The Inefficient Evolution of Merger Agreements

Transactional law is one of the most economically significant areas of legal practice and accounts for a large percentage of the profits and staffing at most elite law firms. But in spite of its economic importance, there has been almost no empirical work on the legal drafting process and the evolution of transactional documents over time. We have sought to fill this gap by analyzing the evolution of public company merger agreements in a dataset that encompasses 12,000 merger agreements over a 20-year period. Using computer textual analysis, we are able to identify the precedent, an earlier merger agreement, which serves as the template for the drafting of each deal. This approach allows us to construct comprehensive “family trees” of merger agreements, which we use to show how agreements are created and how they change over time. We use this innovative approach to explore whether transactional drafting is driven by a rational process that minimizes the cost of deal documentation and risk to clients or by an ad hoc process that increases billable hours and risk. We show that a high level of “editorial churning,” ad hoc edits that appear to be cosmetic rather than substantive, takes place in legal drafting. Over half of the text of merger agreements is routinely rewritten during the drafting process even though the substantive provisions of merger agreements have similar features. Significant variation exists among merger agreements even involving the same firm as there is no evidence of firm-specific templates or industry-specific templates in most cases. Lawyers appear to choose earlier merger agreements as deal templates based on familiarity with past deals rather than based on the economic needs of clients or cost mitigation. Our empirical findings provide strong evidence of significant (structural) inefficiency in the drafting process which raises costs and risk to clients. We argue that this inefficiency calls for an industry-wide solution of creating standardized templates for merger agreements that could be used across firms. The use of standardized documentation would help to minimize the time consuming (and expensive) drafting process of lawyer- and firm-specific edits that do little, if anything, to protect clients or affect the substance of the transaction. Furthermore, deal term standardization would have positive externalities as judicial opinions crystalize the meaning of standardized text. In addition, our analysis suggests that, somewhat counterintuitively, the failure to standardize text actually may stifle true innovation in the transactional context. We argue that by establishing an industry-wide set of “base documents,” lawyers could create the technological platform on which to create truly innovative solutions for clients at lower cost. While lawyers may not have the self-interest to embrace a standardized set of documents on their own, we argue that repeat-player private equity firms or trade associations for the private equity industry may have the economic interest and leverage to push for greater standardization

Unpopular Contracts and Why They Matter: Burying Langdell and Enlivening Students

Thus, the purpose of this piece is to provide an alternative: a transformation of how Contracts is taught in law schools so that we meet a variety of educational objectives. This is less of a prescription than it is a resolution made in the public sphere: a promise to shake things up in my own classroom and thus hopefully do better by students in the long run. It is also the beginning of a search to benchmark against the practices of others, and to seek input from those who have already begun to transform their Contracts teaching materials and methods. This Article is organized into three parts. Part I, entitled “Teaching Contracts: Obstacles and Opportunities,” shares outsider and insider critiques and data about the current Contracts classroom. This sets out anecdotal evidence and also draws upon the 2013 survey of Contracts instructors by the Washington Law Review. This first part also explores Langdell’s innovations as well as how Contracts was addressed in subsequent curricular reform efforts, including the MacCrate Report, the Carnegie Report, and the most recent 2013 American Bar Association (ABA) Report. Part II, entitled, “Lawrence Cunningham’s Contracts in the Real World: Stories of Popular Contracts and Why They Matter,” provides an example of a contemporary innovative approach to teaching Contracts. By presenting as the central subject matter disputes seemingly “ripped from the headlines,” Cunningham’s book is engaging and current. In the foreground of each chapter, he presents disputes that a student might encounter on a blue book exam, or in practice after graduation. After sketching the modern dispute, he dips into older, often classic cases at the intersection of various doctrines to illustrate the modern relevance of the common law. Instead of beginning with a “hairy hand,” Cunningham’s book begins with a more current and familiar dispute over a wedding party interrupted due to a major storm.16 If this book were used as a supplement or main text in the classroom, students might better appreciate the role of courts in interpreting, enforcing, or refusing to enforce private arrangements, as well as the likely remedies. Part III, entitled, “Modernizing the Contracts Classroom,” sets out recommendations for modernizing the teaching of contract law, theory, and transactional skills. These recommendations include (1) flipping the case method by properly placing contemporary disputes at the center of the class, not the margins, and thereby inviting students to struggle with “unpopular” contracts––not simply the ones that reinforce the doctrine––including contract disputes that never land in court; (2) accurately treating common law as only one source of law, alongside federal and state statutes and regulations, to reference when creating agreements, struggling to interpret their provisions, or questioning their enforceability; and (3) devoting at least one-third of the semester to negotiating and drafting skills and also offering at least one upper-level transactions course or upper-level negotiations course to hone those same skills

Elephant in the Room

Over the past several decades, the student population at law schools across the country has become more and more racially diverse. In 1987, for example, only about 1 in every 10 law students identified as a person of color; by 2019, that percentage shot up to almost 1 out of 3. Yet take a look at virtually any collection of recommended manuals on writing. You are unlikely to find even one that is authored by a person of color. The composition of law schools may be dramatically changing, but the materials that students are given to help them figure out how to put together documents that are proper, persuasive, and professional are designed pretty much exclusively by white people. “To write right,” we seem to be saying, “you need to write white.” This essay describes an in-class exercise that was used to highlight that bias. It also shares an out-of-class assignment that successfully pushed students to broaden their mental library of exemplars