In this blog post, Sukruta Rajendra Babu, a Partner at Lexplexus and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the role of lawyers as enterprise architects.
INTRODUCTION
An Enterprise Architect designs the overall business operation, technology and organisation of the enterprise in integration. The business architect and designer of today’s enterprise is the entrepreneur, because, before putting together the enterprise and funding, the entrepreneur comes with the plan that describes the products, the markets, the business and operating models, the resources and forecasts of costs and profits to make sure that the enterprise will be viable.[1]
The Role of Lawyers has undergone a sea change from being Social Engineers to Designers of Corporate Governance Structures to the role of a Consigliere[2]. It is not uncommon for lawyers to be actively involved in the entrepreneurial decisions of a Business Entity. To this end, lawyers have become transaction cost engineers, navigators of regulatory mechanisms, executors of right altering arrangements, etc. This paper is an attempt to analyse the role of a lawyer as an Enterprise Architect.
ROLE OF A LAWYER
A lawyer plays a crucial role in the following features of a Business Enterprise:
(i) Nature of Business Structure: A lawyer requires technical skills in what might be called “Enterprise Architect”, i.e., creating the best entity structure for each enterprise.[3] A Business Lawyer plays a pivotal role in determining the nature of the enterprise based on its profitability. The format of an enterprise may be dependent on various factors that are business, economic, financial or regulatory. A lawyer more often than not structures an enterprise based on factors like tax implication, protection of Intellectual Property Rights, Regulatory Approvals, etc. as they play a crucial role in determining the profitability and viability of an enterprise.
(ii) The scope of the Enterprise: Lawyers also help fix the scope of the enterprise, including its time frame, geographic scope, and range of business. Participants may not usurp business opportunities that belong to the entity, but the default rules about what opportunities belong to an entity are vague. For example, some technology has several uses. If the technology evolves during the life of the venture, it may be hard to predict what uses will emerge. In order to avoid problems, parties often alter the default rules. Although allotting opportunities is a business issue, mastery of property law and fiduciary duties are needed to achieve the desired results. The scope of the enterprise may also depend on what obligations the parties already have in other ventures, a question which the lawyers may have to help answer.[4] Hence one can conclude that the determinants in evaluating the scope of the business enterprise are inter alia based on the following factors:
- The range of services offered in a Business is often designed to meet the needs of a market or a consumer.
- The regional presence of a business entity is based on a particular class of consumers, industry or markets.
- Cost effective regulatory approvals encourage the business enterprises in providing a wider and expansive scope of services or businesses.
A lawyer plays an indispensable role in the decision process in discerning the life span of a business enterprise. Apart from epoch of technology in technology related businesses, the tenure or life span of a business may also be based on factors like Incentives offered by the Government through Government subsidies, Business Policies, Tax Holidays, regulatory mechanisms and the like.
A Business Enterprise indulging in Real Estate will have to be prepared for many expanding regulatory mechanisms that keep evolving from time to time. The Regulatory mechanisms under the Real Estate (Regulation & Development) Act, 2016 has a huge impact on the execution of projects, timelines, operational issues and governance of the project, etc. Thus, Lawyers may help in gauging the costs and viability of the projects and thereby making themselves indispensable to the operation and management of the Business Enterprise.
In determining the nature/scope of the business that executes public projects through Tender, a lawyer plays an important role in drafting the Bid Documents, ensuring compliance with Request for Proposal. If the Bidder Company is successful, in negotiating and finalizing the contract and if unsuccessful in questioning the Tender process, etc.
In an intrinsic labour industry, drafting of employer-employee contracts, dealing with labour issues, keeping in mind the labour laws and regulations is a pivotal role which a lawyer is proficient in handling and is relied on by Business Enterprises. The territorial presence of a business entity can be based on the main factors like tax structures especially indirect taxation in a country like India, regulatory mechanisms, government subsidies, etc and to a great extent, a lawyer is the best in handling these issues.
Businesses that have an international presence will rely largely on the role of the lawyer especially in negotiating and signing bilateral trade agreements, bilateral investments, the law governing the transaction in the foreign country, etc. Businesses that are involved in cross-border transactions in emerging market countries where the rule of law is not strong often find themselves adjusting the manner in which these transactions are conducted as per the advice of the lawyer.
(iii) Dispute Resolution: The role of a lawyer in the settlement of disputes is unparalleled having regard to the expertise of a lawyer in identifying plausible areas of dispute, offering solution based advice, giving an alternative and speedy dispute resolutions. The ability to anticipate areas of dispute, ample preparation to forestall them with cost-effective measures by providing rapid solutions in a time bound manner is the greatest forte of a lawyer essaying the role of an Enterprise Architect. While negotiating a contract, the lawyer determines the law applicable to the dispute, seat of arbitration, the substantial law in an International Commercial Arbitration, and application of Private International Law. Realizing the significance of trust and cooperation between transacting parties, lawyers persuade reasonableness and iron out the creases of disagreement through an amicable settlement. More often than not, the method or approach adopted in resolving disputes plays a crucial role be it through mediation, conciliation, arbitration or knocking the doors of the courts. The time span to settle e a dispute may be dependent on various factors including the method and approach adopted for the resolution of disputes, and the method or approach is often elected by the Lawyer involved in the exercise based on the economic, business and financial impact it may have on the Business Enterprise concerned.
(iv) Governance: The Rules of governance in a Business Enterprise differs based on the structure and scope of the entity. For instance, the Human Resource Policy of a Business Entity often defines the quality of employment in the enterprise. Lawyers, while drafting the Policy apart from complying with the mandate of law, also instill a sense of equality, fairness, reasonableness and non-arbitrary principles thereby reflecting the ethos of the Business Enterprise. The determinants of optimal incentives are evaluated and investigated with the intention of providing maximum motivational impact to the Employees for the effective governance of a Business Enterprise.
(v) Exit Options: Termination of a Business Enterprise is a crucial factor in designing the enterprise. The strategic withdrawal from an alliance is a calculated and decisive move, especially in Mergers & Acquisitions. A corporate lawyer is well equipped with the know-how of such strategic exits with the least impacting consequence. The Corporate lawyer is well aware of the mechanisms involved in the closure of Business with least regulatory approvals required for a quiet closure and exit. The lawyer determines the options for dissolution and liquidation of the Business Enterprise making it cost effective and least time consuming, thereby making the role of the lawyer as an Enterprise Architect, a very compelling one.
ADVANTAGES OF A LAWYER AS AN ENTERPRISE ARCHITECT
A lawyers expertise is in understanding the business, finance and basic technical aspects of entrepreneurship as well as the legal issues applicable to it. The added value is in being the Consigliere to the Founders of the Enterprise and being consulted on all important decisions and strategizing of ventures.[5] While technology experts largely play this role, lawyers may emerge as one with a definitive advantage in bagging the crucial role for the following plausible reasons:
- Fiduciary Relationship: Any transaction involving a Business Enterprise is inherently confidential in nature. Confidentiality plays a significant role in the design of the business apart from the operation and management of the Business. The relationship between a lawyer and a client is fiduciary in nature and thereby is inherently confidential by the very relationship per se apart from being contractual.
- Expertise in Legal and Regulatory Mechanism: Regulatory and Legal expertise is often the determinant of the success and failure of a Business Enterprise. The legal and management experts in a Business Enterprise prepare the foundation for the design of a business enterprise, and the desirable ability to assess and evaluate the legal, regulatory, political, economic impact on the business enterprise plays a significant role in anticipation of issues, preparation to forestall them with cost-effective measures with rapid solutions in a time bound manner before operations begin being the role essayed by a lawyer as an Enterprise Architect.
- Transaction Cost Engineer: A Corporate lawyer acting as a Transaction Cost Engineer minimizes costs and that can be best illustrated in a typical Merger & Acquisition transaction. In a Merger & Acquisition, collation and evaluation of Due Diligence information from all sources are the most integral process in a successful business transaction not necessarily from the legal perspective but also from the economic and business perspective. A lawyer may assume an impacting role in the findings he arrives at based on his evaluation. The lawyer is expected to make an evaluation of the demands and claims of the company proposed to be acquired, as also an assessment of inherent risks and liabilities. The process of Due Diligence is the result of an arduous synchronization of the financial, commercial, technical, environmental and legal teams. The Investment Banker arrives at the acquisition price only after the Due Diligence findings are evaluated. Based on the evaluation of the risks and liabilities and the assessment of the assets and claims of the business, the role of negotiation, the most critical role in any Merger & Acquisition begins. And thus begins the role of a Lawyer as an Aggressive Negotiator or a Co-operative Negotiator, thus steering the transaction costs involved in Merger & Acquisitions. With Mergers & Acquisition becoming an increasing phenomenon, through aggressive negotiating, the transaction costs of acquisition may be minimized and lawyers are seen as indispensable players of the business transaction.
CONCLUSION
The expansive role of a lawyer in enterprise design is a broad expanse of green prairie. Although one might argue that most of this role may be performed without the knowledge of the law, the knowledge of the law is quintessential for the design of the enterprise especially bearing the above factors in mind. The rapidly growing rate of Mergers & Acquisitions, Venture Capitalist Funding, Commercial Borrowings, etc. have necessitated complex business structures that require the rapid evolution of enterprise design. Complex business structures have propelled business lawyers to pursue a wider range of services of identifying strategic alliances, draft business plans, educating clients about the industry practices and norms, etc. Lawyers have thus placed themselves in an advantageous position of being the Designers and Architects of a Business Enterprise.
References:
[1]Adrian Grigoriu, The business architect role and the enterprise architecture of tommorrow.http://www.ebizq.net/blogs/ea_matters/2014/04/the-business-architect-role-and-the-enterprise-architecture-of-tommorrow.php[2] Member of a powerful family who serves as an adviser to the leader and resolves disputes within the family.
[3] THE BUSINESS LAWYER: VOL 64, FEBRUARY 2009.
“Lawyers don’t just solve problems facing a business venture. They help conceive the venture in the first place, or at an early stage they’re instrumental in funding and implementing the project.” LARRY SMITH, INSIDE OUTSIDE: HOW BUSINESSES BUY LEGAL SERVICES 137 (2001)
[4]THE BUSINESS LAWYER: VOL 64, FEBRUARY 2009. Pg 300
[5]MEGAN M CARPENTER: ENTREPRENEURSHIP AND INNOVATION IN EVOLVING ECONOMIES: THE ROLE OF LAW pg 56.
