in whatever area they choose, they find themselves encountering businesses, whether as clients or the adversaries of clients, and business issues. And because they lack both business experience and training, they are poorly equipped to advise clients in the context of the problem the client faces or even to understand that which is motivating a client’s decision-making.
Take the simplest proposition: should I settle this lawsuit? Well, what is the cost? A certain number of dollars? Really? What’s the accounting treatment of the settlement? Do I have a borrowing cost? Do I want the settlement pushed into next year so that I can report higher earnings per share this year? There are even more questions, but with these basic questions, one begins to see that even the simplest decision is informed by a myriad of business and accounting issues. Even something as divorced from business as First Amendment/Free Speech law is dramatically impacted by global issues triggered by the Internet and the ubiquity of speech that really has no geographic origin. Lawyers and law students receive no training in budgeting or project management, or even a taste of things like Six Sigma and Lean—things that are close to the hearts of many businesses or from which many businesses could benefit.
I received an email yesterday from the Executive Education division of Harvard Business School that started this way:
In today’s business landscape, corporations look to their law firms to be more than the providers of standard legal services—they expect them to be trusted advisers and knowledgeable business partners. Those who cannot fulfill this role are being quickly relegated to commodity service providers forced to compete on price often with company’s own internal legal team. To meet these increase expectations and to ensure that they are providing the highest level of value, law firms need to be able to provide thoughtful guidance that accommodates not only the law, but also the strategic direction of client companies. This new HBS Executive Education program provides the business knowledge required to understand how clients formulate and execute strategy and how law firms can add value in this process.
It’s good to see a recognition that this type of education is needed. But much more fundamental knowledge is needed. For example, while excellent accounting skills are always helpful, even basic knowledge is helpful. Understanding the factors that go into Earnings Per Share and other critical numbers that influence the market’s view of a company or how a bank lending money to a company would view it are immensely helpful in advising clients. Another critical thing is understanding the difference between cash basis and accrual accounting, as well as the process of setting reserves and what variations in philosophy are appropriate or permissible in that regard. It is essential to understand company budgets—how they are set, what they are used for and how management makes decisions in ways influenced by budgets.I am sure my own education is lacking and in-house counsel and business persons could add considerably to this list.
On a slightly more esoteric level, law school teaches people to be lone wolves and tear everything down, to identify risk rather that evaluate it. It requires a high level of certainty in order to offer an opinion. Businesses operate in a world of considerably less certainty, and that "certainty gap" is one of the fundamental causes of out of control legal expenses.
Business school (indeed business in general), on the other hand, is more about team work and problem solving. While risk identification is part of that process, it is not the end result the way it is with lawyers. Business school can really foster creativity—I read where one Stanford professor gave her class an assignment where each team was given $5. The team had the weekend to invest the $5 into an activity and then would be expected to give the class a three minute presentation on Monday. While most teams organized car washes or sold lemonade or something similar, the winning team realized that $5 wasn’t important—it was the three minutes. It sold that three minutes as advertising time to some off-campus stores and generated $600. Law school ties people to prior decisions and doesn’t reward the creative thinking found in this business school example.
The deficiency in law school is not just on a subject matter basis, it is the entire way of thinking. Think back on the old movie “The Paper Chase” with John Houseman in the role of Professor Charles Kingsfield uttering that famous line, “ You teach yourselves the law. I train your minds. You come in here with a skull full of mush, and if you survive, you’ll leave thinking like a lawyer.” Great theater, but in today’s world, thinking like a lawyer leaves you so far behind the pace of movement in the modern world that you render yourselves a dinosaur before you even begin to work.
What’s the answer? Taking the long view, law schools need to change the way the teach, and partnerships with business schools should become the norm. Smart students are well advised to pursue joint JD-MBA degrees. But on a more immediate basis, I think the answer lies along the lines Harvard Business School is considering, though programs will need to be at a variety of levels and priced far more conservatively than the nearly $8,000 price tag Harvard has set for its 3 day program.
There is probably a real business venture here waiting for the right entrepreneurial person to step in a craft a curriculum to could be web-based. The market? Well, there are over a million lawyers in the United States and 45,000 or so law school graduates each year. You do the math (I’m a lawyer so I probably would get the answer wrong!).