Wednesday, August 31, 2005

Lawyers vs. Businesspeople

The $253 million judgment against Merck in the recent Vioxx case provides me with a great opportunity to comment on the differences between lawyers and businesspeople.  While both groups are routinely castigated in public opinion for being greedy and unconcerned for the plight of their fellow citizens, these people drive our economy and provide the backbone for our country’s economic health.  Although both lawyers and businesspeople contribute to our country’s economic success, they contribute in vastly different ways.  Business people primarily use their creativity and leadership to create value, while lawyers use their knowledge of the law and contracts to defend or to redistribute value.  

Businesspeople use their knowledge of their customers as well as knowledge of some specific technical subject to create and sell products and services that bring unique value to their customers.  In return for creating that value for their customers, the business people and their firm capture a portion of the value that they created for their customers in the form of profits.  Changing customer preferences, technological advances, and relentless competition make the quest to capture profits an ongoing process.  Businesspeople must continually identify and develop new ways to serve their customers or risk losing their position to the competition.  

In contemporary business, almost every activity requires input from multiple individuals who have specialized skill sets - in many cases, these individuals may even work for separate firms.  In order for these groups to perform effectively, business leaders must coordinate activities and motivate the group.  The ability to organize a group of individuals into an effective team defines leadership in many areas and especially in business.  Business people and their companies require effective leadership and creativity to serve their customers well, which creates value.  Business people can defend their positions well in the marketplace but need help in the courthouse.  

The United State’s legal system provides an environment in which individuals and firms can freely contract and seek remedy for transgressions.  Absent this environment, the best efforts of business people could easily be lost without redress.  Lawyers use patents, copyrights, contracts, and lawsuits to defend the value created by businesspeople.  Without patents and copyrights others could benefit from a firms creative new ideas and inventions.  Without effective contracts, other parties would not have to honor their business agreements.  Both the threat of and an actual lawsuit provide incentives for others to act in accordance with the laws with respect to a particular firm.  All of the activities that lawyers perform serve to keep the value that businesspeople create within their firm.  Lawyers do not create value; they protect it.  

Unfortunately for Merck, their lawyers did not succeed in defending the value that Merck’s creative scientists, marketers, and production organization created with Vioxx.  Whether justified or not, this judgment will clearly affect Merck’s future investment decisions, likely reducing the number of creative new drugs entering the market.  Regardless of how successful a firm is in developing attractive new products, unless it can expect to retain the value created thorough its efforts the firm will not succeed in pleasing it’s stakeholders.  

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