Proactive Law for Managers

A Hidden Source of Competitive Advantage

George Siedel, Helena Haapio

• Publisher: Routledge
• Year: 2016
• Print ISBN:
  9781409401001
• eBook ISBN:
  9781317075608
• Topic: Business
• Subtopic: Business General
• Index: Business

Savvy managers no longer look at contracts and the law reactively but use them proactively to reduce their costs, minimize their risks, secure key talent, collaborate to innovate, protect intellectual property, and create value for their customers that is superior to that offered by competitors. To achieve competitive advantage in this way managers need a plan. Proactive Law for Managers provides this plan; The Manager's Legal PlanTM. George Siedel and Helena Haapio first discuss the traditional, reactive approach used by many managers when confronted with the law, then contrast it with a proactive approach that enables the law and managers' legal capabilities to be used to prevent problems, promote successful business, and achieve competitive advantage. Proactive Law for Managers shows how to use contracts and the law to create new value and innovate in often neglected areas - and implement ideas in a profitable manner.

CHAPTER 1
Seize Competitive Advantage: A Legal Plan for Managers

Congratulations! Last year the chief executive officer of your company named you general manager of one of the firm’s most important divisions. Your first year as head of the division has been a success, as you have exceeded the goals set by corporate headquarters.

Condolences! You have no time to savor your early success. You and the CEO recently analyzed current business trends. You both anticipate that the market for your products will become much more competitive, especially with a recent increase in foreign competition. The CEO emphasizes that your division must gain competitive advantage over rival companies in order to survive.

Beyond concerns about the survival of your division, you have other worries. If you fail as leader of the division, in the current economic climate you may be unable to find a general manager position at another company. You also feel responsible for the division’s employees. The division is the largest employer in your town, and a shutdown would devastate the local economy, as well as the families of your employees.

As you plan for the coming year, you develop a list of your goals. High on your list are access to, and retention of, key talent; the ability to adapt to change; the strength of your brand and reputation, and high-quality customer service. To this list you add a personal goal—managing time and stress—because your work increasingly pulls you away from your family and you have little time for recreation.

You then list key obstacles that might prevent you from achieving your goals (while also increasing your stress levels). Among these you list several legal concerns. For instance, you are worried about a lawsuit that might have a significant impact on the company and on you personally. A year ago, when you took over leadership of the division, you fired an employee of your division’s US subsidiary company who was not performing up to your expectations. The employee has now sued you and the company, claiming breach of contract. The employee also claims that you defamed him by making untrue statements about his performance. As a result of this lawsuit, you are reluctant to terminate other poor performers, for fear that they might also file suit.

If it is any consolation, you have lots of company among managers at firms around the world. Achieving competitive advantage is critical to the success and even the survival of companies that cross a variety of industries and cultures. Managers at these companies share many of the goals you listed. Like you, they need to strike a balance between surviving immediate market conditions and making certain their companies endure and succeed over the long term. In fact, talent, agility, reputation, and customer service top the list of managers worldwide. According to the PricewaterhouseCoopers Annual Global CEO Survey 2009,1 more than 90 percent of CEOs believe that these four features are important or critical to long-term growth. In this survey, covering over 1,100 CEOs from more than 50 countries, PricewaterhouseCoopers found that the following are considered to be the critical drivers of long-term success by managers worldwide:

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EXHIBIT 1.1 CRITICAL DRIVERS OF LONG-TERM SUCCESS2

1. Access to, and retention of, key talent

2. Ability to adapt to change

3. Strength of your brand and reputation

4. High-quality customer service

5. Customer or market intelligence

6. Technological innovation

7. Efficient sourcing or supply chain management

8. Access to capital

9. Ability to implement successful collaborative business partnerships

10. Strength of your corporate social responsibility programs

11. Access to affordable natural resources (for example, raw materials, water, energy)

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The concerns faced by managers worldwide are increasingly similar. They relate to trends and issues such as globalization, outsourcing, networking, ethics, and social responsibility. The PricewaterhouseCoopers survey shows that after the financial crisis that began in 2008 many CEOs around the world were fighting threats to their companies’ survival. The scale of the damage was not all that took senior executives and government ministers by surprise; so did the fact that the world markets were much more closely connected than most people had believed.3 As businesses try to survive immediate market conditions, they are also trying to make certain that they endure and succeed over the long term. CEOs have long believed that critical sources of competitive advantage take years, not quarters, to build.4

Concern over the impact of the law in general has emerged as one of the most important factors in the external environment in which business operates. It is estimated that in the United States, Fortune 500 executives spend 20–25 percent of their time on litigation-related matters.5 It is no wonder that business executives attending management development programs rank law among the three most important business topics, along with human resources and finance.6 Yet law, as Wharton Professor G. Richard Shell explains in his book Make the Rules or Your Rivals Will, “is perhaps the most hidden of all competitive strategy tools. Many in business fear getting tangled up with lawyers, lobbyists, and bureaucrats, so they keep their distance from legal matters. But it is just this aversion that makes legal knowledge such a rich source of competitive advantage for those who take the time to understand how legal systems really work. Someone, after all, is going to make the rules. The only question is who.”7

John Seeley Brown, Director of Xerox Research Center, once observed that “Managers don’t make products; they make sense.”8 In your leadership role, as you attempt to make sense of legal challenges in your competitive environment, it is easy to become mesmerized by the complexity of the issues, looking much like a deer in the headlights. In a sense, the goal of this book is to provide a plan, called the Manager’s Legal Plan™, that will enable you to cross the legal highways that intersect your business strategies—maximizing your opportunities while minimizing the risk of being struck down by unexpected legal liability. In a broader sense, however, the goal is to help you recognize the ways in which the law can work for you as a competitive strategy tool and as an enabler, rather than work against you as an obstacle. Along the way, you may notice that the law—even the so-called legal problems—can in reality be opportunities for competitive advantage.

This chapter will introduce the Manager’s Legal Plan™ by first explaining the business concept of competitive advantage. The chapter will next describe the traditional approach used by many managers when confronted with the law (the law being too often, incorrectly, understood as meaning legal problems). The traditional, reactive approach will then be contrasted with a different, proactive approach that enables you to use the law and your legal capabilities to prevent problems, promote successful business, and achieve competitive advantage. The chapter will close with a brief overview of the remaining chapters in the book.

The Essence of Competitive Advantage

The concept of competitive advantage is central to business success around the world. The definition of competitive advantage is straightforward: Your goal in business is to gain an advantage over your competitors. If you were a college basketball coach, you would try to gain advantage over competitors by recruiting athletes who are taller and faster than players on opposing teams. You would attempt to develop game plans that maximize your strengths and exploit your opponents’ weaknesses. You would develop a training program and organize practices to improve the performance of your athletes. In other words, your goals as a coach would be similar to the goals in Exhibit 1.1: talent, agility, and reputation. In order to succeed, you and your team need to master the rules of the game—something so self-evident that you probably do not even think about it.

Of course, college basketball teams and businesses use different measures of success. In college basketball, the success of a coach is determined primarily by whether fans are satisfied with the number of games that the team wins during the season. In business, a manager must also satisfy the fans (customers) but must do so in a manner that produces profits for the firm’s owners.

As a result, a company seeking competitive advantage must create value for its customers that is superior to the value offered by its competitors. Superior value, as Harvard Professor Michael Porter explains in his book Competitive Advantage,9 “stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price.” The amount that buyers are willing to pay for this value must exceed the company’s costs in order for the firm to be profitable. As Porter puts it, “Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s cost of creating it.”10

In order to create value in today’s economy, companies can no longer rely on merely internal resources; they must use external resources as well. They may spend 50 percent or more of their revenue to acquire the goods and services necessary to conduct their business. New technologies have enabled networking, outsourcing, and alliances across borders in a way that was not possible earlier. Competitive advantage can no longer be built on the position of individual companies within one industry or country: the ability to leverage external resources and the creation of value in collaboration with other companies has become a key source of competitive advantage.11 It has been said that companies no longer compete; supply chains and business networks compete.

When considering competitive advantage, we thus must take into account not only individual companies and their resources and capabilities but also those of the companies they work with, as well as the relationships between them. And we need to have expertise in the rules that apply, whether those rules are made by regulators or by private actors through their contracts.

In today’s business environment of increased inter-corporate dependency, complexity, and uncertainty, companies must take good care of their relationships. They must detect and strengthen weak links in their supply chains and manage their projects and transactions well. Contracts and contracting practices can help them in this enterprise. This book will present contracts in this context, as self-made rules of the game and as tools that can be used proactively for business success and problem prevention. This is particularly relevant for you as a manager, as a large part of the negotiation and drafting of business contracts is actually carried out by managers and not lawyers.

As we will see in the chapters that follow, law can play an important role in all these aspects. Business, law, and contracts are intertwined, and the latter two can increase or decrease business costs, liabilities, and risks. If contracts fail, apart from the legal issues, there are business and relationship issues. If a contract dispute arises, business performance will suffer and a lot is at stake, including good-will and reputation.

As a solution to the challenges faced by today’s managers, the chapters that follow will introduce a proactive approach and related competencies that help prevent problems, promote successful business relationships, and secure sustainable competitive advantage.

If all companies took full advantage of their contracts and legal resources, any resulting advantage over the competition would disappear. However, because law and contracts are an almost untapped source of competitive advantage that will continue to be misunderstood by many managers, selected companies should be able to leverage their contracts and legal resources into a source of competitive advantage.

Strategy scholars have long known that companies gain competitive advantage by developing hard-to-imitate core competencies. By applying the Manager’s Legal Plan™ to complement your company’s technological, marketing, sourcing, and other capabilities, you as a manager can create for your company competitive advantage that is sustainable over the long term.

The Challenge: the Conventional, Reactive Approach to Law—“Flight or Fight”

In the vocabulary of many managers, the word “law” implies legal problems that must be solved by legal means. Some managers seem to think about the law only when approached—or threatened—by lawyers. They then want their lawyer to get them out of legal trouble.

Such a reactive approach to legal matters contains many pitfalls. It may lead you to start with a mindset that separates legal issues from ...

Table of contents

• Cover
• Title Page
• Copyright Page
• Table of Contents
• List of Illustrations
• Endorsements for Proactive Law for Managers
• Acknowledgments
• About the Authors
• Foreword
• Preface
• Chapter 1 Seize Competitive Advantage: A Legal Plan for Managers
• Chapter 2 Meet Your Customer Needs: Move from Product Liability to Product Innovation
• Chapter 3 Create Competitive Advantage through Your Talent Pool: Secure Access to Key Talent while Avoiding Employment Pitfalls
• Chapter 4 Use Regulation as a Source of Competitive Advantage: Transform Environmental Regulation into Value Creation
• Chapter 5 Sustain Ongoing Success through Innovation, Intangible Assets, and Intellectual Property Rights: Leverage Collaboration to Create Value through Intellectual Property
• Chapter 6 Use Contracts to Improve Business and Prevent Problems: Be Proactive in Contracting to Achieve Competitive Advantage
• Chapter 7 Tools and Resources to Achieve Competitive Advantage: Benefit from Your Legal Resources and Management Tools While Creating an Ethical Culture
• Index