Values and value creation in public-private transactions.

ABSTRACT: Scholars have developed a significant body of literature exploring the work of deal lawyers with the essential insight that attorneys acting as transaction-cost engineers have unique potential to add to the overall value of deals. This value-creation literature has traditionally made two foundational assumptions about the role of the state in transactional law. First, scholars have assumed that regulation is essentially irrelevant to transacting--that from the deal lawyer's perspective, the government is a factor only to the extent that the state will enforce private agreements. Second, scholars have assumed that private parties uniformly view public policy as a constraint in the realm of compliance--that from the deal lawyer's perspective, clients are indifferent, if not hostile, to regulatory goals. The first assumption is the subject of recent scholarship convincingly arguing that regulatory arbitrage should be added to the picture of deal lawyers as transaction-cost engineers. The second assumption, however, has gone unchallenged and is the focus of this Article.

Although the value-creation literature envisions a monolithic orientation toward the state, in practice, partnerships that engage the private sector in advancing a variety of public goals represent both a significant sector of the economy and one of the central contemporary approaches to policy by federal, state, and local governments. Deal lawyers are thus increasingly called upon not only to reduce transaction costs and leverage regulatory constraints, but also to manage a complex alignment of interests between private means and public ends. In short, lawyers in public--private transactions perform what this Article calls regulatory translation--transmogrifying the often abstract goals of public policy into the concrete mechanisms of private ordering.

This Article makes two primary contributions to the literature. First, it identifies an increasingly important transactional context largely ignored by scholars investigating the work of deal lawyers. Second, the Article gives a normative, theoretical grounding for that work, providing a framework that has the potential to enhance the advantages and mute the problems associated with public--private partnerships. Ultimately, lawyers in this context can create value in the broadest sense of the word, and there are lessons in this for deal lawyers in all transactions.

 
  I. INTRODUCTION 
 
 II. VALUE CREATION IN TRANSACTIONAL LAWYERING 
     A. VALUE CREATION TRADITIONALLY UNDERSTOOD 
     B. BEYOND NEUTRALITY TO THE STATE: REGULATORY 
        "CRAFTSMANSHIP". 
 
III. TRANSACTIONAL LAW IN A PUBLIC-PRIVATE CONTEXT 
     A. THE MISSING VARIABLE: THE ALIGNMENT OF PUBLIC AND PRIVATE 
        INTERESTS 
     B. TRANSACTIONAL LAW AND THE CRITIQUE OF PRIVATIZATION 
 
 IV. VALUES AND VALUE CREATION 
     A. REGULATORY TRANSLATION BY DEAL LAWYERS 
        1. Public Policy and the Provision of Public Goods as 
           Transactional Variables 
           a. Non-Market and Counter-Market Transactional Objectives 
           b. Altered Risk Profiles 
           c. The Public as Beneficiaries 
        2. Tools and Tasks 
           a. Cooperative Bargaining in the Shadow of the State 
           b. Layers of Translation in Practice 
           c. Managing Regulatory Complexity 
           d. Craftsmanship and Compliance Compared 
     B. TESTING VALUE CREATION: THE LIMITS OF EMPIRICISM AND 
        ALTERNATIVE METRICS 
        1. Affordable-Housing Deals as Paradigm Examples 
        2. Traces of Value Creation in Public-Private Transactions 
           a. Tax-Credit Recapture Guarantees as Time-Horizon and 
              Regulatory Balancing Tools 
           b. Accounting for Accountability 
           c. Allocating for Political Risk 
           d. Responding to Third-Party Interests 
  V. THE PROBLEMATICS OF REGULATORY TRANSLATION: ATTORNEY 
     ROLES AND INHERENT CONFLICTS 
     A. DIFFERENTIATING ATTORNEY ROLES 
     B. REGULATORY TRANSLATION AND THE CULTURE OF LEGALISM 
        1. Perverse Incentives in Problem Solving 
        2. Who Bears the Cost? 
 
 VI. IMPLICATIONS 
     A. UNDERSTANDING THE INTERMEDIARY 
        1. Embracing the Translator's Task 
        2. Reorienting Client Perspectives 
     B. RE-ENGINEERING PUBLIC-PRIVATE PARTNERSHIPS 
        1. Maximizing the Value of Engaging the Private Sector 
        2. Government Cooperation in Regulatory Translation 
 
VII. CONCLUSION 

I. INTRODUCTION

Scholars of the legal profession have long puzzled over the role of lawyers in transactional practice. Unlike the work of litigators, there is nothing inherently law-related about many of the characteristic tasks that deal lawyers undertake. Yet, attorneys command a significant premium for quarterbacking deals, and there must be some reason that clients continue to pay that premium for work that might as easily--and at lower cost--be performed by any number of other professionals.

One answer that has emerged in a robust body of work over the past two-and-a-half decades has focused on the unique potential that lawyers have, not only to memorialize agreements and allocate risks, but also to add fundamentally to the overall value of deals. Lawyers, in this view, have the capacity to structure deals to minimize a variety of ubiquitous transaction costs, including parties' information asymmetries, differential time horizons, and strategic bargaining. This literature envisions lawyers as transactional engineers, creating value for all parties to a deal with the potential not simply to slice the deal pie more favorably for one side or the other, but instead to grow the size of the pie. (1)