Adaptive legal advice for shape-shifting businesses
Lawyers often struggle to advise innovative tech businesses due to their risk-averse, backward-looking training. They focus on legal risks, ignoring potential upsides. Modern businesses need lawyers who assess risks realistically, understand regulatory reactions, and advise based on future legal landscapes. Legal education needs a paradigm shift towards solution-focused, forward-thinking training.
This article was first published in The Mint. You can read the original at this link.
Most lawyers find it really hard to advise innovative technology-driven businesses. The fact of the matter is that ever since law school, we’ve been trained to look for problems in the issues that our clients present us with, examining them through the lens of existing laws and testing them against relevant precedents with the sole purpose of uncovering all the different legal and regulatory risks that could affect the business we are advising. As a result, we tend to focus almost exclusively on the downsides, trying to find out all the ways in which our clients might be seen to have overstepped legal boundaries so that we can point out everything that could go wrong with them. This sort of risk-averse, backward-looking approach to innovation isn’t particularly helpful to young startups looking for validation, but it’s how we’ve been trained to provide legal advice.
It is possible to find flaws with virtually any business model. It is often precisely because of regulatory shortcomings that we point out to our clients that other, more risk-averse companies previously steered clear of innovating along the path that our clients took, preferring to focus on avenues with lower regulatory risk. On the other hand, truly disruptive business models operate so completely outside all existing legal frames of reference that they exist in a sort of regulatory limbo—neither fully regulated by existing laws nor specifically permitted. Given our lawyers’ instinct to focus on risk, we struggle to endorse either kind of business model, not realizing that most investors are willing to absorb a significant amount of risk if the potential upside is high enough.
Take ride-hailing companies, for example. Had these business models been vetted by traditional lawyers, they would most likely have been red-flagged as being too risky. In almost all jurisdictions where these companies began operations, taxi drivers needed to be licensed, or, in some way or the other, had to adhere to specific regulatory restrictions in order to be able to transport passengers around the city for a fee. If ride-hailing companies had decided to strictly abide by all the rules that could have applied to them, it is possible that the radical new model that they have implemented would have been unviable.
Instead, they went ahead with their original model despite regulatory uncertainty. They positioned themselves as platforms, arguing that their business did not even operate within the remit of taxi regulators to supervise. By skirting around the edges of regulations in this manner, they managed to grow rapidly until they became such an integral part of the fabric of urban mobility that, in most countries, they are too large to shut down. At this scale, governments around the world were forced to recognize the phenomenon of ride-sharing as legitimate and deserving of the enactment of special laws that deal with them in their own right.
It takes a different kind of lawyer to work with modern businesses—lawyers who don’t just present their clients with the risks, but help them assess the actual likelihood that any of these risks will come to pass; lawyers who can call upon their instinctual understanding of how regulators will react to models that have never previously come up for regulatory scrutiny and opine optimistically on structures that exist in the interstices of established regulatory business plans; lawyers who have the imagination to anticipate what will happen once the business expands to the point where governments are forced to reshape the regulatory fabric to account for them, and who can, therefore advise clients not just on the basis of the law as it exists today, but as it will most likely come to be.
Startups need advisers who, instead of telling them what’s not possible, can tell them what they need to change in their current structures in order to optimally achieve their business objectives; who, like former Canadian ice hockey player Wayne Gretski used to advise, have learnt to skate to where the puck is going to be.
We need to imbue our future lawyers with these skills. We need to train them how to advise clients not just on laws that currently exist, but on those that are yet to be written. We need to teach them how to anticipate new kinds of risks—to understand that just as business models can be brought to nought by changes in the law, they can just as easily come a cropper when large platforms on which they depend alter the basis on which they permit access to their service.
To do this, we need a fundamental shift in our approach to legal education. Rather than teaching students to find flaws, we should instead be encouraging them to focus on solutions. Rather than always looking backwards, we should teach them to try and figure out what the future will look like.
We will only be able to achieve any of this if we can count on visionary leadership in legal education—if the administration of our premier legal institutions can think beyond their short-term considerations and focus on the future that they need to build; if they can think for the profession they have a duty to shape, rather than the prestige of personal positions.
As I watched with anguish how, over the last week, the incumbent administration of our country’s premier law school (and my beloved alma mater), has been clashing with its students over the appointment of a new vice chancellor, I couldn’t help think that all hope for such a future is fading fast.
