Must Law Practice and Scholarship be Exciting?
Causes of the worldwide credit crisis include, perhaps dominantly, the proliferation of innovative financial contracts, purportedly devices that would reduce financial risk but that instead backfired to concentrate and intensify it on a galactic scale. What role did corporate law culture play in this part of the cause? Was it too exciting? Should it be duller?
Beginning in the late 1980s, when I was in practice, I and other lawyers participated in incubating the market for financial derivatives and securitization transactions. In the beginning, these deals were nowhere near as exciting as the same period’s newly-exciting mergers and acquisitions and finance practices. We would prepare one-off interest rate swap form contracts on a small scale. We would package credit card accounts receivable into pools for sale to investors. But this practice area became increasingly exciting through the 1990s and 2000s as derivatives and securitization deals proliferated and came to form whole departments in law firms, rivaling mergers and acquisitions groups in glamour and revenue.
In the early 1990s, when I entered corporate law teaching, there was much exciting academic work being done, the culmination of what Yale corporate law scholar Roberta Romano heralded as a “revolution” in corporate law scholarship which, in the 1960s and 1970s, at least, had been dull. In that earlier period, the focus, in practice and the academy, was merely on positive, doctrinal law, mostly statutes, and on the old-fashioned duties managers owed to shareholders, often meaning practicing lawyers telling creative clients “no” when innovative ideas would violate longstanding duties.
Beginning in the 1980s, the focus in both turned to innovative deals, especially highly-leveraged hostile takeovers and what courts should do about them. Scholarship studied market behavior, looking empirically at deal effects on stock prices, how quickly and accurately information was absorbed into stock prices, how to measure investment risk and value. Important strands of this scholarship, and resulting law, urged facilitating these debt-financed deals.
In practice and scholarship, intensifying through the 1980s and into the 1990s, transactional and financial innovation was the rage. Corporate lawyers turned innovative, cutting edge, exciting, doing deals, developing new contractual devices for financial products—including those I worked on. Corporate law scholars took up finance theory with alacrity, doing exciting research showing how this innovation worked, with many producers and devotees of this work arguing how law should give it maximal space to flourish (though there were dissenters from this dominant view, including me).
As recently as 2005, Professor Romano, a leading scholar in this dominant style, urged doing more of it, more innovative financial engineering in practice and more finance oriented and exciting research in the academy. Professor Romano urged law schools to develop programs in law and finance to assist promoting this excitement, in practice and research, reporting how her school created a degree program in law and finance to seal the exciting links between law and finance and between cutting-edge law practice and legal scholarship.
Earlier this year, on a corporate law panel at the annual meeting of the Association of American Law Schools, though, Professor Romano said the program had attracted little interest among students. As Matt Bodie reports, panel discussion included talk of how the exciting finance models had failed and yet how problematic it is to design corporate law absent reliable empirical information. Professor Bodie wisely wondered whether these facts and lamentations spelled the end of the “revolution” in corporate law—a “post-post-revolution” period.
That makes me wonder, is it an inherent virtue for corporate law practice and scholarship to be exciting, or is being dull okay? Would the world be better off if more participants in corporate life were as dull as corporate lawyers used to be? Is it okay to tell clients “no, you can’t do that,” or, as I recall one stodgy old Cravath lawyer tell a client back in the late 1980s, “you can do that, but be prepared to go to jail”?