In-House Counsel, Practice Pointers

Moonlighting: What’s a 'Business Issue'?

If you're an in-house lawyer, it's important that you know the difference between legal issues and business issues. Columnist Susan Moon explains how you can tell them apart -- and why it matters.

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If you work as a corporate lawyer at a law firm, you aren’t usually making distinctions between legal issues and business issues. There are just issues. You spot all of the potential ones that you can come up with (hoping to God that those are most of the ones out there), share them with your client, and your client decides how to proceed from there.

If you work as corporate lawyer at a company, you need to keep these two types of issues straight for a couple of reasons. First, the type of issue you’re dealing with will determine how much authority you have on the matter. Your authority on a legal issue? A respectable amount. Your authority on a business issue? Diddly squat. If even that much.

Second, it’s important that you know the difference because, a lot of the time, your business people won’t have a clue. Especially some of the more junior-level people. And it’s your pleasant duty to inform them…

The good news is that it’s pretty simple to tell the difference between a legal issue and business issue: nearly all issues that arise are business issues. When in doubt, it’s probably ultimately a business issue.

The bad news is that if you do the math based on the information above, then you get the following: most issues are business issues multiplied by the little authority you have on a business issue equals little authority on most issues generally. (For those of you who are anal retentives (i.e., 99.06% of you) and who are now trying to redo the calculation, it’s just a point — please don’t waste your precious brain cells over the formula.)

Some of you who aren’t in-house lawyers may be thinking, “Really, nearly all issues are ultimately business issues? What about contracts — isn’t most of what’s in a contract legal stuff? I mean, ok, there are some business points in there — fees and services, etc., but what all of the other stuff? What about the boilerplate — we get the boilerplate right?!”

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Nope. Ultimately, nearly everything in the contract comes down to a business risk. For example, if you agree to indemnify the other party for your company’s “negligent,” as opposed to “grossly negligent,” behavior, the difference is that your company takes on the risk of having to pay (or having your company’s insurance pay) in the event negligence occurs. The final decision isn’t a legal determination, it’s a financial risk analysis that takes into account considerations such as, how dopey is your staff? What the lawyer needs to explain to the business person is the practical difference is between “negligent” and “grossly negligent.”

So the lawyer’s main responsibility when it comes to business issues is to identify and advise on the related legal risks so that your business people understand how to weigh them against all of the other factors that should be considered. The risk you may end up discussing with them could be about the possibility of a lawsuit and how much it may cost to defend or settle it. Or there may be a risk of fines and special oversight from a regulatory authority, which could result in operational costs as well and public relations damage. Fun stuff like that. Whatever the potential risks are, quantify them as much as possible for the business client instead of using vague references.

Note that just because you’re a mere lawyer doesn’t mean that you can’t weigh in at all on the business side of the issue. The very value that an in-house lawyer provides compared to an outside lawyer is the ability to analyze issues in the context of the business, including non-legal issues. The lawyer’s then more thoroughly able to advise on how all of those issues may impact different aspects of the business.

Note also that just because you don’t have the authority to make a decision on a particular business issue does not mean that the business person you happen to be talking to necessarily has that authority. Depending on the magnitude of the issue, someone higher up may need to be the one to call the shot. Sometimes the business person doesn’t realize that, and you have to remind them… nicely.

So what types of issues that are actually pure legal issues? There really aren’t many. Lawyers should counsel their clients not to break the law, for one. If a client goes ahead and breaks the silly little law anyway (because, for example, the likelihood of enforcement is very low and there won’t be any jail time involved), how to address it may end up being a business call.

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Of course, if certain laws are broken, a lawyer may have ethical duties to report on them, for example, for cases involving workplace harassment, improper use of funds, physical harm to others, etc. If you do international work, note that in some countries, such as Japan, even abuse of power or intimidation can be a reportable event.

Lawyers also shouldn’t advise their clients to breach contracts. But again, a client may decide to go ahead take the risk of facing any consequences that result from a breach. Especially if, by breaching the contract, the company can engage in other activity that will enable them to make lots of money elsewhere and offset any consequences of the breach. (Business people can really be into the “making lots of money” thing.) As above, the lawyer would need to determine whether there are further obligations if a breach occurs.

Many in-house lawyers actually prefer to not have the responsibility (or burden, as some of them call it) of making the final call on an issue. Especially since attorneys tend to be just a teeny bit risk-averse. Other lawyers find it frustrating to be merely in an advisory role, especially when they think their business people are making dumb decisions. But hey, this is why we’re called “counselors.” If you feel that your advisory role is not providing you with the vast power that you crave, you may want to try out this thing that some people call… “business school.”

Susan Moon is an in-house attorney at a travel and hospitality company. Her opinions are her own and not those of her company or anyone she works with. Susan may share both her own and others’ experiences (especially the experiences of those who have expressly indicated to her that they must not under any circumstances be shared on ATL). You can reach her at [email protected] and follow her on Twitter at @SusanMoon.

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