In Blockchain we trust

adult-bitcoin-blockchain-1037914 (1)The first thing we do, let’s disintermediate all the lawyers.

 

Imagine a virtuous world where someone says they would do something and then actually did it. Blockchain promises to revolutionize the economy since the need for virtue simply disappears. Advocates claim that Blockchain immensely raises the level of trust in the system. Alternatively, one could argue that it removes the need for trust.

 

Presently, we are more of a trust but verify type of society. If you want to buy a car, you search for comparable vehicles, haggle for the best price and sign pages of legal documents. Banks have you sign reams of paperwork and generally place a security interest on the car. The Bank also confirms the car is free of any liens. You then generally pay on time for the next four years. If you miss a couple of payments, then the bank may have to launch some proceedings for collection.

 

Undoubtedly you have heard of Bitcoin somehow in conjunction with Blockchain. Let’s ignore the Bitcoin frenzy for now and focus on what drives it.

 

Blockchain comprises a continuously growing list of records called blocks. These blocks link together using cryptography that are resistant to data modification. So instead of a single ledger of transactions held by one organization, it creates an open distributed ledger that can record transactions between parties in a verifiable way. One earlier block cannot be altered without the consensus of later blocks.

 

Blockchains can be public or private. MasterCard’s Blockchain can’t be viewed and may not have any purpose outside of marketing since all of its transactions run through the existing infrastructure. This harkens back to the time when companies advertised they were Y2K compliant.

 

You clamber down the rabbit hole and you encounter smart contracts. The name again seems a bit of a misnomer since the contracts operate a simple logic of if this happens then that happens next.

 

Smart contracts use computer protocols intended to enforce the performance of a contract. They can be fully or partially self-executing. Once various conditions are fulfilled, assets are transferred and funds are released. This transaction appears visible to all users but all parties remain anonymous.

 

We can look to Ethereum as having one of the better systems for establishing these smart contracts. Ethereum uses its own cryptocurrency called Ether. In our car example the history of the car and the dealer’s transactions reside on the Blockchain which is public. You contact your bank which has instant access to your credit history. The bank can transfer funds immediately and the dealer can arrange for the vehicle transfer by the time you get back from your test drive.

 

So long as you continue to authorize payments to the bank, all remains well. If you decide to stop payments, then the car’s systems could be disabled the next time you try to start it. Welcome to the internet of things.

 

The Blockchain concept does have the potential to extend to all types of commercial transactions. House purchases could be reduced down to days from the existing weeks it presently takes. This would require a public ledger of real estate titles, planning permissions and certificates of title. Sweden’s land-ownership authority conducts Blockchain property transactions in various staged pilot projects. A three to six month transaction could take hours instead. All that extra efficiency must come out of some intermediary’s pocket.

 

The removal of intermediaries impacts large swathes of job categories.  Any sort of job category that involves creating trust in a transaction may no longer be required. The Association of Certified Fraud Examiners strongly claims that Blockchain is no mere hype train. This strong endorsement may have the effect of reducing the need for Certified Fraud Examiners by using Blockchain instead.

 

One paper suggested that insurance payouts could applied to Blockchain. They suggested that an automated system could indicate if an insured fell within an area that was recently flooded. Insurance payments would then be automatically issued.

 

Ultimately, Blockchain can be seen as a foundational change. Immense barriers remain for its adoption for businesses, government and individuals. The incorporation of Blockchain may take years.

 

However, a major function of lawyers includes the trust but verify aspect. As real estate transactions become more blockchainish, then the role of the lawyer would be substantially reduced.  This may finally drive the concept of hourly billing into a strict transactional fee type of relationship with clients.

 

Harvard Business Review goes so far as to say intermediaries such as lawyers, brokers and bankers may no longer be necessary. Not so much a ‘the first thing we do, let’s kill all the lawyers’ as ‘let’s disintermediate all the lawyers.’ This may not have the same emotive content, but the result would be same, lawyer wise.

 

From Lawyers Daily

Legal Operations 101

 

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I fought the law and the law won.

I fought the law and the law won.

Buddy Holly

 

Legal operations emphasizes the effective and efficient delivery of legal services in-house. This relatively new discipline addresses a number of organizational issues. Counsel should no longer fight against the organizational assimilation, but they should instead work at becoming part of it.

 

Admittedly, Legal Operations even sounds cool. Someone going to the Legal Department sounds a bit like going to the old style department stores to look at furniture with your parents.

 

The best part of being in-house involves being part of an organization. The most difficult part of being in-house appears to be being part of an organization. LO helps with the effectiveness of being part of that organization.

 

We need to identify some of the issues that LO can alleviate. Dealing with organizational activities comes with the territory, AKA Willey Lowman. Some of this can be great when you are off to a retreat to do some strategic planning. Even if this involves going even further north during the winter since its off-season and there can be some great buys.

 

Another issue recognizes that in-house counsel require updates as to what is happening outside of their own department or function. The watercooler used to help with that, but now we have the ethereal coffee shop that we use for Microsoft Teams. This seems to lack the same level of integration and networking, but the coffee at home tastes better.

 

With limited resources, the next issue involves trying to educate your clients ahead of time. This really means being involved with the planning process.

 

Counsel need to demonstrate the value of the legal department or function. One must resort sometime to counting all of the icebergs or landmines the organization missed because of your risk management activities.

 

Sometimes the organization asks you to do tasks or projects outside of your area. This recognizes your abilities outside of your law degree, shows additional value and facilitates your engagement in other areas of the organization. Leading the business planning process can be a great way to demonstrate value and learn about other areas of the organization. Some refer to this as scope creep. I actually refer to this as ‘chipping in’.

 

The final and potentially greatest issue involves the need to reduce overall legal costs. Moving from a cost center to a profit centre can be a great achievement, so long as in creating profits you still have time to avoid that iceberg. The collision is what people generally remember, not that great business plan you put together.

 

LO competencies solve or alleviate some of the above issues. For example, learning the budgeting system goes far to learning the business and keeping on the CFO’s good side.

 

A major competency includes document management. Bringing in or learning how the DM operates can go far in alleviating time and costs. You waste a great deal of every day searching for a document, or searching for a document that never existed. DM search mechanisms can quickly bring you up to speed when it comes up with the ‘document not found.’ If you have every tried to prove a nullity, you can appreciate how an electronic search can substantially reduce the amount of grief.

 

Document management includes increased knowledge management. KM seems to be another term that comes and goes in favor. You can have all of the facts and information, but you need context for these two things in order to reach the knowledge plateau. Ultimately, you want the wisdom plateau when you accumulate all of the necessary institutional knowledge. Hopefully this occurs before retirement.

 

Another part of DM includes standardized contracts. Most organizations already have this. So if you do, then add it to your ‘to do list’ so that you can check it off. There is no greater feeling when it comes to setting out to accomplish something you have already accomplished.

 

Paperless policies form an integral part of document management. Previously people would scan a document but still keep the paper copy in another file. You simply have to face the situation and shred the original. Unless it is a negotiable instrument. You should keep those for a few days to make sure the scan to the bank works. I have scanned in personal cheques and shredded them immediately. This practice will catch up with me some day, but right now, I am just living on the edge.

 

Another competency involves project management. When taking my MBA, I went for a two-day seminar on PM. I spent a week cramming on using Microsoft Project software thinking that this would be the emphasis. However, we spent the two days learning to talk to one another and to listen to what the other person was saying. I did not learn anything significant about software, but it improved my relationship with my significant other. Good win there.

 

During the PM seminar, we all met up in the banquet hall. The large crowd waited at their tables, mostly patiently, for dinner. The seminar leader announced that if anyone could tell a project management joke, their table would be first in line for the buffet. I immediately stood up and asked ‘Why did the chicken cross the road?” Dramatic Pause here. “Because it was a critical path.” (Which is a major project management term that one needs to learn.) It was a groaner, but my table got to eat first. Or at least I did. The rest of my table wanted to put a bit distance between them and me.

 

The benefit of these LO techniques, excluding the lame joke telling, facilitates an effective in-house legal department and reduces the amount of legal work sent outside of the organization. Reducing outside legal work can result in reduced budgets, alternative fee arrangements or retention agreements.

 

Another LO benefit allows focus on higher priority and more strategic work. There appears to be a synergistic and not a sum zero effect. By spending more time on legal operations, this allows the remaining time spent more effectively on the legal function.

 

This is not quite the same thing as doing more with less since you need the LO expertise. You do more legal work but you need a bit more LO at the same time. If you are single legal officer worker (SLOW), then you need to become a FAST (Following A Strategic Tempo) legal operator. Yes, the acronyms sound contrived, but all business articles require several.

 

Becoming involved in other aspects of the business can be a bit of a cultural shift. Picking a few areas where you can provide value quickly and effectively would show other parts of the organization your value. Focusing on how you can help others achieve their business objectives provides the greatest value.

NAFTA: The times they are a changin’

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‘NAFTA has fundamentally failed’ thundered Robert Lighthizer, the US trade representative. Thundered perhaps overstates the delivery, but Canadians are understandably thunderstruck.

A fundamental failure sounds serious. Similar to a fundamental breach of a badly drawn contract but this time he claims that the entire $1.3 trillion dollar NAFTA region failed. This would be past everyone’s cumulative errors and omissions insurance, even if you totaled up all the insurance limits for all of the Canadian lawyers.

How did the US come to this overwhelming conclusion? When examining any policy matter, one spends most of their time drilling down to find the real essential issue. The worst approach applies a perfectly executed solution to the wrong problem. We can assume that the present US leader spent 140 characters on analyzing the issue as he does most things. We can also assume that this worst approach solution shall soon be upon us.

Their major complaint appears to be the huge current account deficit that the US has run up. The US simply imports more than it exports. Canada exports more goods, but our imports of US services exceeds this. Blame or thank Netflix for Canada’s trade deficit. The Canadian current account deficit increased beyond expectations last quarter. Therefore, we do not appear to be part of the problem, but unfortunately we will be part of the solution. Lighthizer must mean that NAFTA did not live up to its objectives.

NAFTA’s main objectives include national treatment, most-favored-nation treatment and transparency. The most favored nation treatment requires that whatever benefits you provide one treaty country, you should provide to all members of the treaty. National Treatment requires that foreign goods should be treated the same as domestic goods. The present US administration appears to have difficulty in applying that concept to immigrants however.

The other main objectives include eliminating barriers to trade, promoting fair competition, increasing investment opportunities, providing intellectual property rights, creating effective procedures for the resolution of disputes and establishing a framework for cooperation to expand and enhance the benefits of the agreement.

NAFTA scores highly on all these criteria. Duties have been reduced or eliminated. The US sees promoting fair competition as unfair to US business. The concept of free trade and fair competition relies upon comparative advantage. If a country provides some better or cheaper good or service, then it should produce more of that and less of whatever good or service it can’t produce as well as another country. The hollowing out of the US textile industry flowed naturally, but not willing, from this underlying concept of free trade. The US objection to this type of competition appears that not only must the US win all competitions, but all other countries must lose. A simple sum/zero look at the world.  Canadians prefer more of a synergistic grow the maple pie type of relationship.

Under normal, or average circumstances, this idea of competition should allow the best suited country to succeed. However, times are never normal. We rely upon the averages. For example, using quantitative easing the US Federal Reserve increased its financial assets 5 times as before the financial crisis in an attempt to keep interest rates low and to stimulate their economy.  Now that the fed intends to start selling off these assets to normalize, average, things out, the chickens coming home to roost might collapse the hen house.

As part of the NAFTA negotiations, the US demands that US firms have access to Canadian government contracts and that Canadian firms cannot access US government contracts to the same extent. This position comes across as, and please excuse the legal jargon, sucking and blowing at the same time. As the Art of the Deal suggests, you should ask for everything and the more outrageous the better.

Some of the US NAFTA failure arguments do not hold water. As a side note, we are better off to mention not water since the US may look north once again. The North American Power and Water Alliance plan to divert rivers into the US died a justifiable death, but rising from the dead has become very popular in the zombie fixated culture. Back to the main point, the US unemployment has dropped to levels not seen for years. The US manufactures more goods than ever. The GDP for all three countries has risen to three times since the start of the agreement.

The US complaint of job loss occurred but this was mainly the result of increased efficiency and automation. Job loss also occurred as a result of other countries having a comparative advantage. Admittedly, NAFTA diffuses the benefits and focuses the costs elsewhere. Some groups benefit but other groups are paying the costs in job loss.  Buggy whip manufacturing is not coming back anytime soon. Neither is coal.

NAFTA provides a dispute mechanism for the effective resolutions of disputes. The US claims that this infringes upon their sovereignty and want to default to the US court system. Having an independent dispute settlement system remains the best practice as evidenced by the WTO’s own dispute system. . They have a very fine system, but US litigation lawyers would not necessarily call it effective, or efficient.

NAFTA recognizes the importance of several multi-lateral environmental treaties and that these treaties prevail over NAFTA. The treaties cover ozone depletion, transportation of hazardous goods and prohibitions of trade in endangered species. Attempting to expand this list may prove difficult. The treaty between the US and Mexico on Cooperation for the Protection and Improvement of the Environment in the Border Area takes on a degree of tragic irony.  

Although NAFTA negotiation time lines were tight, Trump has recently indicated that there is ‘no rush’ and things seem to be ‘moving along nicely’. The next round of negotiations begin at the end of January. Canada has developed some innovative options to deal with the US requirement for 50% US content for automobiles. Essentially the concept is include several other car components that weren’t previously taken into account in the percentage calculation. If you have a bad ratio, then by strategically adding different stuff to the numerator and the demoninator you can make a percentage look better.

The US poison pill requirement to get rid of the objective tribunals and use the US court system still stands. Canada retorted by filing with the WTO almost 200 instances of the US retaliating to dumping by alleging countries exported subsidized products at artificially low prices. Lighthizer has called this WTO action ‘ill advised’. Although this sounds threatening as in an organized crime sort of way, it actually sounds less so than his damning observations of NAFTA fundamental failure.

Trump does sound a bit more conciliatory in his recent remarks. The recent WTO challenge may move his simple bluster into a simply angry notification to withdraw. Financial advisers suggest purchasing US dollars if this occurs. Although this sounds more like a gamble than an investment when trying to determine how the president might react to someone confronting him.

How does this impact the overall legal profession? Clients require legal assistance during booming and desperate economic times. Their needs become more acute during time of economic flux. Law firms could position themselves for handling the disruption of goods and supply chains should NAFTA be amended, or worst case, be terminated. The times they are a changin’.

 

Photo credit

Julius Silver