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Thursday, June 06, 2013

"Retire and Teach Redux," "Law in a Box," and Other Summer Musings

I rolled into Charlevoix, Michigan in the dead of night with two dogs, one red-footed tortoise, two boxes of books, and my computer peripherals, having driven eighteen hours from Cambridge, stopping only to walk and feed the dogs.  I've now unpacked everything, and have no more excuses.  

51qH1b5cMUL._BO2,204,203,200_PIsitb-sticker-arrow-click,TopRight,35,-76_AA300_SH20_OU01_The fun project for the summer will be a short sequel to Memo to Lawyers: How Not to "Retire and Teach," looking at the late career "practice to professor" transition from the other side of the tenure divide.   Mainly what I want to talk about are the big picture (not the little and petty) aspects of legal academia.  These are the things that after eight full years (including visits) of faculty life still, notwithstanding my somewhat metaphysical take on things, bring out the hard-boiled long time practitioner in me.  More to come later.

In a more serious vein but very much related to what I think are the hardest questions about being an effective business lawyer, I was fortunate to be invited to participate in two symposia during the 2013-14 academic year.  The first, in October at the University of Illinois, is dedicated to the work of the late great Larry Ribstein, and the second is at the AALS meeting in January marking the thirtieth anniversary of Ron Gilson's influential article on value creation by lawyers.  

LeesmolinI still haven't quite worked out what will go in each piece, but there is a common theme I had a chance to address at the Law & Society Association meeting last week in Boston.  Gordon Smith (BYU) organized two panels on "law and entrepreneurship," and I was the discussant on papers or paper concepts by Jeff Schwartz (Utah), Christine Hurt (Illinois, visiting at BYU), Bobby Bartlett (Berkeley), Jesse Fried (Harvard), and a paper co-authored by Jesse and Brian Broughman (Indiana).  

A version of my remarks, inspired by a new book by physicist, cosmologist, and philosopher Lee Smolin (Toronto) critiquing, of all things, physics, follows the break.

Here's the text:

These are five papers that stretch even my ability to find a common theme under the rubric “law and entrepreneurship.”    I told Gordon Smith I would have to go pretty meta to do it, but who better than than me, a person who never met a meta he didn't like.

The papers range from subjects that I would consider highly macro to more instrumental doctrinal pieces.  At the macro end of the range, there are Bobby Bartlett on the effect of tick size regulation on high frequency trading and hidden liquidity (i.e., non-transparent price information) and Jeff Schwartz more broadly on the law and economics of scaled securities regulation (a la that called for in the JOBS Act) on emerging companies.  Others are more focused on the micro of getting things done:  for example, Jesse Fried on the role of pre-emptive rights of VC who take minority positions in startup firms and then find themselves diluted when and if they decline to participate in a subsequent issuance of equity, and the insider/founders issue “cheap stock”, i.e. stock whose offering price is less than the current market value.

Why group them under the rubric “law and entrepreneurship”?  This is a theme Gordon and I have exchanged upon from time to time over the last six or seven years.

I’m pretty sure I understand what great lawyers bring to the entrepreneurship party in practice, whether it’s Wall Street practice, Silicon Valley practice, or Main Street practice. I’m far less sure what academic “law and entrepreneurship” is.  Is it a manifestation of Frank Easterbrook’s “law of the horse”? Is it the traditional business planning area just tweaked a tad to include the treatment of things like down rounds and full ratchet dilution and cumulative participating convertible preferred stock? Is it an explanatory, empirical, or descriptive business, is it a normative enterprise, or some combination of the two?

I have a real weakness for philosophy of science, and I don’t think it’s out of bounds to employ it when I read pieces like these – all of which invoke a scientific approach to matters affected by law, and with three different scientific approaches: some are empirical social science studies; some undertake the economists’ gedanken; others are essentially Langdellian/Holmesian assessments of contractual rights, and assume a meaningful relationship between what a court might do ex post and how the parties might anticipate that ex ante.

I am reading a book entitled Time Reborn by a well-regarded physicist named Lee Smolin. He is a cosmologist and a philosopher as well, and his critique is of the very hard science (compared to what we do) of physics. He describes a phenomenon of “physics in a box”: the focus on a manageable slice of complex reality for purposes of deriving something universal and timeless. To describe physics this way is not an indictment of the physics, but a way of understanding its limitations. Smolin argues persuasively that Newtonian physics, Einsteinian relativity, and quantum mechanics, are all, despite their claims to universality, physics in a box. The universe is inordinately more complex than any of those theories, no matter how complex those theories may themselves be.

That, I am afraid, is how I react to almost all grand theories of lawyering. They are attempts to use the tools of physical or social science to make universal claims (from within the box) about the necessary AND sufficient conditions of a particular state of the world. Why organizations use the corporate form; why lawyers aggregate in large firms; why people turn to lawyers in transactions; the relationship of tick size to HFT; the impact of disclosure regulation on welfare maximization; the relationship of preemptive rights to dilution.

There are at least three ways in which law and entrepreneurship collide, two of which we see in the papers here, but a third that seems to me at the mysterious core of what great entrepreneurship lawyering is, and which is the hardest to wrap our arms around.

    - Macro policy: law includes regulation; what public law best facilitates the encouragement of entrepreneurial wealth.

    - Instrumental use: what do the parties want, and how can their lawyers best get it for them.

    - Recognition of law in a box: lawyering that effectively steps outside of the professional discipline and recognizes that what is going on from the standpoint of all of our legal science doesn’t amount to a hill of beans in the rest of the environment in which the entrepreneur operates.

To take "law in a box" one step further, each of our lawyerly encounters with entrepreneurial circumstance is unique. I do not disparage the value of the social science or doctrinal tools available to policy makers or transactional lawyers any more than Smolin rejects the value of general relativity or the Standard Model of Particle Physics. The machine of the law, like the machine of physics, is useful. Neither idealized machine, however, constitutes the reality of the worlds in which either physicists or lawyers operate.

That’s the collision of law and entrepreneurship we most need to be discussing.

Posted by Jeff Lipshaw on June 6, 2013 at 07:23 AM | Permalink


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I look forward to hearing more about "How Not to 'Retire and Teach.'" I think longtime practitioners bring a lot of knowledge to students and many abilities to the job, but law teaching is such a front-loaded career, I think it'd be difficult to put in that type of investment during one's golden years.

Posted by: Margaret Ryznar | Jun 7, 2013 1:21:47 AM

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