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Maria Castro 
PresentationonLegalAstustenessPowerPointPart1Adapted.pptxProfessional development seminar Assessing the Legal Environment
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The Relationship Between Ethical Leaders, Legal Astuteness, and an Effective Corporate Governance Structure
Adapted from lecture by
Sandra S. Benson, J.D. Associate Professor, Business Law Middle Tennessee State University
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Today’s Agenda
Define legal astuteness and its four components.
Describe new legal strategies used to capture the mission and values into the perpetual life of the company.
Identify evidence of a legally-astute manager in a real-world scenario.
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Definition of legal astuteness
“The ability of a top management team to communicate effectively with counsel and to work together to solve complex problems.”
- Constance E. Bagley. 2008. “Winning Legally: The Value of Legal Astuteness.” Academy of Management Review, Vol. 33, No. 2, 378-390.
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Value-Laden Attitudes
Legally-Astute Managers:
Perceive the importance of law to business success.
Take responsibility for legal aspects and work collaboratively with legal counsel.
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3/29/2019 1:34 PM
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Why is Ethical behavior important to businesses?
Mr. Jim Gwinn, CIO, FirstNet.
“It’s the right thing to do”
“Every company’s success is dependent upon:
The personal integrity that each employee
brings into the workplace
The collective integrity that is displayed as an organization.”
“It’s good business
We gain customer trust and enhance
employee morale
Strong link between customer/employee loyalty and reputation for integrity
We avoid costly consequences”
Value-Laden Attitudes
Win/win Solutions:
HMSA and Healthways Launch Next Phase in Their Partnership to Improve the Health and Well-Being of Hawaii
Florida Blue Partners with Healthways to Offer SilverSneakers ® Fitness Program Through 2015
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Proactive approach
Legally-Astute Managers:
Actively consider legal implications at each stage of strategy formulation and execution.
Stay current to take advantage of innovative laws and regulations or new case law decisions.
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Proactive approach
Members in a new limited liability company agree in writing in an Operating Agreement and Employment Agreements the duties that are required of each member, how new members will be admitted, and what happens when a member leaves (voluntarily or involuntarily).
First and second generation family business owners in a closely-held corporation take active steps to provide for the transfer control to the next generation through a shareholder agreement.
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Proactive Approach
Socially-conscious entrepreneurs and shareholders want to pursue both for-profit activities while producing a material positive impact on society and the environment. Two new strategies are to become a Certified B Corporation by B Lab and/or form or change to a new entity form – the public benefit corporation – profit corporation organized for general public benefit, could be for social, educational, recreational purposes
in January 2016, Tennessee joined a majority of other states who have adopted legislation establishing the public benefit corporation. Who will be the first to sign?
A well-known California-based corporation changed to the Public Benefit form when it became available in California 2012.
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proactive Approach
This company became California’s first PBC in 2012. Their “mission statement is to make the best product, but do it with no unnecessary harm and use business to implement solutions to the environmental crisis.” – Rick Ridgeway, VP
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informed judgment
Legally-astute managers:
Understand that solving business problems often requires a consideration of the legal environment.
Select a team who pairs “black-letter” legal knowledge with judgment and wisdom about both legal strategy and the business environment.
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informed judgment
Etsy’s decision to go public as a Certified B Corporation:
B Corps are for-profit companies certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency.
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informed judgment
Non-compete Agreements:
“…there is so much authority it drowns him. It is a sea--vast and vacillating, overlapping and bewildering. One can fish out of it any kind of strange support for anything, if he lives so long.”
Arthur Murray Dance Studios v. Witter, 105 N.E.2d 685, 687 (Ohio C.P. 1952)
Image courtesy of gubgib at FreeDigitalPhotos.net
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Context-specific knowledge
Legally-astute managers:
Realize that they must acquire appropriate legal literacy to create more effective communication between managers and counsel.
Learn about laws affecting his or her business and how to properly apply legal tools.
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Context-specific knowledge
A group of physicians contracting for an exclusive provider agreement with a hospital under requirements of complex healthcare laws.
Image courtesy of imagery majestic at FreeDigitalPhotos.net
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EXAMPLE 1: CHOICE OF BUSINESS ENTITY or arrangement
Choice of business entity incorporates values, proactive approach, informed judgment and context-specific knowledge.
Choice of entity may affect:
Ability to attract capital investments
Investors’ liability for torts and debts of the entity
Governance structure
Share of the profits and losses
Taxes
Continued existence and potential ability to maintain values
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EXAMPLE 1: A NEW INITIATIVE AND CHOICE OF BUSINESS ARRANGEMENT
Entity forms are state specific and include:
Sole proprietorship
General partnership
Limited Partnerships
Limited Liability Companies and Professional Limited Liability Companies
Corporations
Newest form: Public Benefit Corporations
Other arrangements, such as Franchises and Joint Ventures
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conclusion
Value of Legal Astuteness
Allows pursuit of opportunities to use law to increase value
Helps define and strengthen business relationships and reduce transaction costs
Protects and enhances value of firm resources
Uses legal tools to create options
Converts regulatory restraints into opportunities
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