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Commercial awareness is a must-have for the modern lawyer. Christian Metcalfe takes a look at the best ways to get business-savvy - and how to show that you know your stuff
In the obscenity case of Jacobellis v Ohio (1964), US Supreme Court Associate Justice Potter Stewart in his short but memorable judgment said that “hard-core pornography” is hard to define, but “I know it when I see it”. The same could be said of commercial awareness.
This mercurial concept changes constantly to reflect market conditions, but tends to include some understanding of the business world and the ability to look at situations from a commercial perspective and to understand law as a business. It is tested at interview level, whether in the form of direct questioning or in a group exercise. You might be asked questions on topical issues or required to apply commercial considerations to a case study or example. So why is commercial awareness so essential?
First, it shows a genuine long-term commitment in becoming a lawyer.
As the role evolves from being a sound technician of the law to a sound business adviser, academic grades are not enough and recruiters are searching for candidates who have an all-round portfolio of skills to provide clients with a pragmatic, solutions-orientated commercial steer.
“If you go to a City law firm you can take it as read that the lawyers all have highly developed technical expertise and can tell you what the law is,” says Anthony Poulton, graduate recruitment partner at Baker & McKenzie. “The key differentiator between firms will therefore be client service: how much the lawyer understands the client’s business needs. Clients not only want law, but to maximise their business opportunities, and the lawyer can add value in that way.”
Rachel Harris, director of employability at the College of Law (CoL), though, notes that “firms are just looking for potential awareness rather than a fully formed commercial awareness”.
The tomorrow people
Second, those recruited today could be the partners of tomorrow, and so the decision to recruit will be based on a projection of ability: do they see you fitting in to the firm? Could you be a future driver of strategy?
“Law firms are private-sector businesses,” Poulton emphasises. “We’re running a sophisticated financial structure and it’s important that lawyers understand how businesses succeed and fail.
“Lawyers have to become businesspeople from a background that doesn’t educate you in business. In fact, it can cut you off from the realities of business life, so it’s important we identify people who could become senior businesspeople for the firm.”
You need time to develop commercial awareness; it cannot be learnt by reading the Financial Times (FT) the night, or even the week, before an interview.
“Start as early as you can,” advises Harris. “Whether reading a broadsheet or the internet, pick out certain deals you’re interested in and follow them. Build up your understanding incrementally – start small and pace yourself. Try to pick one or two themes to focus on.
“And if the FT leaves you cold, then that tells you something: maybe commercial law is not for you and you should be looking at a different area.”
So if it transpires that you are not interested in commercial law, do you need to be interested in developing your commercial awareness?
“Yes you do,” insists Harris, “but you’ll focus on slightly different things. If you’re looking at legal aid work, many firms are trying to grow income just to stay afloat, so you’ll come at commercial awareness from a different angle.”
How to develop your commercial awareness:
Follow the latest business news
While perusing the FT or The Economist is all well and good, reading abstract material on bank equity issues or restructuring processes will not help – the key is to analyse how various business issues interrelate and influence each other.
“A great way to get under the skin of what commercial awareness means is to pick something you’re genuinely interested in,” says Jane Croft-Baker, a graduate recruitment specialist at Clifford Chance. “If you love Apple computers, for example, try setting up Google or Financial Times news alerts on Apple for a few months to see what the business issues are. You could even look at the company website or annual reports to
see what they’re saying to investors directly.”
Simmons & Simmons graduate recruitment partner Alexander Brown agrees. “I think students are best advised to pick a couple of business-related topics they’re genuinely interested in and read round them,” he advises. “I think it’s better to pick topics they’re genuinely interested in rather than stories they think the interviewer may want to hear about, but which they themselves don’t follow or understand well or have a particular interest in.
“For instance, I had a student recently who talked to me about the development of cloud computing – she was genuinely interested in it and had thought about the business models and risks for businesses in adopting cloud computing. Perhaps that’s not as ‘mainstream’ an issue as the eurozone crisis, for example, but it was a far more engaging conversation as a result.”
Poulton illustrates the approach using the furore over Sir Fred Goodwin’s pension when deputy Labour leader Harriet Harman said the former RBS chief’s £16.9m pension pot might be acceptable to a “court of law”, but it was not acceptable “in the court of public opinion” and should not be honoured.
“A student listening to that would ask, ‘is this a visionary politician setting out a revolutionary political direction, or is it mere puffery?’,” Poulton says. “If you have commercial awareness in relation to pension rights, you’d know that how a pension gets funded very much derives from contractual employment rights that cannot be varied at the whim of the general public or when it’s politically expedient. The ongoing issue over bankers’ bonuses is a very similar situation.”
Follow news in the legal market
Ensure you are aware of the major current issues affecting the legal market, including recent transactions and forthcoming legislation, and consider the commercial implications for law firms and their clients’ businesses. Is business up or down? Who is moving where and what might the reason be? This can also give an insight into the structures of legal businesses and how they operate.
As an example, Poulton mentions the huge impact that the correction in the financial and currency markets had on legal business.
“The securitisation market was the way in which, unbeknown to the general public, banks became exposed to massive liabilities,” he says. “When it was realised that securitisation hadn’t done away with risk, but rather had increased it, that put a stop to the securitisation market overnight. That was the first effect of the 2008-09 crash and that had a big impact on people working in the banking and finance practices in law firms.”
Undertake work experience
Knowledge of the legal market will obviously be improved with work experience in a legal office environment, but any commercial experience is invaluable.
Working at a supermarket or the local pub to fund your university fees will be valued by law firms, particularly if you use the opportunity to gain an insight into how that business operates, its objectives and its approach to customer care.
If the company is listed on a stock exchange, track its share price and performance. You will gain an insider’s view of the company, which you can use to provide a commercial context to any future interview questions, particularly if the business is one of your target firm’s clients.
Highlight extracurricular activities
Look at any extracurricular activities from a commercial perspective. Many students take part in business games or student societies, organising and coordinating events such as mooting, networking or even a law ball.
You may have dealt with budget or cost considerations. Or perhaps your responsibility was marketing or attracting new members. Set out how you went about doing that.
Show and tell
So how do you demonstrate this hard-won commercial nous?
On the application form there are usually sections that will ask you to comment on a recent commercial transaction. This is an opportunity to demonstrate your interest and understanding of the key business issues, but ensure you keep an eye on the next stage of the process, the interview, during which you will be grilled on your choices.
At the interview your understanding of business will be tested, so what can you do to prepare?
“You can probably only prepare generally – ie prepare for a question such as, ‘tell me about a business-related story that you’re interested in’ – rather than for specific questions,” advises Brown at Simmons. “If you get asked a specific question that isn’t on the topic you’ve prepared for, then it’s time to take a deep breath, compose yourself, and do your best. Others will be in the same position.
“It’s worth seeing if there are one or maybe two deals or developments listed on the firm’s website that you can read up on. It’s better to prepare one or two than just to have memorised a number of press release headlines.”
Brown sounds a cautionary note, however. “You have to then run the risk that you end up talking to someone who worked on the deal and therefore who knows a lot about it – I’ve had that experience as an interviewer,” he says. “More than ever, this is when having done some background reading around the deal and thought about what the issues might have been for the clients involved will be important.”
Poulton says he is looking for “someone with an inquiring mind, who, when they realise there’s something they don’t understand, works out what the answer is rather than just leaving it and moving on, but who wants to do it for themself rather than provide window dressing before an interview”.
“Understanding commercial awareness is, at its heart, simply learning to look at things in a new way,” concludes Croft-Baker. “It’s a skill and, like any skill, the more familiar you are with it the more you can relax and really show your full potential at interview.”
This is an example of the kind of thing you may be asked to prepare for prior to interview. The case study will be a business scenario, where you will be expected to prepare answers to questions on business issues facing a hypothetical company in order to test your appreciation of the commercial factors within the exercise. The partners interviewing you will ask questions on the case study, probe further to assess the depth of your understanding and analytical prowess. Here, the law firm will be looking for you to draw from your commercial experience and apply it to
a set of given facts.
You are a lawyer at X Solicitors LLP. The marketing director of a former client contacts you to say that she has been left a piece of land in Buckinghamshire by a rich uncle and has decided to turn it into an adventure park. The centrepiece of the park will be a race track, but it will also include paintballing, a rifle range and a restaurant. Once the park is set up she hopes to expand the amenities, in partnership with her neighbour who has access to a lake, to include waterskiing and helicopter trips. She asks you what she needs to consider when setting up the venture?
Issues that could be discussed at interview are:
Business model: is the plan commercially viable? Is there a business plan?
Planning permission: where exactly is the land? What is it currently used for and how likely is it that the client will obtain permission for the intended use? How long will the application take? Does the client intend to apply for only the car-related activities at this stage, or for the whole park?
Licences: how long will it take to get licences for the restaurant and what inspections will be required?
Equipment: how much will the cars cost and where will they come from? What about the rest
of the equipment?
The racetrack: who will design the racetrack and how much will it cost? Will health and safety checks be required? What is the insurance situation?
Staff: how many will be required and will they need special skills or training? What sort of HR policies will need to be put in place before hiring?
Future expansion: what sort of agreement does the client have with her neighbour about access to the lake? What happens if the neighbour changes his mind, or sells up?
Helicopter trips: what permissions will be needed for the helicopter rides? Such activities can attract complaints. How crucial are the rides to the future success of the business?