MIT Sloan Management Review

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

THE LEADING QUESTION

How can companies use the law to gain strategic advantages?

FINDINGS

Companies can adopt one of five types of legal strategies: avoidance, compliance, prevention, value or transformation.

The right strategy for a company will depend on factors such as its business model, managers’ attitudes toward the law and the legal department’s ability to collaborate with managers.

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