The sheer size of today’s corporations virtually ensures that companies will have to wrangle with lots of legal red tape. Most top executives spend as little time as possible dealing with law, choosing either to avoid it or grudgingly comply with the restrictions they face. In the former case, a company may try to move some operations into another country to dodge certain taxes, while in the latter executives simply do the bare minimum necessary to make it through the legal grind. While those that try to avoid the law can face potentially dire consequences, companies who take the compliance route at least cover all their bases.
According to a team of MIT researchers, however, corporations can gain some big advantages over their competition with a proactive, engaged legal strategy. For instance, years ago many of the Walt Disney Company’s character trademarks were set to expire. Rather than lose some of the most lucrative properties in entertainment to the public domain, Disney devised a legal strategy that ensured its trademarks would remain in place indefinitely. Besides protecting its existing cast of characters, the plan also gave Disney the ability to expand their licensing and merchandising efforts. As a result, the house that Mickey built became even sturdier.
Taking advantage of the legal environment is easier for companies who have lawyers in leadership positions. One study found that corporations with an attorney on their board of directors saw greater returns and higher stock market valuations than those without one. In fact, 43 percent of U.S. companies had a lawyer-director in 2009, up from 24 percent in 2000. Nevertheless, many executives continue to view the law as a nuisance that hinders business rather than helps it. Oftentimes, though, corporations face difficulties because their lawyers are ordered to react to legal issues, not pursue them. With a more proactive strategy in place, there’s a good chance these companies could face their legal troubles head on before they morph into much bigger problems.
Questions:
- Is it wise for corporate executives to view the law as a nuisance to their companies?
- Should company lawyers be a part of a company’s strategic planning process?
Source: Rober C. Bird and David Orozco, “Finding the Right Corporate Legal Strategy,” MIT Sloan Management Review, September 16, 2014. Photo by: Joe Gratz.