|Finance for Lawyers - LAWS8140|
The purpose of this course is to provide basic financial literacy to students mainly in corporate law, but also in other fields of law. The course covers fundamentals of the operation of financial markets; theoretical concepts such as risk and return; modern developments such as derivative securities and hedge funds; and legal applications, such as damages in securities litigation. The course requires simple numerical calculations (nothing beyond addition, subtraction, multiplication, division), but the emphasis is on gaining an understanding of basic finance and its application to legal problems. This course is open only to students who have not taken a prior course in finance, or who had such a course so long ago that they need a refresher.
Why Is Finance Important To Lawyers?
This course should be considered a core course for anyone considering a corporate or transactional law practice, or practically any area where economic thinking plays a role. Finance is the theory of business. To talk to your clients; to read their documents; to draft contracts and disclosure documents for them; to counsel them on issues that mix business sense with legal constraints; you need some knowledge of finance. Accounting is the language of business. You need that knowledge too.
Business lawyers need to understand the business realities of the transactions that they work on. They need to understand which contractual language gives meaningful comfort to the buyer of a business (or the seller), and which language really protects the holders of the company's bonds or other debt against opportunism by the borrowing company, which language nobody really cares very much about, and why. They need to be able to read financial statements and financial projections, to find hidden problems that may affect a deal or call for special disclosure in a prospectus or other disclosure document. They have to find the assumptions buried in a set of projections.
When you're working on a transaction, it's your job to find the problems and the mistakes. When you're writing a disclosure document, you and your client are at risk if there is a material misstatement or omission. You need to understand the financial elements of the transaction to evaluate what's material and what isn't. Securities, tax and corporate lawyers also need to be able to understand the complex securities -- options, convertibles, swaps, derivatives, asset-backed securities, and many more -- that are an important part of corporate practice today.
When statutory and common law use terms such as “fair value” and “investment suitability”, an understanding of finance theory is essential to make these terms concrete and meaningful. When an injustice or some other harm occurred some time in the past, and the courts award a monetary damages award much later, our innate sense of justice suggests that the plaintiff should also be awarded interest to compensate for delayed justice. But at what interest rate? Again, finance theory comes to our rescue.
It is possible to be an adequate business lawyer without knowing anything about finance. But I don't think it's possible, any more, for a top-flight business lawyer to be ignorant of finance. This course can help, but students are urged to read the business press; to try to understand why a particular security is attractive to buyers; to try to understand why Company A might want to buy Company B, or divest itself of division C.
While this course is designed for business lawyers, broadly defined, it intends to cast a broad net that includes anyone who works on and cares about issues related to corporate finance. That includes corporate lawyers; tax lawyers; real estate lawyers; bankruptcy and workout lawyers. Large chunks of this course will be useful for other types of lawyers as well. Family lawyers and trust and estate lawyers have to know how to value assets. If you're doing divorce work, and you aren't conversant with many of the topics in this class, you are not competent to advise your clients or negotiate good outcomes for them. The value of marital assets in divorce proceedings, such as professional goodwill and other intangibles, is an important and often litigated, but poorly understood topic.
Recommended Prior Knowledge
Problem Sets (20%)
Final exam (70%)
Class participation (10%)