October 25th, 2011 • Posted by Robert Anderson • Permalink
When I graduated from law school, I went to work as an
associate at a major Wall Street firm in one of the leading corporate finance
and mergers and acquisitions practices.
The firm regularly ranks as an industry leader, earning that reputation
across countless major transactions. As
an associate, my job was primarily to produce first drafts of complex documents
that ranged from a dozen pages to several hundred pages. In the course of
thousands upon thousands of hours drafting documents, I found myself doing what
newer transactional associates did in every law firm in America -- drafting lengthy,
complex documents based on precedents, wading through long paragraphs I had
never seen before, and always striving to meet expectations -- market standards
that form the essential currency of deal documentation.
In many cases, I had a starting place for producing these
documents. I might have been pointed to a reasonable precedent, perhaps a
recent document drafted by someone at the firm.
If I were that fortunate, I would take that document and begin
de-customizing the precedent from the last transaction, and re-customizing the
precedent for my transaction. That was
the easy part of the job, and was the place where often the most junior
associates had to stop.
The reason is that deal documentation in top-tier firms is
not simply changing the names and dates in a precedent document. Instead, our
work always involved consulting, comparing, and synthesizing language from multiple
precedents. And it is here that the assignment became tricky. Certainly, there is no shortage of places to
search and find transactional documents, most notably the EDGAR database of the Securities and
Exchange Commission. Associates can look
at these collections, find suitable points of comparison to the current deal,
and prepare a document that would meet the standards for the transaction type,
the industry type, and the firm's own demand for perfection. The idea is that by leveraging the latent
wisdom in language that survives repetitive duplication in precedent after
precedent, lawyers are able to use the most effective language, secure the best
terms, and avoid important risks. This is exactly what partners would want the
associates to do-produce a perfect market standard document for the current
transaction-if only there were enough time.
Unfortunately, there never is enough time. When I was drafting, I always faced the
tension between getting the document perfect and getting it done fast. The drafting had to be perfect, and perfect
meant not deviating from market standards unless there was a good reason to do
so. But the drafting also had to be fast. Clients didn't want to wait for us to
exhaustively survey the market for each provision, and they didn't want to pay
for that either. Inevitably, I would
only have time to check a small number of other documents and move forward with
what I had learned. There was simply no
way to conduct a comprehensive review of the language and terms for every type
of deal I was working on. At the same
time, everyone knew that if litigation arose down the road, litigators would
have the leisure to scrutinize every word. This is the key risk that document drafting
presents, and one of the reasons that it has become so expensive and
inefficient.
This method of finding authoritative terms and language in
deal documents was used literally everywhere when I was practicing -- and it
still is. Today, I teach Contracts,
Corporations, and Mergers & Acquisitions law at Pepperdine University. I am in regular contact with practitioners in
many leading law firms. The methods in
use today for crafting the best deal documents haven't been altered or improved
since I was in law school. The most
significant technological innovations in transactional legal technology remain those
I used a decade ago in legal practice: EDGAR (established in the early 1990s),
word processing (prevalent in the 1980s), and legal black-lining technology
(1980s).
The transactional legal market is ideal for a technological
solution. Standardization is the currency in transactional legal practice, and for
good reason. There is wisdom in the persistent features that survive multiple instances
of duplication, over years of being tested in the marketplace and the courts. And
standardization in documents is exactly the type of thing that computer
technology is particularly adept at revealing.
But there is no technology driven toward discovering market
standards -- only associate hours. As a result, junior associates manually try to
determine the market standards for particular types of transactions, wasting
countless hours comparing deal documents and often turning in a product that
the senior associate or partner must completely redo.
The current process of transactional legal drafting is not
just inefficient and costly (as well as demoralizing to the junior associates
involved), but also carries considerable risk for the law firm and the
client. Miss a single critical clause,
and the client may find himself on the losing side of a lawsuit years down the
road. Miss just a few key words in a
lengthy document, and you may have cost the client millions of dollars or
placed the business at a competitive disadvantage. In transactional law, the stakes are always
high and perfection is the standard.
That standard is out of reach with the tools currently available.
I knew there had to be a better way of conducting
transactional legal work. And after
almost a decade of research and development, I can confidently say that now
there is. Please stay tuned to this
ongoing blog where over the coming months we will unveil the next generation of
transactional legal technology.
