• Daphne Chen Matthews

Playing Nice in the Sandbox (and on the Railroad Tracks)

A few years ago, a senior analyst in a Transportation consulting firm asked me what an Investment Banking Conflicts Attorney does, as I proudly declared my day job. I had already spent a decade “clearing conflicts” at a large financial institution and describing my work to people in terms that did not bore them to tears. Usually I say, “Let’s say Coke wants to buy Pepsi and they ask the bank to advise on the deal. We (bank) have to see what we are doing around Pepsi to determine what we can do for Coke.” After the initial reply of, “Coke is buying Pepsi?” I use a very New York analogy and say with an exaggerated deadpan, “A divorce attorney cannot represent both spouses.” When they laugh and nod assent, I smile silently at my wit. Sometimes the conversation allows me to elaborate, and other times it pivots to something completely different, like the merits of steak tartare (a requirement in life, I say). In this instance, the Transportation analyst asked me what the conflicts are and how does a bank manage them?

Who are these mystical creatures digging through a bank’s relationships with the soda moguls? Financial institutions have various names for them: Conflicts Office. Business Selection and Conflicts Resolution. Conflict Clearance Group. Naysayers. Kidding on the last one. In some banks, this work is handled by individuals in another unit. The common goal of these individuals is to protect the bank and induce business growth, while assessing legal, commercial, and reputation risk.

The term “conflicts” conjures feelings that are...conflicting. On one hand, it sounds very serious (e.g. diamonds, warfare, The Bachelor), but it also sounds like two adults forgot that sharing is caring. There are actual and perceived conflicts between clients, conflicts between a company and its client, between an employee of that company and their client, and one that people don’t like to talk about— conflicts between individuals. That’s where Human Resources comes in, right? Let the kangaroo boxing begin! Not exactly.

In banking, a conflict between individuals could simply mean that there are two business units with goals that appear different even though both units want the bank to grow. An actual conflict is a conflict on its face, an “A or B” situation. A perceived conflict is one where it looks as if one party has an unfair advantage, based on the circumstances. For example, one area of the investment bank wants to increase its strategic advisory services, possibly defending a company from activist shareholders. The other area of the bank sees an opportunity to help activists accumulate shares of public companies, which allows the bank to make money off those fees.

“We don’t have a conflict!” exclaims a banker. Sometimes, you cannot point to an actual regulation or case law that says the banker is prohibited from doing a particular transaction. What happens? “Okay, it’s a business decision,” as Legal and Compliance throw their hands up and mutter to each other, “At least we told them what the risks are.” A Conflicts Lawyer does that. They opine on the potential conflict by collecting facts and speaking to key stakeholders. They compare the situation with previous scenarios. They perform a risk assessment between what could happen if the bank takes the red pill versus taking the blue pill. They look at legal, commercial, and reputation risks. Is it against the law? Will it help the bank make money in the long run? What will the public say?

Transportation analyst is intrigued. I clear my throat and give an example. Let’s say the city is getting a new fleet of bright shiny train cars so that we can update the subway system. Please update the subway system! Transit agencies must abide by a set of federal and state regulations with respect to manufacturing. Some are for safety, and some are regulations involving international trade. Those are the legal risks. The transit agencies have engineers who design these bright shiny train cars, using the latest technology and materials, hoping to rival rocket ships, but mainly to make the ride enjoyable. One could say that’s the reputation risk, which is how the public will view this train manufacturer as well as their own commute. The transit agencies also have a procurement department looking to acquire the train cars as soon as they can and at the lowest cost. They have both a reputation (public’s view) and a commercial (cost) interest. Three different units focusing on the same goal: updating the subway system in a manner which is aesthetically pleasing, safe, and at a minimal hit to the taxpayers. Perhaps these three units need a Conflicts Attorney to listen in on their discussions and provide solutions.

Conflict negotiations and resolutions are everywhere, whether they are real or perceived, if an activity is unlawful, or if it just appears that one party has an unfair advantage. The perceived conflicts can be managed depending on the scenario. We can have different interests but the same common goal, like new subway cars without an increase in fare. We can be nice to each other on the playground, sharing a bucket and shovel, but building an awesome castle that would make Harry and Meghan rethink their future. We can both go to the steakhouse for dinner, but when we do, you order whatever you want, and I’ll take my 16-ounce ribeye rare.

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