What commercial awareness is and what it should not be

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By David Allen Green on

Legal commentator and solicitor David Allen Green considers what this law firm buzzword actually means

A commercial solicitor has to have ‘commercial awareness’. But what does this mean?

Often in private practice you will hear some senior lawyer complain that a junior lawyer is not “sufficiently commercial”. The senior lawyer seems to know what he or she means by this. Strangely, however, even senior lawyers can find it difficult to explain what it means. If asked they may mumble something like “you know, it means being commercial”.

The reason for this vagueness is that even some senior commercial lawyers find it difficult to explain, though they demand it in others. Perhaps like an elephant, they will know it when they see it.

One way of approaching the question of the meaning of ‘commercial awareness’ in private practice is to see the commercial lawyer at the intersection of two commercial interests.

First, there is the commercial interest of the client. For the business client, the lawyer is an expense. That expense can only be justified if the cost of lawyer means that that the client can make more money (or can stop losing so much money) than they would do without the lawyer and their work. Here the lawyer needs to understand how the client makes money, and to grasp the commercial nature of the sectors in which the client has business. The lawyer will then see how their advice fits in.

Second, there is the commercial interest of the law firm. A private practice law firm is also a business. It is there to make money out of the legal work the firm provides to its clients. A commercially aware solicitor therefore will understand the businesses of both the client and his or her firm.

So how does this translate into practice? It means that a commercial solicitor should always be able to explain to the client how any legal work fits in with the client’s business. Why, for example, certain legal protections will be needed in a transaction, or why certain processes have to be followed, or why litigation needs to be conducted in a certain way. A commercial lawyer needs to be able to explain the benefits for a business of a certain course of action and what risks are being minimised or eliminated. A commercial client can then nod and say: yes, I understand why that is important.

A commercially aware solicitor will also be able to provide the advice in a form which the client needs, to provide the right legal instruments for the task in hand, and to meet the deadlines which suits a client’s business.

The same commercial lawyer should also be able to explain to a colleague or partner how the firm can justify charging for that legal work, or how further work can be generated. There is no point being commercial in a client’s interests if you are not also being commercial in your firm’s interests. Stripped of all the legalistic glamour, you are simply one business providing another business with a service in return for money.

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Over time, commercial awareness will mean that you not only understand the commercial context of your advice but you will be able to advise your client as a fellow business person as the commercial merits of different legal courses of action: whether to litigate or to settle, or whether to purchase assets or shares. This prowess will not happen by magic, but it will be the consequence over time of understanding your client’s business and your own.

But there is one thing ‘commercial awareness’ is not, or at least should not be. Sometimes some commercial lawyers, even quite senior ones, believe it means doing whatever the client tells you or wants to achieve, as long as the client pays the bill. And so you get contracts which are not enforceable, or aggressive letters before action which can be swatted aside. Of course, if a client is fully and properly advised of the risks of such wonky approaches, and still wishes to proceed, then it can be claimed the lawyer is doing their job. And it is true a lot of money can be made by getting the law and legal instruments wrong, as long as you have the right disclaimers.

Such an approach, however, is misconceived. The primary purpose of any legal instrument, be it a deed or contract or a statute, is that it is enforceable by a court. Any letter before action should be written on the assumption that the claim may go all the way to a full hearing. Just as the main purpose of a computer program is that it will run on a computer, and that the purpose of a musical instrument is that it can be played, any document created by a lawyer has to serve its purpose in a legal process. Other than in exceptional circumstances, and only then with the client’s fully advised consent, a lawyer should not carry out any work which he or she knows will not stand up if put to a legal test. A ‘commercially aware’ solicitor is still a solicitor, and an officer of the court.

Wise and experienced business people expect their lawyers to be both commercially aware and good lawyers. And with a corporate client, your duty is to the company not any one director. A contract may need to be enforced a few years later by a company, by different directors. An unenforceable contract, which seemed a clever commercial idea at the time, will be contrary to the interests of the business. An overstated letter before action may lead to a client being hit for costs regardless of the merits of the case. Placing a client in such predicaments is not being ‘commercially aware’ just because the client pays you. It is instead placing your client in potentially worse commercial predicament.

So ‘commercial awareness’ is important. Without it you cannot be a successful or happy commercial lawyer. And it becomes the reason a client will instruct you, rather than a dozen other commercial lawyers seeking the same work. But it does not mean doing anything just because you can get someone to pay you to do it. You should be commercially aware, and you should be aware of what commercial awareness is not.

David Allen Green is a commercial solicitor and legal commentator.

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