Michael H. Friedman
Pepper Hamilton
Partner, Commercial Department

Golden Rules of Corporate Law

The role of corporate lawyer is to assist a client in achieving its business objectives in a manner that is efficient and consistent with the clients expectations. Sometimes these expectations are based on an inaccurate understanding of either the law or the business context, and the lawyer must clarify with the client the validity of the clients expectations. Although business transactions often involve negotiation over competing interests, resolution of these competing interests in a manner that accommodates the needs of all parties often ensures that the client will have a long-term relationship with other transaction participants.

Golden rules for the corporate lawyer: (1) maintain a mastery of the law; (2) understand the clients objectives and constraints; (3) be open and honest with clients and colleagues; (4) work hard and pay attention to details; and (5) avoid complacency. Corporate lawyers should provide clients with accurate technical advice and good judgment. That ensures that the clients will feel that their business and personal objectives have been accomplished effectively.

Key values and ethics for corporate lawyers are inseparable from honesty and consistency. Lawyers should endeavor to communicate to clients that a business model premised on honesty and consistency will enhance long-term prospects for success. In the public company context, public disclosures of material information must be as transparent as possible. Moreover, both public and private companies should deal with their business counterparts in good faith. This is not just good legal advice. It is good business advice. If a client tries to exploit a clever opportunity to the disadvantage of the other side, the client risks a fight. This may be a risk that the client is prepared to take, but the client is well advised to consider all dimensions of the risk, including risk to its reputation and other factors beyond its immediate objective. The client must assess the long-term implications of such a strategy.

Building a successful legal team hinges upon a combination of knowledge and a commitment to work hard to meet the clients objectives. A successful legal team is typically comprised of attorneys who understand the specific issues of concern to the client, including the industry in which the client operates, relevant law and contractual context.

Good corporate lawyers have the ability to assist a client in identifying real objectives and taking steps to accomplish them in an efficient and creative manner. Of course, to truly appreciate the distinction between the great and satisfactory attorney requires challenging transactions and difficult situations.

Negotiation Tactics

The most important aspect of negotiation is a thorough understanding of what the client is trying to achieve at the macro and micro levels. It is also important to understand what the other side wants. I endeavor to accomplish my clients objectives in a manner that accommodates the objectives of the other side to the maximum extent possible. I do not use emotional appeals and find attorneys who act emotionally in negotiations a bit annoying and rarely effective. I have a similar reaction to use of strong-arm tactics. Instead, I seek to articulate why my clients objectives make sense in the contractual context. Where the other side has a different objective and is resisting what we want, we try to pinpoint what is motivating the other side so that we can determine whether we can modify the transaction in a minimalistic way to accommodate what the other side wants without forfeiting what we want.

Ultimately, we want to ensure that the clients expectations are met and that the transactions been structured in a manner that is legal and will withstand challenges.

Changes in Corporate Law

Corporate lawyers deal constantly with change. Maintaining a mastery of the law and transactional developments is critical to staying on top so that you can guide clients through different transactions and provide guidance on emerging trends. I read constantly, focusing on both new laws and interpretations of existing laws. Also, the more transactions you are involved with, the more you understand industry trends. It is important to be flexible. You must help clients take advantage of new opportunities and efficiently meet new challenges. One cannot overstate the importance of keeping current with changing laws and trends.

Keeping clients up to date on changes in corporate law depends on your relationship with them. Within the past year, there has been tremendous change in the corporate governance context; new rules have been adopted in response to the scandals. We have provided our clients with regular updates. For some clients who have sophisticated in-house counsel, those updates are sufficient. For clients with more modest in-house legal teams, they need additional assistance such as drafting of corporate charters and corporate governance principles. How we advise a client on legal changes depends largely on the relationship we have with the client, taking into account the clients in-house expertise and resources.

The best piece of advice I ever received as a lawyer: do not feel as if you must give clients an immediate answer to their questions. Time spent in reflection inevitably leads to better advice. The belief that an instant answer to a client question will project expertise is not well founded. In fact, instant answers to hard questions often unnerve clients because they question whether the advice is in fact well thought out. Another good piece of advice: do not avoid delivering bad news to clients. The news wont get better with age. However, we should endeavor to communicate the bad news in a manner that will help the client assess how best to meet and surmount the challenges that the bad news presents.

Corporate governance has been a hot issue in the past year for corporate lawyers, but there are other changes of which to be aware. For example, there are many proposed tax and other regulatory changes. It is hard to predict the outcome of many of the proposed changes, but we are helping clients think through the alternatives for their businesses and the steps they should be taking in anticipation of the potential changes.

We alert clients as early as possible to the potential changes and what the consequences will be for them, both generally and specifically. For example, a number of accounting pronouncements have been proposed recently. If a company has many joint ventures they have not consolidated — but may be required to consolidate under these new accounting pronouncements — the company should be actively assessing what the impact will be on its financial statements and compliance with its debt covenants. Furthermore, will the new approach require a change in how the company structures joint ventures going forward?

Many trends we are seeing now will continue for some time. One trend in corporate governance will be increasing the independence of audit, compensation and nominating committees of boards, along with increased articulation of responsibilities of members of those committees, with less active involvement in the committee deliberations by company executives.

The practice of corporate law reflects the evolution of business activity. As businesses become more international in scope, lawyers and their firms must continue to develop the ability to serve those clients with expertise in-house or through international affiliates.

Michael H. Friedman is a partner in the Commercial Department of Pepper Hamilton LLP. He concentrates his practice on mergers and acquisitions, corporate finance and corporate securities. Friedman has extensive experience in joint ventures and real estate investment trusts (REITs). In addition, he regularly counsels boards of directors and senior management of companies on governance, disclosure and transactional matters. Friedman is past chairman of the Mergers and Acquisitions Committee of the Business Section of the Philadelphia Bar Association and a past member of the Executive Committee of the Bar Associations Business Section.
He was awarded his B.A by Hamilton College in 1978, graduating summa cum laude, as a Phi Beta Kappa and a salutatorian, his M.A in 1979 by the University of Chicago and his J.D. in 1982 by the University of Virginia School of Law where he entered into the Order of the Coif.
Friedman is admitted to the Pennsylvania Bar Association