Today’s difficult economy demands that firms find new sources of competitive advantage. Recent research by Robert Bird, associate professor of business law in UConn’s School of Business, finds an answer in one of the most unlikely of sources – a firm’s legal department.
For too long, Bird contends, companies have overlooked an opportunity for capturing marketplace value right in their own offices. “We know that corporate counsel can skillfully evaluate risk, manage litigation, and confront regulatory challenges,” he says. “We also know that the legal department is too often shunted aside when big business questions arise.”
When executives roll out a new product or consider a merger, lawyers are usually consulted for their legal advice but rarely their business advice. “Legal experts can be a robust source for firm decision making,” Bird says. “Lawyers and non-lawyers alike can use their knowledge of the legal and regulatory environment to create value for their firms.”
Examples of using law as an opportunity already exist. In 2002, after a series of corporate scandals surfaced following the spectacular collapse of energy trader Enron, Congress passed the Sarbanes-Oxley Act to make corporations’ finances more transparent and to hold executives responsible for financial disclosure. While many executives viewed the new legislation as a burden, a visionary few used the new law to improve their firm’s investor ratings and streamline financial controls.
In another instance, a large retail firm faced with a sex discrimination lawsuit transformed a burdensome judicial consent decree into a culture-changing and value-adding asset. Similarly, lawyers for a snack food enterprise reframed concern over health-related products litigation into market leadership of the no-trans fat snack market.
“These events are scattered throughout the pages of academic journals, but are rarely tied together as pieces of a firm’s overall business plan,” Bird says.
Bird’s research has received accolades from academic circles. His paper titled “Pathways of Legal Strategy” was published in the Stanford Journal of Law, Business and Finance ( vol. 14.1, 2008, pp. 1-41), and received a junior faculty best paper award. In the article, he maintains that companies knowingly or unknowingly interact with their legal environment in their ordinary operations. However, while some firms avoid legal obligations altogether, others observe the letter of the law and overlook hidden value. “Most companies just comply with the law and move on,” he says. “That’s an opportunity lost for them.”
He also has a working paper, “Law, Strategy, and Competitive Advantage,” that is due for completion in early 2011. This paper explores how the conditions under which a firm operates may influence whether executives view the legal department as an opportunity. The size of a company, its in-house counsel, the industry, and the attitude of individual managers toward law are all variables.
“We just don’t know why one firm uses law skillfully and another does not,” Bird says. “Considering the possible sources helps answer this important question.”
His work has attracted attention from other universities. “We were intrigued by this timely and innovative concept,” says Lynda Oswald, professor of business law at the University of Michigan’s Ross School of Business, who invited Bird to present to her faculty.
He was also invited to talk about his research at the University of St. Thomas’ Opus College of Business in Minneapolis, where Michael Garrison, a professor of ethics and business law, says, “His work helped our undergraduates think of regulation as an opportunity and not just a cost.”
Bird also traveled to Finland, to give two invited presentations at universities in Turku. “It offered a wonderful opportunity to interact with international scholars interested in this emerging topic,” he says.
Bird says that research into the competitive advantage the law provides is just beginning, and compares his work to early debates over the role of information technology in the 1980s and 1990s.
“About 20 years ago,” he observes, “firms openly questioned the value of IT. Some executives saw little benefit beyond back order processing. Writers questioned whether it could provide a competitive advantage at all. Law today is like IT 20 years ago. Law is now the last great resource of competitive advantage, and with ongoing vigilance, managers can unlock this untapped opportunity inside their own companies.”
