When selecting legal counsel for your transactional matter, one of the basic threshold questions is whether to hire a large or small firm, which I’ve addressed previously. The topic for today is also important: whether you should hire an attorney based in New York, or other large city, or one in a market with much lower average billing rates. Of course, with my office smack in the middle of midtown Manhattan, I bring some biases to this inquiry, but I will attempt to address it as dispassionately as possible.
Last week, I detailed a few specific behaviors for transactional attorneys to avoid. Now, I want to identify and describe a particular general type of attorney to avoid becoming (or to avoid hiring, depending on who you are). Needless to say, there are lots of obvious types you don’t want to be – the kind of attorney who steals client funds, the kind who doesn’t return calls, etc. – but what I have in mind here is a type that is thought of, by many, as the best kind of attorney of all: the “brilliant” attorney.
Let me explain, since I know that sounds anti-intellectual. I’m not opposed to being thoughtful and creative. What I have in mind is the attorney who always seems to come up with convoluted provisions, with long formulas and layers of defined terms. And when asked to explain the provisions, the explanation itself is jargon-laden and impenetrable. Some clients who have done many deals and have self-confidence will see through the B.S., but far more will be intimidated by the attorney’s seeming expertise and be forced to take comfort in the fact that they have a genius attorney working on their behalf. But if the client can’t understand what is being agreed to, that’s a failure on the part of the attorney.
This problem is, of course, not unique to corporate law. Think of a surgeon who can’t explain in an understandable fashion the nature and risks of a proposed procedure and possible alternatives; or a fund manager who prefers complex and opaque investments, and can’t adequately explain why that’s an improvement over something simpler. There is a style among professional service-providers generally that, wittingly or not, takes advantage of the insecure and unknowledgeable, and unfortunately, the practitioners of that style are often successful.
Since I’ve managed to attract and retain many clients over my years of independent practice, I figure they must like what I’m doing (or at least tolerate it). If I were to survey my clients to ask what exactly it is they like, my hope would be it’s not that I can bring more brainpower to bear than most of my peers. Rather, the traits I take pride in, and that I hope are the source of my success, are more mundane, such as the use of good judgment in identifying which risks are more important than others, and being responsive and cognizant of the client’s timeline for getting transactions completed. I’ll take “someone you can count on” over “brilliant” any day.
Law is a service business. Whether we like it or not, our clients tend to assess our performance based on our reliability in returning calls and emails and keeping tabs on how a project is proceeding, and less so on the actual quality of our work. Many highly intelligent and skilled attorneys are tripped up by, for example, failing to keep up with the barrage of incoming emails.
The popular professor and non-fiction writer Dan Ariely (Predictably Irrational) has devoted much of his professional attention to work productivity issues. He has helped to develop a time management app called Timeful, which I haven’t tried, but to the extent it implements his ideas, it’s surely helpful. I wanted to focus here on just one of his tips, described in this Reddit thread, which is to try to get important tasks done in the morning, pretty soon after getting up, which is when most people are by far the most productive.
I’ve tried to implement this idea in a manner that works with the demands of my practice. Here’s the basic challenge: corporate attorneys have a mix of tasks that can be done in a couple of minutes or so, e.g., responding to a straightforward email, and ones that take longer, e.g., reviewing or drafting a long agreement. If you try to do one of the longer tasks while monitoring incoming email, each time you interrupt what you’re doing to attend to the email, you’re taken out of the flow of the longer task. And before you know it, you’ve been in email-responding mode for three hours, and you haven’t made discernable progress on the big item.
I deal with this by setting attainable goals for the time-consuming tasks in advance for a particular day, and then seek to get them done before lunch. So when I start work at 8am, I just take a few minutes to scan emails received overnight to make sure nothing is urgent, but then I get right down to the big tasks (like this post, which I’m writing at 11am). I keep my email screen off most of the time, and while I do check periodically to make sure nothing urgent has come in, I try to avoid responding to them while I’m focusing on what I planned to do. Then, if all goes well, I can spend the rest of the day in “reactive” mode, responding to emails that are in my inbox and that continue to come in during the afternoon, with the satisfying feeling that I’ve plowed through my to do list.
Needless to say, I can’t impose complete control over client demands. Sometimes there are meetings or calls that take up the productive morning hours, sometimes I can’t get everything done in the morning that needs to get done, and sometimes things come up in the afternoon that need to get done that day or night. However, I’ve found that at least trying to organize my day in this manner has helped me both with productivity and my job satisfaction.
An advisory committee set up by the SEC, as directed by the Dodd-Frank law, has issued a report with recommendations for changing the “accredited investor” definition used for purposes of determining investor qualifications to participate in Regulation D private offerings. The report correctly identifies the flaws with a system that uses income and net worth as proxies for investment sophistication. It goes on to make a series of recommendations for changes to the system that, in my view, are on the right track.
I wanted to focus for this post on a few specific recommendations that I found particularly noteworthy.
In Recommendation 2, the report advocates relying on more direct measures of financial literacy, such as having securities or financial planning credentials or passing a basic test. There could be challenges in implementing something like this, but clearly we’d rather have a financial planner with a relatively modest income participating in private investments ahead of a 21-year old musician (not that there’s anything wrong with music) who just inherited a $1 million estate.
Recommendation 3 gets into possible limitations on amounts to be invested in private offerings if someone’s income or net worth barely meets the applicable thresholds. This is akin to the limits on investments in the not-yet-enacted Title III crowdfunding rules. This addresses one of the main goals of the securities laws, which is to try to prevent investors from losing a big chunk of their nest egg. If someone who makes $200,000 per year wants to plunk $5,000 in a private investment with a lottery-like risk-reward profile, it may not be the most prudent thing to do, but it’s not going to ruin the investor, so it’s appropriate to regulate it lightly.
Finally, Recommendation 4 promotes third party verification of accredited investor status, which is a somewhat overlooked part of the new rules permitting general solicitation for all-accredited investor offerings. Having trusted third parties in this role helps keep issuers out of the business of sifting through sensitive private financial information of their investors.
I blogged recently about an SEC crackdown on failure to make required filings under Sections 13 and 16 of the Exchange Act, and continuing with that theme, the SEC recently announced a enforcement program against several public companies for failure to disclose unregistered offerings of securities.
First, some background: Any sale of securities by a company must either be registered under the Securities Act, or it must be sold under some exemption, such as a Regulation D private placement under Section 4(2) of the Securities Act. The SEC’s concern is that all sales of any kind be effectively disclosed to the public, so investors are aware of dilution that may have recently occurred when making their investment decisions. The public is aware of registered sales because the registration statement and prospectus filings are made via Edgar. When the sales are unregistered, public companies are required to make a filing on a Form 8-K if the sale exceeds a certain threshold (5% of the outstanding common stock for smaller public companies), and otherwise on the next Form 10-Q or 10-K.
In the cases brought by the SEC, ten companies failed to report transactions on Form 8-K as required by these rules, and three of them also had faulty disclosure when they disclosed the transactions in a later report. None of these companies is a household name. The issue of disclosure of unregistered offerings is more likely to come up in the context of smaller public companies, since larger ones tend to have more flexibility to conduct registered offerings (takedowns from shelf registration statements, etc.), while their smaller counterparts rely on PIPEs and similar transactions, which trigger the disclosure requirement. Often, these microcap public companies don’t rely on experienced or competent securities counsel in preparing their filings. (Yes, that is a not-so-subtle pitch for my services.)
The broader point is that the SEC is well aware that certain of its disclosure requirements are not complied with religiously, and while the agency doesn’t have the budget to police each failure individually, it is attempting to send a message with these coordinated multi-company enforcement efforts that the rules shouldn’t be ignored.