Winning Legally: The Value of Legal Astuteness
39 Pages Posted: 3 May 2006
Date Written: April 9, 2006
This paper explores the value of actively managing the legal dimensions of business. It draws on the dynamic capabilities approach and postulates that "legal astuteness" - defined here as the ability of a management team to communicate effectively with counsel and to work together to solve complex problems and to protect and leverage firm resources - is a valuable dynamic capability. This paper posits that law and the tools it offers are an enabling force legally astute management teams can use to manage the firm more effectively. In particular, it proposes that legally astute management teams can, inter alia, use formal contracts as complements to relational governance to define and strengthen relationships and reduce transaction costs, enhance the realizable value of knowledge assets and certain other resources, and convert regulatory constraints into opportunities. Although empirical work is needed to determine whether and under what circumstances legal astuteness can be a source of sustained competitive advantage, there is anecdotal evidence to suggest that failure to integrate law into the development of strategy and of action plans can place a firm at a competitive disadvantage and imperil its economic viability.
Keywords: Contract Law, Regulation, Competitive Advantage, Strategy
JEL Classification: K12, K22, K23, L21
Suggested Citation: Suggested Citation