Finding the Right Corporate Legal Strategy

  • Robert C. Bird and David Orozco
  • September 16, 2014

Some companies move beyond viewing the law just in terms of compliance — and instead use their legal environment to secure a competitive advantage.

Businesses have been “swimming in a sea of law” as they navigate increased regulation, varying international legal regimes, assorted lawsuits and the impact of stiffer legal penalties for infractions.1 As a result, senior executives have increasingly recognized that legal capabilities are crucial for ongoing corporate success, and they understand the importance of working with legal counsel. Indeed, one study found that 43% of U.S. companies had lawyer-directors in 2009, a notable increase from 24% in 2000.2 Other research has found that corporations generate tangible returns, such as higher stock market valuations, when they employ attorneys who serve as board members and when top corporate officers have legal knowledge.3

Paradoxically, the processes through which corporate legal departments provide competitive advantage remain poorly understood. The prevailing wisdom recognizes the need to incorporate legal considerations into top-level business decision making, but all too often executives still view the law as a constraint on managerial decisions, primarily perceiving it as an issue of cost and compliance.4 This limited perspective of the law, however, does not explain how some leading companies have managed to deploy their legal departments to shape the legal environment in order to secure long-term competitive advantage.

Consider, for example, the Walt Disney Company. Faced with the eventual expiration of its media copyrights, Disney executives transferred the value of that intellectual property into thousands of newly registered trademarks for various characters, names and images.5 This legal strategy achieved two important goals. First, it shifted the company’s property to a legal regime that offers an indefinite lifetime. Second, it facilitated the expansion of name and character merchandise licensing, which now accounts for a global, multibillion-dollar, high-profit-margin business. Without a working knowledge of the law, however, this shrewd strategy never would have been properly executed, and considerable shareholder value would have been lost. And Disney is but one of many companies that have successfully deployed sophisticated legal strategies to capture the profits of innovation-related activities, particularly in the field of intellectual property management.6