The practice of law demands that a lawyer knows the law (at least in the jurisdictions and the practice areas in which he specialises). But increasingly clients expect their lawyers to know and understand the business of the clients, and the wider industry or economic markets in which their clients operate in. What does “business knowledge” mean and how is it critical to your practice?
What is business knowledge?
In this article, business knowledge broadly refers to the knowledge of:
a) the client’s business;
b) the industry within which the business operates;
c) the developing trends in the industry;
d) market drivers for the industry; and
e) external trends (economic or otherwise) that may impact on the industry.
For instance, you are a lawyer looking to build relationships and get work from an international energy company (the Company) that has business in the oil and gas sector in one part of the world, and invests in profitable power generation assets using renewable energy in other environmentally suitable jurisdictions.
What would you find out about the Company to get instructions from the Company?
Some possibly useful facts may include:
- In the oil and gas business, the Company’s business focuses its investments in the downstream sector and is consolidating its positions in upstream crude oil but investing more in e.g. upstream LNG.
- As for the renewables business, the Company focuses on offshore wind farms and solar parks.
- One developing trend that impacts on the Company’s business is clean energy, which is good for the renewables business but not necessarily all parts of the oil and gas business.
- Another trend is the downward pressure on oil prices, which means the Company is more reluctant to invest in upstream drilling for crude oil (particularly offshore, because it costs more), and instead focuses on increasing margins in the downstream market.
- Like most other international energy companies, the Company serves corporates and retail customers in the oil and gas business.
- It sells power through power purchase agreements with governments in its power generation business.
- The Company faces external pressures from uncertain political situations in one or two jurisdictions, increased enforcement of anti-bribery and anti-corruption laws, governance of data privacy and managing cyber security risks.
Gleaning from the illustration above, business knowledge can be broken down as follows.
1) Knowing the business means understanding what kind of work the specific business is involved in, how the specific business makes money from the work that it does, and the jurisdiction(s) in which the business operates.
2) Understanding the industry within which the business operates means how the business fits within the industry (e.g. upstream or downstream supply chain) and who its competitors are.
3) Being aware of the developing trends in the industry informs you of the direction that the client’s business may be taking in the future, as the client’s business will invariably be impacted by trends that shape the growth of the industry.
4) The market drivers for the industry refers to the demands for the industry: why does the industry exist, and what kind of customers does it serve? Market drivers may also refer to government policies that either encourage or inhibit the development of the industry.
5) External trends (economic or otherwise) may impact on an industry (and hence your client’s business).
How is business knowledge critical to your practice?
Business knowledge is imperative to legal practice. A lawyer cannot take a narrow approach to legal practice, and proverbially have “heads buried in sand (or the law)” without some knowledge of fast-developing trends in an industry or external trends that may impact on how an industry operates.
Here are five key benefits to acquiring business knowledge.
1) A lawyer is able to optimise his/her marketing strategy and save valuable time by marketing to the right audience at the right time.
2) Knowing a business and the industry it operates in allows a lawyer to determine where the ebbs and flows of work are and will be.
3) Being able to identify market drivers in an industry or external trends helps a lawyer to anticipate the legal advice that clients may be looking for.
4) Clients tend to appreciate that their lawyer understands their businesses and the broader economic environment in which the businesses operate.
5) In some instances, it is possible to create a first-mover advantage.
A mastery of the law is an important part of the craft of a lawyer. But clients increasingly expect lawyers to provide commercial and practical solutions to their clients’ problems or transactions. Having business knowledge enables lawyers to see legal matters through a different lens and provide value add to their clients. An understanding of the internal and external “push and pulls” of businesses and industries creates a trajectory from which lawyers are able to do some crystal ball-gazing to identify future opportunities. Knowing what you do not know is a good starting point to acquiring business knowledge.