Bradlow, D; Finkelstein, J G --- "Training Law Students to Be International Transactional Lawyers" [2008] LegEdDig 27; (2008) 16(2) Legal Education Digest 46

• Training law students to be international transactional lawyers — using an extended simulation to educate law students about business transactions

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Training law students to be international transactional lawyers — using an extended simulation to educate law students about business transactions

D Bradlow & JG Finkelstein

Am U Wash CL RP, No. 08—41, 2007, pp 67–87

The result of legal education’s over-emphasis on litigation-based instruction is that those recent law school graduates that desire to pursue transactional practice are generally ill-equipped to function as business lawyers. Their legal training — unless it is supplemented with prior business experience — does not equip them to comprehend a business transaction or to assist in drafting a transaction or assessing its structure.

This means that, in most cases, the practical education of a business lawyer commences on the day that the lawyer joins a law firm or corporate legal department.

Some may argue that it is not the role of the law school to provide this specific form of practical education. If law schools succeed in training students to ‘think like a lawyer,’ they will be able, once they start practicing law, to obtain the additional skills needed to function as a transactional lawyer.

The poor job that law schools do in training transactional lawyers results in experienced corporate lawyers generally attributing little value to the contribution that a new law school graduate can make to the legal team on a particular transaction.

It is expensive for law firms to provide this training to their new associates.

Law schools are not unaware of this problem. Professors teaching business law are now making greater use of a range of pedagogical methods, in addition to the case law method. Some use problem solving and role-playing exercises. Others use actual contracts rather than court decisions describing contracts, to explain the mental process of ‘thinking like a deal lawyer.’

The purpose of this article is to discuss the innovative approach that the authors have taken to training transactional lawyers. It involves a course built around a semester-long simulation exercise in which the students get to structure and negotiate a complex business transaction.

The authors, one a veteran international business law professor and the other a senior transactional partner at a large international law firm, have endeavoured over a period of six years to develop a course model which seeks to enable the law student to appreciate how the multiple aspects of law interact to form the mosaic of a transactional practice, and introduce the law students to the process of negotiating, structuring and documenting a transaction.

The central vehicle for this class is a simulation exercise that endeavours to put the student in the actual negotiation environment of an international business transaction. The simulation, which extends over the course of one semester, is a transaction involving KJH Inc., a U.S. pharmaceutical company negotiating to acquire a secure supply of a raw material for a new patented drug from MCC, a government-owned, agricultural cooperative in an African country that has surplus supply of the needed raw material. The students enter the transaction after the business team has reached tentative conclusions that a deal may be viable, but without agreement on a specific structure. The transaction can take the form of a joint venture, a technology license, or a supply contract. Each party in the simulation is introduced with narrative and financial information, as well as detailed information on key objectives, constraints and conditions. The market for the new drug, costs of production, and the potential profit model are set forth. Each party also has certain problems and concerns to address (e.g., the U.S. pharmaceutical has recently been cited for certain environmental and drug testing violations), some of which can be alleviated by a successful negotiation and some of which are impediments to an agreement. The students are, therefore, cast in the role of the legal team charged with structuring and documenting the transaction. The goal is to reach an agreement on the terms of a letter of intent for a transaction between the two parties, although the failure to reach agreement presents as useful a learning experience as does success in reaching an agreement.

Most importantly, the course is taught simultaneously in two classes — one class is offered at American University’s Washington College of Law (generally representing KJH, the U.S. pharmaceutical company), and the second class is offered at the Centre for Energy Mineral and Petroleum Law and Policy at the Dundee University in Scotland (generally representing MCC, the African agricultural co-op). Each class bases its representation of its client on the information included in the simulation exercise’s factual information and pursuant to ‘confidential’ negotiating instructions that are provided solely to that class. Over the course of the semester, the actual negotiation takes place using written communications, video conferences and teleconferences. The students must comprehend, communicate, negotiate, react, and, hopefully, reach agreement, all in ‘real time.’

The simulation requires the students to analyse the business transaction, identify the multiple and conflicting goals of the parties, and plan and execute a negotiation strategy that will lead them towards a binding and enforceable agreement. Creative solutions to impasses are required as the two classes negotiate on behalf of their respective parties. Virtually the entire business law curriculum is involved, as the students have to address corporate structuring, tax analysis, labour issues, environmental concerns, regulatory matters and the transnational legal issues that arise in the context of a cross border transaction. In addition, the classes need to understand the business motivations and objectives of their ‘clients’ as well as the financial costs and benefits from the transaction. As a result, the rich dynamics of a negotiation develop in real time, as each class addresses actual issues raised by the successive rounds of negotiation.

Participation is the key to the exercise, and it is something that not every student is comfortable with.

In the end, upon reflection on the results of the negotiation, they come to realise that they have actually employed almost their entire international and business law curriculum as they not only ‘thought like a lawyer’ but ‘acted as a deal lawyer.’

The course, which is comprised of approximately fifteen students at each university, begins with two introductory lectures or discussions. The first lecture is an introduction to the negotiations process, negotiation techniques, and the role of the lawyer in business transactions. The lecture stresses the non-legal aspects of functioning as a deal lawyer, particularly the need to understand the business context, goals and points where compromise is possible. The potential separation of business and legal issues for consideration during the negotiation process is addressed, as well as the role of the lawyer in overseeing both aspects in completing the transaction.

In addition, the class pays attention to the concept of Best Alternative To A Negotiated Agreement ‘BATNA’) as a measure of when a negotiation should end if it is not progressing as desired.

The second class is an introduction and analysis of the transaction. The primary focus is upon the two parties to the negotiation, their business objectives, what they bring to the transaction, and what obstacles they have to overcome. Possible structures to the transaction (joint venture, technology license agreement, or supply contract) are reviewed, along with the pros and cons of each from the perspective of both parties in view of their respective goals and objectives. Finally, the components of a ‘first communication’ to open the negotiation are addressed. This part of the class discussion tends to focus on those elements of the proposed business transaction which are likely to be discussed early in the negotiation.

By the end of the second class, the students have volunteered to form teams that will serve as ‘lead negotiators’ for successive rounds of the negotiation, with the first team being assigned to prepare the opening communication to the other side (due to class schedules, the American University class leads off the negotiation with the first communication).

After initial comments have been processed, the proposed communication is distributed to the entire class in preparation for discussion in class. Other students are free to comment on the revised communication before it is delivered to Dundee via email on Tuesday afternoon, in anticipation for their class on Wednesday afternoon. The Dundee class provides its written communication back to the American University (‘AU’) class by Friday afternoon.

In the third class session, which is the first class in the simulated negotiations, the students focus on how to structure and draft their first communication to the other side, with various positions being weighed: Should the class take a definitive position on issues at the outset or just open discussions with a ‘looking forward to negotiate with you’ letter?

The first issue that the class discusses tends to be which of the three potential structures of the business transaction — joint venture, licensing agreement, or long term sales agreement — to propose to MCC. Generally, the students favour the joint venture, in which case the next issue to receive attention is the percentage of ownership of the two parties.

A secondary dynamic of the negotiation simulation is the power of the respective parties. The negotiating strategies often clash over these issues of power as the two classes try to structure a relationship in which each party can achieve its objectives.

The challenge, and the thrill, of teaching the seminar begins with the response from the students at Dundee University to the first communication from the American University class. At this point, the teaching effort becomes completely dynamic, with the substance of the class sessions being determined entirely by the issues presented by each round of communications in the negotiation.

The subsequent class sessions generally focus on interpretation of the individual communications and what may be motivating the response — the ‘reading between the lines’ that comes from experience — evaluating appropriate responses, as well as the substantive law issues at stake.

The contemplative process of negotiation through written communications is punctuated by several live negotiations between the two classes. The live negotiation sessions last three hours and are held on Saturdays to avoid conflicts with other classes. Four such sessions are interspersed with six rounds of written exchanges throughout the semester. The initial face to face ‘meeting’ is via video conference a few days after the first written communication. The two teams, led by the ‘officers’ of their respective clients (generally the lead negotiation team that prepared the most recent written communication) are introduced and initial issues are discussed. As positions are exchanged, the teams take frequent breaks for side bars to contemplate responses to presented proposals. These side bars often offer instructional moments in which professorial guidance can be offered prior to the teams rejoining the live discussion. Each live negotiation is discussed and evaluated at the subsequent class (in addition to preparing the next written communication) in order to assess both the positions of the opposing team and the personalities of the negotiators.

The first video conference helps make the negotiations ‘real’ as the opponent takes on a ‘real-life’ identity.

The second live negotiation is via teleconference so that the class can experience negotiation via the telephone as compared to video or in-person negotiations. The class evaluates the benefits and disadvantages of the two forms of negotiation, from the ease of using the ‘mute’ button on the telephone to the greater difficulty of understanding which person is speaking on an issue. Not surprisingly, most students prefer the video negotiation, even though teleconference negotiations still are more common in actual business transactions. Following the teleconference, two additional video negotiations are held, including the final negotiation at which it is generally determined whether or not an agreement and successful negotiation will be achieved.

One of the fascinations of the seminar is the manner in which the class both melds and matures over the course of the exercise. From general unfamiliarity with the negotiation process, the students develop new confidence as the class progresses. They often become unified in positions as well as perceptions of the other team. They learn the importance of personalities in the negotiation process as they react either favourably or unfavourably to certain negotiators on the other team. Since the structure of the simulation is truly international between AU and Dundee and their respective students, the students in the seminar develop an appreciation that certain issues understood or taken for granted in one culture may be mistaken in another, including the use of different terminology for comparable concepts.

The students also discover that multiple lines of communication are often superior for resolving complex issues. Accordingly, students often initiate ‘backchannel’ email communications to raise questions, elaborate on issues or to elicit support on various points. These communications, some of which are conducted through the American University Blackboard program and others of which are offline, are a less controlled component of the simulation, but can become a strategic element.

One of the benefits of a semester-long simulation is that the length of the roleplaying leads students to take on the character of their respective parties.

The class, and therefore the negotiation, is on a time schedule, so the students are aware that an agreement, if one is to be reached, must occur by the end of the final video negotiation.

At the end of the final video conference, and occasionally at the end of other video negotiations, the students are asked by the professors of both classes to step back from their roles and provide feedback and insight to the other side. This often includes impressions of both tactics and personalities of the various negotiators (e.g., the teams might divulge that they discerned that certain negotiators were more rigid than others and might direct questions or comments to a particular person in hopes of persuading them to abandon a position or to gain a concession). The background of a particular request or the expectations of the team from a specific proposal are often divulged. In this way, each class can see behind the tactics of the other team and, in so doing, gains a deeper insight into the negotiations process. The teams can understand how their particular proposals were perceived by the other side and why a response was different than anticipated.

Following the formal negotiations and the live debriefing, the AU class devotes one or two class sessions to assessing the process and evaluating the result of the negotiation.

The AU class is required to complete two written assignments as part of the seminar. The first written project is to maintain a diary of their individual impressions of each round of negotiations, including perceptions of how the negotiation is progressing, criticisms of proposals by the class, and any related thoughts on the overall process of the negotiation. In these diary entries, students may look back on prior entries and record changes in their evaluations and perception regarding the negotiation. Following the conclusion of the negotiation, the students also are required to prepare a paper that examines the role of the lawyer in business transactions, an overall assessment of the negotiation, and what next steps may be required with respect to the transaction. Students are graded on both written assignments as well as their class participation. In the case of the diary, they are graded on how reflective they have been about the negotiating process in each entry. In the final paper, they are expected to answer a short list of questions that have been posed to them at the beginning of the semester, making this probably the only law school course in which students get the exam before they have taken the course. As stated above, these questions are designed to force the students to think more critically about what they have learned in the exercise about the role of lawyers and law in business transactions, and about the process of the negotiations.

The approach taken in this course offers students a number of powerful and unique learning opportunities. First, it offers students an opportunity to see a transaction unfold and how the legal and business issues interact during the course of the evolution of a transaction.

Second, the course provides students with an opportunity to see how their legal skills can be used in a dynamic negotiating setting.

Third, because this exercise actually involves both a cross-border negotiation and each team includes LLM and JD students from a number of different countries, it offers students an opportunity to learn about the challenges and opportunities in international and cross cultural business negotiations.

Fourth, this exercise provides students with an opportunity to explore the role a lawyer plays in a business transaction.

Fifth, since the exercise involves written communications, it offers students useful drafting opportunities.

Sixth, since the exercise involves a number of different means of communications used by lawyers – written messages, teleconferences and videoconference — it offers students an opportunity to learn about the benefits and costs of each of these media.

Since the exercise is driven by the dynamics of the negotiation rather than the professors, it gives rise to risks that might be seen by some as weaknesses. First, there is a risk that the challenges that arise in the course of the negotiations can overwhelm the class time, thereby reducing the opportunities for exploring the substantive issues that arise from this exercise.

A second risk in the course is that the professors cannot control the dynamics of the course and cannot easily prepare for each class. However, this cost is offset by the benefits to be gained from the rich discussion and broad range of issues raised in the exercise.

The authors believe that there are opportunities for developing and expanding this course that they have not yet exploited. For example, the seminar could be taught either in two sections at the same law school or as simultaneous classes at two separate U.S. law schools in close proximity.

Another potential variation would be to continue the seminar over two semesters. This would allow the negotiation over the letter of intent to be followed by a second set of negotiations, in which the students focus on converting the letter of intent into the definitive agreement required to document the transaction.

A final interesting possibility would be to have a business school class participate in the exercise. This option would create some interesting multidisciplinary learning opportunities.

The simulation exercise described in this article is a successful example of a creative way to train transaction lawyers. Through these efforts, we hope that law schools will become more effective in training transaction lawyers — who are increasingly needed both in commercial and public interest law practices.