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Strategy is a hot topic. Entire journals are dedicated to publishing business strategy articles and the study of it comprises a major subfield in the management discipline. Almost every source of competitive advantage imaginable - marketing resources, organizational capital, financial planning, company culture, information technology, and many others - has been examined except law. This is likely because most strategists are not legally trained and most lawyers graduate without a single course in business strategy. Thus a discipline that attracts the focus of almost half of key Wall Street Journal articles and consumes up to a quarter of executives' available time remains unaddressed.
A vast gap lies between law and strategy, and this article presents a first and modest effort to bridge the disciplinary divide. This article proposes that there are five pathways that firms pursue when interacting with their legal environment. Some firms treat laws as just a nuisance to be ignored. Others implement prevention programs to avoid litigation. Only a few firms apply a genuine legal strategy to capture value in the marketplace. This article shows the benefits and costs of each pathway through the lenses of fit (consistency with internal resources), strategy (consistency with external environment), and sustainability (defensibility against competing rivals). This article offers research opportunities to further the embryonic study of law and strategy and concludes with recommendations.
Introduction
One of the most important questions firms face is how to outperform competitors by delivering unique and superior value over the long-term.1 Business scholars call this strategy.2 Extensive research has already identified strategic competitive advantage3 in marketing,4 accounting,5 human resources,6 management,7 organizational capital,8 human capital,9 the interconnection of firms,10 and global competition.11 The result has been a voluminous literature identifying strategic opportunities for firms in a variety of fields.
Missing from the literature is the study of law. This gap exists even though legal issues can demand anywhere from five to twenty-five percent of a CEO's available time.12 A study of the Wall Street Journal revealed that 46.4% of the articles on the front page, editorial and opinion page, and B-I business page sections pertained to law or involved legally-related subject matter.13 Post-Enron responses to corporate governance and regulation have made legal issues one of the most important external...