Legal Entrepreneurship and the Strategic Virtues of Legal Uncertainty

• Published date: 01 October 2020
• DOI: http://doi.org/10.1111/ablj.12169
• Author: Anthony L. Gabel,Justin W. Evans
• Date: 01 October 2020

American Business Law Journal

Volume 57, Issue 3, 593–646, Fall 2020

Legal Entrepreneurship and the

Strategic Virtues of Legal

Uncertainty

Justin W. Evans*and Anthony L. Gabel**

The field of law and strategy (LAS) has advanced our understanding of the

law’s role in competitive advantage. To date, however, LAS has neglected low

rule of law environments—countries characterized by expansive degrees of

legal uncertainty. LAS should account for these settings, too, since environ-

mental uncertainty is a strategically significant factor for any company. This

article situates the strategic relevance of legal uncertainty in the Chinese

*Assistant Professor of Legal Studies, Parker College of Business, Georgia Southern Univer-

sity (juwevans@alumni.iu.edu). We thank Mark Bannister, Greg Weisenborn, Tim Crowley,

and Chris Crawford for funding our data collection; the FHSU OSSP and its peer reviewers

for providing an Undergraduate Research Experience Grant; the dedicated students who

accompanied us to China—Seth Gooding, Amanda Groff, Matthew Whitmore, and Adam

Wilbur—and our superb GA, Aaron York III. We are indebted to the exemplary profes-

sionals we interviewed in China, all of whom are leading figures in their areas. (Per our

IRB agreements, these participants will remain anonymous.) We presented earlier versions

of this article at the ALSB annual meeting in Savannah, Georgia (August 2017), the Seven-

teenth Huber Hurst Research Seminar at the University of Florida (February 2018), the

National Business Law Scholars Conference at the University of Georgia (June 2018), and

the SEALSB annual meeting in Chattanooga, Tennessee(October 2018), and thank the par-

ticipants for their feedback. The insights of Christopher M. Bruner, Larry A. DiMatteo, Ste-

phen Park, and Mike Schuster were particularly extensive and insightful. We gratefully

acknowledge the editors and peer reviewers of the ABLJ—and especially Susan Park—for

their improvements. This was one of two articles awarded the 2020 ABLJ Hoeber Memorial

Award for Excellence in Research. I thank Jennifer, Emma, and Anna for their love and

support. Any errors are ours.

**Associate Professor of Business Law, Fort Hays State University Robbins College of Busi-

ness and Entrepreneurship. I thank the William E. and Anita M. Lusk Family for their gen-

erosity. Proceeds from the William E. and Anita M. Lusk Family Endowed Professorship

Award supported a portion of the travel costs associated with this research effort for me

and our undergraduate assistants. I thank Justin Evans for his excellent example and won-

derful friendship. In a special way, I thank my now-deceased mother, Mary Ann, who wor-

ried about and prayed for the safety of Justin, me, and our students as we traveled in China

to collect the interview data for this article. I especially thank Chris for her patient encour-

agement and love.

©2020 The Authors

American Business Law Journal ©2020 Academy of Legal Studies in Business

593

context and fills an important gap by illustrating how LAS principles apply in

low rule of law jurisdictions. Specifically, this article develops the construct of

legal entrepreneurship—the notion that attorneys may apply an entrepreneurial

mind-set and skill set to position the client favorably and legitimately within

the uncertainties of the legal landscape, thereby creating legal competitive

advantages for the client. Drawing upon interviews with expert attorneys and

executives, this article presents a typology of legal strategies available to

U.S. companies in China, uniquely modeling these approaches along the two

fundamental dimensions of legal strategy. Additionally, this article identifies

two basic types of legal uncertainty in the cross-border context and offers

guidelines for the exercise of legal entrepreneurship. Together, these argu-

ments demonstrate that legal entrepreneurship is an empirically viable con-

struct within the LAS project. In low rule of law jurisdictions that have

embraced foreign enterprise, legal entrepreneurship will generally optimize

the American company’s pursuit of both legal value creation and legal risk

management.

INTRODUCTION

Scholars have long studied the ability of firms to reshape their environ-

ments, including the legal environments in which they operate.

1

A recent

area known as law and strategy (LAS) examines the capacity of firms to

derive strategic legal value in ways other than by changing the law.

2

Sev-

eral visionary members of the Academy of Legal Studies in Business laid

the foundations of LAS in the early 2000s. LAS was then validated as a

research stream in a 2010 special issue of the American Business Law Jour-

nal.

3

In the decade since, LAS scholars have expanded our understand-

ing of the law as a source of competitive advantage.

While most LAS work has been set in high rule of law environments

such as the United States and European Union, a few scholars have

studied how law and strategy are combined in the international context.

1

See infra Part I.

2

See infra Part I.

3

See infra Part I.

594 Vol. 57 / American Business Law Journal

Still, little work to date has examined the implications of LAS for Ameri-

can companies in low rule of law jurisdictions—places in which the lux-

ury of legal predictability dissipates. Yet most of the world’s population

lives in lower, rather than in higher, rule of law jurisdictions, and most

American multinational companies (MNCs) will encounter greater

degrees of legal uncertainty—rather than fewer—as they transact busi-

ness abroad. LAS should account for these settings, too.

This article explores LAS in the lower rule of law context of the People’s

Republic of China (PRC or China). Because China now boasts the world’s

second-largest economy and increasing geopolitical clout,

4

any study of the

country is timely. However, understanding China is especially timely now in

light of its recent trade tensions with the United States.

5

Within the PRC

context, we develop the construct of legal entrepreneurship,astrategyin

which the firm is guided by a special type of attorney—the entrepreneurial

lawyer (EL). An EL creates legal competitive advantages for the client by

applying an entrepreneurial mind-set to the uncertainties of the legal envi-

ronment. This article draws upon in-depth interviews with expert attorneys

and executives to discover how legal entrepreneurship works in China, and

its implications for American MNCs doing business there. These insights

illuminate LAS in a manner relevant to scholars and practitioners alike.

While the Chinese Communist Party (CCP or Party) utilizes legal flexibilities

to maintain maneuverability for itself, astute firms can legitimately harness

these flexibilities for their own ends.

The article proceeds as follows. Part I surveys the compliance and LAS

literatures and briefly introduces the PRC context. Part II presents the

study’s major themes and offers three empirical arguments concerning

legal strategy in China. Specifically, Part II opens by discussing the

study’s methodology. Part II.A addresses the two types of legal uncer-

tainty that exist in cross-border settings. Part II.B presents a typology of

the four basic legal strategies that the American MNC can adopt in

China and argues that legal entrepreneurship is the firm’s optimal

approach. Part II.C then offers guidelines for the provision of

4

Prableen Bajpai, The 5 Largest Economies in the World and Their Growth in 2020, NASDAQ

(Jan. 22, 2020), https://www.nasdaq.com/articles/the-5-largest-economies-in-the-world-and-

their-growth-in-2020-2020-01-22.

5

See,e.g., World Staff, The ‘Stakes Are High’ for the US-China Relationship, Says US’s Former

Ambassador to China,B

USINESS INSIDER (May 13, 2020), https://www.businessinsider.com/

stakes-are-high-for-us-china-relationship-says-jon-huntsman-2020-5.

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