No Fool for a Client: The Finance and Incentives Behind Stock-Based Compensation for Corporate Attorneys

Friday, January 1st, 1999 at 12:00 am by Jason M. Klein
Jason M. Klein, No Fool for a Client: The Finance and Incentives Behind Stock-Based Compensation for Corporate Attorneys, 1999 Colum. Bus. L. Rev. 329

Recent changes in the provisioning of corporate legal services are transforming the way in which clients pay for those services. Traditionally, the role of the corporate lawyer may have been viewed by corporate clients predominately as a necessary evil, a passive role that was required in order to get a deal done, or, at best, a transaction cost. Lawyers have generally viewed themselves as protectors of clients, making sure that they get the best deal for their clients. Recently, trends in the market indicate that both sides are changing their views of lawyers towards a model in which a lawyer partners with a client to generate value over time. That trend has made itself evident in a variety of ways. One instance is the increasing prevalence of lawyers in business roles, such as chief executive officerships. The acceptance of a lawyer as the business head of a corporation is the ultimate acknowledgment of a lawyer serving in a business role. Other trends affect lawyers qua lawyers. One of the most interesting trends is the way in which lawyers accept compensation from clients. Lawyers historically have billed clients by the hour and have demanded prompt cash compensation upon presentation of a bill for services. To an uncertain but growing extent, lawyers are accepting payment in stock and options. The goal of this Article is to examine whether such a fee, and other such fees resulting from similar fee structures, should stand. This Article will analyze the emerging issue of alternative forms of compensation for corporate lawyers. Finally, it examines the normative questions of whether stock-based compensation for lawyers is desirable, whether it furthers the goals that should be pursued by the provisioning of legal services, and whether it changes the incentives and/or the behavior of lawyers in providing those services.

Author Information

The author is a finance professional in the private equity investments area of a leading Wall Street investment bank in New York.