Banking Law

Wise Counsel

Mark Treanor's run as general counsel of Wachovia Corp. will end with his retirement this summer. Before he rides into the sunset, he's sharing his thoughts on what in-house and outside lawyers to banks ought to do and not do. Bank lawyers should pay heed.

Mark Treanor said corporate lawyers often focus too much on roadblocks and end up slowing down business as a result. "It breeds resentment, and I don't think it gets the businesses where they need to go," he said.

Instead, lawyers need to work on identifying problems early and coming up with solutions quickly, said Treanor, who is retiring from the company this year. To find those solutions, lawyers need to get involved in transactions and business issues earlier, and they need to make more of an effort to learn the business, particularly lawyers at outside firms, he said.

At the same time, Treanor said, lawyers must avoid becoming "pleasers" and ignoring potential risks. That means recognizing when something is technically legal yet ill-advised and taking the appropriate action to head it off, even if that means going over someone's head to alert management. "Admittedly, sometimes that takes guts -- we all want to be popular with our clients," he said.

Having served as both in side and outside counsel counsel to banks for a few decades, I'd like to add a bit to Mark's observations. The importance of lawyers understanding the banking business generally and the client's business gaols and methods of operation specifically, cannot be overemphasized. When I started on the in-house staff of a large financial institution over 30 years ago, senior management made me sit as a member of the senior loan committees (residential and commercial) and then rotate for a period of time between various departments within the bank. Not only did this permit me to develop personal relationships with the people who would seek my advice (it's always nice to put a face to the name of the person who annoys you), it gave me a real appreciation of the client's business so that when I considered an issue, I understood how the legal advice I might render would impact the business operations and strategic plan of the client or, if I apparently didn't understand those impacts, the business officer seeking the advice could explain it to me and I wouldn't sit there in slack-jawed incomprehension.

As Mark notes, it is especially important for outside lawyers to understand the business. Often, outside counsel are perceived as "deal killers" by bank officers. Much of this perception is fueled by fights between attorneys over issues that are not important to the client, or are ones where the implications are not properly understood by the client because the lawyer can't explain (inasmuch as he or she doesn't understand) how the legal issue impacts the business of the client on a practical level. Another problem often caused by a failure to understand the client's business is that the lawyer overestimates his importance in a transaction. I starkly recall a client telling the opposing side of a transaction about it's counsel that it always amazes him when the tail tries to wag the dog. The lawyer sputtered, turned red and glared at my client while the opposing deal maker raised one eyebrow, then adjourned the meeting to speak with his lawyer privately. The deal went much more smoothly when we reconvened. The fact that the lawyer didn't look first at his client's reaction to my client's statement told both parties all they needed to know about the lawyer's flawed perceptions of his role. Arrogance is an occupational hazard, and nothing cures it better than a realistic understanding of how the business views the legal function and the lawyer's role.

On the other hand, Mark correctly observes that there will be times when the lawyer will be called upon to "do the right thing" when his client (or, more frequently, certain interested employees of the client) want to do otherwise. Understanding not just the legal issue in isolation, but how it affects the client's business, makes the lawyer a more effective "counselor" and his "counsel" more valuable. It also makes him or her a more effective risk management tool, and when he or she spots the risk, he or she has to have the temerity to bring it to the attention of those who won't ignore it. On rare occasions, you may even have to cut the cord. As Mark rightly puts it, this may take "guts." On the other hand, in a highly regulated business like banking, where the regulators have the power to "shock and awe," courage has an additional wellspring in a sense of self-preservation. Although not a commercial bank, Enron serves as an example of a situation where some had "the right stuff" and some did not.

Of course, attorneys don't operate in a vacuum. If the culture of the business is rotten, being its in-house (and in many cases outside) legal counsel could be an excursion through a little shop of horrors. A candidate for an in-house counsel's positions should do as much due diligence on the bank as the bank should do on the candidate. If it appears that the bank's "philosophy" is to view legal and regulatory compliance as a necessary evil that should be circumvented whenever possible, run for your life (looking both ways before you dash across any streets, of course).

Mark's comments on legal fees echo those of another Mark, Cisco's general counsel Mark Chandler. These days, every bank (and every savvy business) is "always looking for the best service at the best price." While Mark discusses making arrangements with a smaller number of firms to offer discounted hourly billing rates, I'm certain that he and his staff also look at the overall price of the service (after all, the firm can simply bill more hours for the same work) as well as the quality of the services rendered. Such evaluations of "quality" are always more subjective than are reviewing hard numbers, but like pornography, most astute in-house counsel "know it when they see it." In any event, the days of awarding legal work to those outside firms who provide the most (and best) seats to the Dallas Cowboys' games seem a distant memory. Thank heaven for that.

Many lawyers can learn a lot from the tidbits that people like Mark Treanor drop. For those of you who already know it all, this post was another utter waste of time, wasn't it?

Full post as published by Bank Lawyers Blog on April 16, 2008 (boomark / email).