Eilene Zimmerman, whose ex-husband Peter died of a drug overdose, published an arresting account of his descent into addiction. Peter was a patent attorney at Wilson Sonsini, and Zimmerman ties Peter’s story to a larger problem of drug and alcohol abuse in the legal profession. While I haven’t witnessed much of this problem firsthand in my interactions with other attorneys, the problem identified by the article is that the culture at law firms leads attorneys to hide signs of weakness, so it’s not surprising that I haven’t seen it.
The New York Times writes about the rise of “pop-up” employers, essentially temporary organizations that are organized for a specific project and then go away. As the article notes, certain types of activities have been organized in this manner for a long time – Hollywood productions and political campaigns, for example. What’s changed recently is the exponential improvement in technology that can match people to tasks efficiently, allowing even complex organizations in many different industries to be created quickly.
I believe this approach could be employed in the provision of legal services. Currently, only large law firms can efficiently handle projects requiring the involvement of more than a few attorneys. But it’s not hard to imagine a portal that can be used to identify a team of attorneys to work on, say, an M&A transaction (senior and junior corporate people, tax, benefits, etc.). Of course, this sort of arrangement would have to be harmonized with existing rules for attorney client relationships (i.e., does the client engage the portal or each of the individual attorneys? How are conflicts handled?). As I’ve written about recently, my firm has joined a network of solo and small firms, and this sort of arrangement has the potential for being the basis for pop-up teams of attorneys. [Read more…]
I recently got around to seeing The Founder, the movie dramatizing the early years of McDonald’s, as Ray Kroc transformed the McDonald brothers’ local fast-food restaurant into an eventual global juggernaut. Given the business I’m in, films about entrepreneurial activities are inherently interesting to me, so scenes in The Founder involving people reviewing and signing contracts are perhaps more attention-grabbing to me than they are for the general public.
As recounted by the film (spoiler alert), Kroc grows tired of the brothers’ stubborn refusal to approve his proposed changes in business practices to facilitate fast growth, and he finds the deal he struck with them unprofitable. The brothers ultimately agree to unwind the deal, proposing a buyout by Kroc of them for $2.7 million plus a 1% royalty in perpetuity. Kroc agrees, but says his lawyers need the 1% piece to be a handshake deal, not in the contract, so as not to hinder Kroc’s future financing plans. At the end of the movie, we find out that Kroc reneged on this and never paid them any further.
William D. Cohan, writing in the New York Times’ DealBook, characterizes the third-party valuations of private companies under Section 409A of the Internal Revenue Code as Silicon Valley’s “dirty little secret” and a “shell game.” Especially in the aftermath of the financial crisis, there has been plenty of populist rhetoric about practices in the business world, and much of that criticism has had basis in fact, but this take on 409A valuations seems awfully strained.
As described in Cohan’s article, Section 409A and the related rules require that companies obtain independent valuations in connection with their issuance of equity-based awards to employees, and failure to comply results in tax penalties. Cohan details the fact that various service providers charge significant fees to undertake these valuations, using words like “supposed” experts to make the whole enterprise seem like a racket, but the reality is that the rules do exist, and these valuations have to be done. If it was possible for just anyone to make up a valuation for a bargain-basement fee, heck, I would consider doing it as a side gig from my legal work. But the rules actually go into detail as to the required qualifications for firms providing these services. Cohan notes in the article that the SEC would not comment on these practices, but this is really more of an issue of tax law than securities law. What constrains companies and their hired valuation help from simply making up numbers out of thin air is the fact that their decisions are subject to later IRS scrutiny and sanctions.
Gary Ross, another founder of a small corporate law firm, writes in Above the Law about how lawyers should handle client inquiries about areas of law outside their specialty. As Ross notes, this issue comes up far more for lawyers at small law firms than it does at big ones, where there is usually someone with appropriate seniority and expertise to weigh in.
Clients should definitely avoid the mindset that lawyers should be able to speak intelligently about the basics for every area of the law. Law school and the bar exam cover a lot of ground, but far from everything. There is no reason to expect that a randomly selected lawyer would be able to rattle off details about, say, import/export regulation or local liquor licensing requirements, if asked out of the blue. While there are still true generalists who practice in small towns, their actual knowledge base is limited to the types of matters that generally come up among citizens doing regular things, i.e., not derivatives regulation.