Investment banking is a complex, and often very high-stakes industry where everything has to be handled correctly to avoid potentially dire consequences. With multi-million dollar transactions commonly taking place, investment banks are wise to take every step possible to prevent and avoid legal issues. One of the best, and most common, practices for investment bankers is to hire external legal counsel to represent them in larger transactions.
Even when the investment bank has an internal legal department, it is still a good idea to have outside legal counsel there to assist. There are several key reasons why this is a smart move, and well worth any added expenses:
Specialized Knowledge
As anyone working in the investment banking industry knows, this is a field with many unique laws, regulations, and policies that need to be followed. An investment bank’s legal department will be able to handle all general legal requirements for the company itself, but won’t always have the experience or extra training to provide the level of specialized representation on actual investment deals. Just like a company wouldn’t hire an investment banking attorney to handle a slip-and-fall accident suit, it just doesn’t make sense to use a company’s general counsel to handle these types of transactions.
Less Bias When Using External Counsel
The attorneys working as the internal legal department for an investment bank are going to be biased toward their employer, even if it is not intentional. Since they are so closely linked to the company, it is virtually impossible to remain unbiased when giving legal advice. External counsel, on the other hand, has no long-term ties to the organization, which allows them to give unbiased advice during these high-stakes deals.
Avoid a Conflict of Interest
In many cases, an investment bank is acting on behalf of a client in these transactions. An internal attorney would be required to put the client’s best interests first, even if that means taking a loss for the bank itself. Of course, the same attorney is obligated to work on behalf of their employer as well. This can create conflicts of interest for the attorney. When external counsel is working on a case, they face no such issues.
Working as a “White Glove”
If an investment banker is looking to purchase a company and the company in question learns of those intentions, they may take steps to boost their selling price significantly based on the “deep pockets” of the investment banker. Having an attorney who has no ties to the investment banker allows them to contact the potential seller and negotiate without this type of risk.
Contact Us
If you are an investment banker and would like to learn more about the benefits of having access to external legal counsel, please contact Integrated General Counsel today. We will be happy to meet with you and discuss all of your needs.
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