"Are You Destined to Deal?" With Goldman Sachs Managing Director Jim Donovan

JIM DONOVAN: Today's topic is: Are you meant to negotiate? And I'm going to talk about what it's like to work as a lawyer or an investment banker in transactions, corporate transactions. And I am going to divide the talk into two parts, mainly the second part. In part one, I'll spend a little time explaining why it's exciting to work on transactions and why it's exciting to close

deal

s. And then the second part will be about the skills that I think are necessary to do this job well. OK? Part one, why I think it's exciting to work in transactions.

I think there are three reasons. The first is that what you are working on is important. So the CEO of a company hires you to advise him on how to take the company public, sell it, buy another company, or merge his company with another. This is, by definition, very important for the CEO. It is probably the most important issue the CEO has ever faced professionally. So it's important. And secondly, you can help. They hire you because you have some experience, because you know something that the CEO doesn't know or doesn't have. He doesn't have the experience that you have.

So I think it's exciting because it's important and because you can make a difference. The second reason I think the work is exciting is because it is dynamic. Each

deal

is different. Even within an agreement, the agreement changes. It transforms over time as the deal progresses. So when you work on a transaction, you are constantly faced with new challenges, new problems. And then, according to agreement, they are completely different. People are different. Companies are different. So it never goes out of style. It never gets boring. I think it's fun. It's exciting because it's dynamic. Every transaction is different.

This is atypical in the case of jobs. Normally, a job becomes somewhat routine over time and can become somewhat boring. It is not true in the case of offers because each offer is very different. The third reason I think it's exciting is because it's intense. You're going to spend a lot of time and energy working on transactions if you become an investment banker or corporate lawyer. You will be sequestered in conference rooms with your clients. And you're going to get to know them very well. And you are going to work very hard. And that's not always fun.

But I think it's mostly fun. And in retrospect, when you look back on it, you'll appreciate that it's fun. But it's exciting because it's very intense. That's why I think the work is exciting because it is important. What you are working on is important. And you can make a difference. Because it is dynamic. It changes from agreement to agreement and even within an agreement. And because it is very intense. So what skills do I think are necessary to do the job well? I think there are six tangible skills that I think are necessary and then four intangible skills.

The six tangible skills begin with interpersonal skills. You need to have strong interpersonal skills. Now, I don't mean that in the sense that some of you can think in this room or that people outside this room can think. I don't mean interpersonal skills in the sense of a kind of pat on the back salesman or saleswoman type of skills. I'm not talking about chatting skills. I am referring to the ability to convey to the client that they should have confidence in you, that you are competent. And that they have confidence in you. Second, quantitative skills. Quantitative skills are important if you are going to work in transactions.

Now, it is not necessary to have studied mathematics, physics or engineering at university to have the necessary quantitative skills. But you have to be easy with numbers. You need to get comfortable with numbers. Because a lot of what you do as a transactional lawyer and definitely as an investment banker is going to involve numbers and numerical analysis. Therefore, you must be comfortable working with numbers. Third, you have to have an interest in business. Contrary to popular belief, you don't need to have business experience. You don't have to have worked in the business for four, five, three, two or one year.

But you should have an interest in business. And I would say that the way you guys might express that interest now, or what you might want to do now at this stage in your careers, is just The Wall Street Journal a couple of times a week, not even every day, only a couple of times. times a week, just the cover, just the cover. So take 10 minutes, that's all you need to read the front page of The Wall Street Journal two or three days a week. And you'll become familiar with what's happening economically around the world and what's happening among some of the world's leading companies.

So develop an interest, acquire an interest, fake an interest in business. But you know, have an interest, at least, in business. Fourthly, you have to be discreet. You will be entrusted with confidential information that is very, very valuable. And you don't want to be the person talking about the transaction you're working on when you're on a train, in an elevator, or in a restaurant. You do not wish to disclose this confidential information. You need to be discreet. It must be treated with discretion. And you need to exercise good judgment. Next, you must accept the confrontation. A popular misconception that some people in law school have is that they think litigators are some kind of conflict seekers.

And they think that transactional lawyers, or corporate lawyers, are the people who want to avoid conflicts. You can't avoid conflict by becoming a corporate lawyer or investment banker. You are going to work on a transaction. The people sitting on the other side of the table have interests that are adverse to those of their client. And you will have to enter into conflict with that person. You're going to have to negotiate against that person. And you are going to have a conflict. So you have to be okay with that. You have to be okay with conflict. The last tangible skill is being able to put the customer first.

Many people say that. What does that really mean? It means that you must be there for the client whenever he needs you. You should respond to your emails immediately. You must call them back immediately when they call you. First, you want to be really responsive to the customer. But two, what is equally important, is to convey to the client that it is a priority. You will receive calls at 2:00, 3:00 or 4:00 in the morning. You have to return emails at 2:00, 3:00, 4:00 in the morning. You have to return them very quickly. You're going to spend the whole night with the client.

You are going to work very hard. On top of that, you want to do everything you can to make the customer feel comfortable and know that they are a priority for you. So, those are the six tangible skills that I would say are necessary to close deals or work on corporate transactions. Four intangible skills, the first is that it helps to be an open book or a blank sheet of paper, whatever analogy you want to use to convey what I'm trying to convey, which is that you want to be a student when you first arrive. time.

Start this career as a transactional lawyer or investment banker. You want to find someone who does this job really well. And you want to study that person. Put your ego aside and learn everything you can from that person. You must be a student of the business for the first few years. I can't tell you how many people make this mistake. They come in with preconceived notions of what will make them good or bad at closing deals. And they are usually wrong. And you can't do that. You have to let go of any preconceived notions you may have and be willing to learn from people who are really good at doing what you hope to do.

Then be a student. That is very, very important. Second, have a system. The best transactional lawyers and investment bankers have a system they use to cover clients for transactions. And it covers everything from mundane things to more sophisticated things. They don't just improvise. In fact, they have a system that they have put together over time. And they follow that system throughout the entire course of the deal, from the moment they make the proposal to the client to try to convince them to hire them until the moment they attend the closing dinner and toast the client at the end of the deal. transaction.

Have a system. The third intangible skill is taking control. Most clients, in fact I think all clients, want you to take control. They're hiring you because you have experience that they don't have, as I mentioned. They want you to tell them what to do. So tell him. Tell them. Don't hem. Make no mistake. Tell me, this is what you should do. And if you do, that's how things will be. And if you don't, that's how things are going to turn out. But take control, take control and don't be afraid to give the client advice early and confidently, as I said before, conveying that you know what you are doing.

You are very competent and they should have confidence in you. The last intangible skill that I think is very important, and perhaps the most important of all, is empathy, which is the ability to put yourself in another person's shoes. And too many transaction advisors, too many transaction lawyers and transaction bankers don't do this. Take some time and think about what the CEO or your client is going through. Think about what is likely to be important to that person on a spectrum of things, from emotional to professional. And articulate those concerns to the client as he advises you.

Say I understand. You know, I bet you're under enormous pressure. This is the company you started. And we will make it public. You're about to go public and sell a big chunk of it. Your name is on the sign, on the poster, on the company letterhead. This is very important for you and your family. We have to do it right. That kind of things. Have empathy for the client. Put yourself in their shoes. Notify them accordingly. And let them understand that you appreciate where they're at emotionally, professionally, and across that spectrum. Well, that's why I think the job is exciting.

Those are the six tangible skills I would recommend people work on and have if they want to be successful in advising clients on corporate transactions. And then those are the four intangible skills that I think are necessary. I'll open it up for questions now. I could answer questions for about 15 or 20 minutes if people want. AUDIENCE: When you said, have a system that works for you against the danger of too much stuff. Do you have any experience on how you would build that system? Do you borrow it from whoever you're learning from? Or how do you imagine that?

JIM DONOVAN: Yeah, that's a very good question. I think the best way to do this is to borrow it, as much as possible, from someone else. Because it is very difficult to recreate the wheel. That is, it is inefficient to recreate the wheel if someone has already created it. So what I did for my system was I found someone who is really good, objectively very good, I just didn't think they were really good, they had done very well at my company. And I like to say that about 80% of what I use in my system I copied, plagiarized with their consent.

And then I added my own 20% over the years by hitting walls, making mistakes and learning. But I got 80% from this person. So I didn't have to start from scratch. If I had, I probably would have set myself back five years in terms of success. Because that was really able to help boost my ability to advise clients and do it effectively, not only advise them, but also attract new clients. Good question. AUDIENCE: You said that you should confidently give an answer to your clients and tell them what to do. What do you do if you are not sure of your answer or do not know the answer?

JIM DONOVAN: I would say two things. First of all, the best way to convey confidence to the client is to be competent. And when I started my job, I had these preconceived notions about... you know, I looked around the room at the other 500 people who were in my new associate class at Goldman Sachs. I looked around the room. And over the course of two months I thought, well, that person is going to be really good. And that person is going to be really good. And that person is going to be terrible. And that person is going to be... and I was completely wrong.

Like 10 years later, everyone that I thought was going to be really good, I don't know where they are. They are no longer at Goldman Sachs. And some of the people I thought were going to be really bad turned out to be really good. Because what really mattered wasn't how charismatic they were at the time or what business experience or experience they had. It was how competent they became over the next two or three years. So two answers to your question. The first thing is that hopefully, if you're competent, you'll never be in a position where you don't know the answer.

But if you don't, don't give the answer. Do not pretend. Because there is no better way to lose the customer's trust than to give them an uninformed or poorly thought out response. A corollary of this is that you do more about it than the customer, no matter how smart they are. You've been doing this for several years, months or weeks. They had never done it before. And you have the entire company behind you that is contributing to this transaction. Therefore, the client can know much more about themanufacturing of chalk, desks or computer equipment. Because that's what they do.

But they don't know as much as you do, even as a first-year associate, about finance or corporate law, depending on what you're advising them on. Then you will be more competent than them. Do not forget. and give them advice that makes sense. If you don't know, try asking the question until you feel confident. And you can get the answer. You just have to work hard for it. And if it's a matter of judgment, give them your judgment. And tell them it's your criteria. Luke. AUDIENCE: I was wondering how... I mean, obviously you said it's very intense.

How can you balance it between being very intense and enjoying it, but also having time to let loose and relax without going crazy? JIM DONOVAN: Yeah, that's a good question. And I have three of my four children here. They have different perspectives on this for different reasons. But the short answer is for the first 10 years of my career: my oldest daughter is 16 years old. She is sitting there. The first 10 years of my career I didn't have balance. So Emily didn't see me much from when she was one until six years old. And after that, I kind of balanced myself by getting enough experience in the company and developing other interests and sort of partially transitioning out of the company and doing things like teaching at UVA and other things.

But what I did for the first 10 years of my career, when I was really killing myself, staying up all night, not coming home, all over the world, is that I chose one thing that was really special to me. And I protected that one thing. And some of you who have been my students know it. But it can be anything. So you choose this thing that is really special to you. For some people it's reading a book, right? And you protect that. You read that book for half an hour. And that is your liberation. And you never leave it every day.

Because if you leave it for a day or two, suddenly, it's three years later. And you haven't read anything. Good? Choose one thing, if it is cooking, cook for half an hour. If it is wine, do not drink for half an hour, but study the wine for half an hour. Whatever it is, do it and protect it at the expense of everything else. Because you need that to do the job well. And you need that release. For me, I had to run. I ran every day. I ran every day for 35 minutes, I ran the same thing every day no matter what.

You know, wherever I was, I had a pair of sneakers, shorts and a t-shirt, sometimes a hat and gloves depending on where I was. And I would just run away. And for me, I protected that. The time of day didn't matter. It didn't matter how sleepy I was, how little or no sleep I had. I did it no matter what. And that kept me grounded. And it gave me perspective. Some people would say that's not really balanced, right? That's the only thing I did. But that was the only thing I did. And then I achieved balance over time.

As my children will tell you, I spent a good amount of time, sometimes more than they would like, with them. And I did it by working really hard in the beginning and building enough reputation and enough trust in my peers and being senior enough to be able to do it. AUDIENCE: So my question combines two comments that you made. In one of them he talked about how there are likely to be conflicts when negotiating with counterparties to transactions. And then his other comment was empathy for his client. Do you think empathy could also apply to empathy towards the counterpart?

Because if you understand where they're coming from, why they're pressing a point, it could help you navigate those tense moments. JIM DONOVAN: Absolutely. Absolutely. So if you can put yourself in the other party's shoes, you can help in two different ways. Basically, it can help you reach an agreement. Because you understand what their priorities are. And you'll see where maybe there's some overlap between your client's priorities and theirs. And secondly, it can help you from a foreign perspective. Because it can make you seem more conciliatory. Now, what you have to be a little careful about is that sometimes your client doesn't want you to seem conciliatory.

Good? Because he is very upset or she is very upset with the party on the other side. And sometimes, by the way, conciliation can be considered weak. That's why you have to know when to do that and when not to do it. But no matter what, having empathy allows you to find common ground. Even if you don't act with empathy, you can find areas where you can give in some way. And then an agreement can be reached. But you have to be careful not to seem too empathetic or conciliatory, it depends on the situation. AUDIENCE: I was wondering if you had any advice for someone who is going to be a corporate attorney at a firm that focuses on finance on the legal side and who might be interested in moving to the commercial side of finance.

JIM DONOVAN: Yeah, I have some advice about that. Poor Kevin, I hesitate to answer this question in too much detail. At first I will tell you a story. And then I'll answer the question. So Paul Mahoney, who was the dean for most of the time I was here teaching, used to say to me, Jim, why after your class do all these kids leave class and not want to practice law? ? What are you doing there? What are you telling them? Good? So I said, "I'm just telling you there are options." Good? That you have options. It is not necessary to practice law.

You can also become an investment banker, consultant, public defender, whatever you want. So for people who are interested in going into, say, investment banking or working in private equity, or consulting, or whatever, I would say two things. One thing, which may not be very helpful, but I'll say it anyway. And then the second one will be useful. The first is that statistically speaking, if you are not going to practice law, if you are a law student and you are not going to practice law, statistically speaking the most likely thing is that you will not practice law if you do it well. outside of law school.

So people who have law degrees, but don't practice law, like me, statistically there are more, a higher percentage of them who never practice law. And that makes sense. Because if you start practicing law, you like it. Do you feel comfortable. You have a salary. You're paying off your student loans. You have an assistant. You are in a company. And things feel good. So you're not likely to leave. So if you're not going to practice law, statistically you're most likely to make that move early on, not later. However, that's not so helpful. However, the second point, more related to your question, was: Okay, if you're going to practice law, what's the best way or what's the best way to transition to a different career, whether it's banking? investment, consulting or private equity? , whatever it is.

I have a very strong opinion on this. And it's also backed up by statistics. The best thing you can do is practice law in the area you think you would like to work in outside the law. So, let's say you're interested in... I'll eliminate investment banking... let's say you're interested in working in private equity, not as a lawyer, but as a private equity investment partner. What he would like to do is work at a law firm where he covers private equity firms. And you would specialize in covering those private equity firms for a couple of years.

And that's useful for two reasons. One is obvious. The other one is not. And the other is more important than the first. The first is that it helps you understand the business. Good? The jargon, you understand what's going on. You educate yourself in the private equity business. That is not the most important. The most important thing, by far, is both: developing relationships in the private equity space. Because nine times out of 10, and it's actually more like 95 times out of 100, when a company, whether it's a private equity firm or an investment bank, hires someone from a law firm to come work, not as a lawyer, but as a banker or as a private equity person, they get hired because they knew someone at the firm.

They didn't chat with them or take them to lunch or play tennis or golf with them. They had worked with the company on transactions. So you're a second-year associate at a law firm of Sherman and Sterling in New York. You're covering private equity firms X, Y and Z. You'll be stuck in conference rooms with those private equity people a lot. You're going to spend a lot of time with them. Do you remember that it is intense? You're going to get to know them. Once transactions are completed, maintain that relationship. Because a year later, you can call your colleague at that company.

And you can say, you know, I'm really interested in potentially working in private equity. I like what you do. And I'd love to have lunch and talk about it. And that person will say, great. You know, it's not a cold call. It is very warm. You've kept in touch with them. And they'll say, not only should you come, but here's the group that's really hiring at our firm. These are the people you would interview. Let me talk to him first. Oh, this guy here is really bad. Stay away from this topic. This woman here is really nice.

Focus on this with her. They will guide you throughout the entire process. It's like you can't lose. Good? Then they hire you. That's the best way to make the transition. Focus on the relationships you build with the companies you cover, the people at those companies you cover, if you want to make that change. It's much easier to go that route than through a headhunter. It's very rare that that route works. Long answer to your question. Kevin. AUDIENCE: I have a question: you talked about dynamism as one of the things that attracted you to practice. JIM DONOVAN: Yes.

AUDIENCE: In my experience, dynamism is a two-way street, right? I mean, there are the advantages. And there are the disadvantages. And I think getting to the point in your career where you embrace the dynamism and start to enjoy it is a really key part. Listening to you talk over the years, it strikes me that that happened pretty early in your career. And I was just curious if you could tell us how you came to embrace the dynamism of the work. JIM DONOVAN: Yeah, that's a very good point. Because what will often happen is that changes... I mean, they can be perceived and accepted as fun.

Or they can cause stress, cause stress. Good? You can say, Oh my God, everything I just worked on is already in the trash. I have to start from scratch. This is a disaster. And by the way, the CEO just left. I have a new CEO. I don't even know this person. All the time I spent with the CFO, whatever it was, people can change in the middle of a deal. The deal can change. You can see that curveball as a positive or negative. You can accept it. Or you may feel intimidated by it. So I would say a couple of things.

The first is that right off the bat, I think it's helpful, by the way, to work on more transactions, rather than fewer. So if you're going to work as a corporate lawyer or investment banker, put yourself in a position where you're working on many deals, not just one or two. On the one hand, it gives you the earliest experience in dealing with curveballs. Because if you have been in your career for five years and have never failed on a deal, on the one hand, that is great luck for you. On the other hand, you haven't faced that adversity.

And when one explodes, and it will, you will be scared. Good? So the more trades you work on early on, the more likely you are to be able to deal with any curveballs that come your way. I was lucky enough to be able to work on a lot of different things during my early years, because of the way my company operates. And so, in the early years, they probably threw 10 years of curveballs at me. And after the first pair, I realized that these can actually be good. And you can learn from them. And it didn't ruin me.

I did not die. You know, they didn't fire me. The deal continued. You get up yourself. And you continue. So one of the best ways to address that problem is to try to work on a lot of deals. So that you experience it as early as possible in your career. And when that happens, you realize that it's not the end of your career. Secondly, you just have to have the right attitude. You have to realize that along with it being a dynamic job and a dynamic process comes the fact that it is exactly that. Change. And so you can't hold on to a particular end of the transaction.

So if you are working on an exclusive sale, don't choose a buyer who you think is okay, this is the perfect buyer for my client's company. Let's go over there. Because chances are it won't end there. So don't become intellectually attached to a certain outcome from the beginning of a transaction. By the way, don't even get intellectually attached to the transaction that occurs. Because the best advice you can give the client is not to do this deal. Don't make this deal. Talk about trying to establish credibility with a client, right? You are advising them to do something that is directly opposed to your own interests.

You won't get paid if this stops, right? Your term has ended. They don't pay you anymore. And he advises the client to say: no, don't do this deal. And by the way, fire me. That's basically what you're saying, finish ourrelationship. That's a great way to establish credibility. But also, another way to deal with the ups and downs of business dynamism is to not get attached to a certain result immediately. If you do, you will probably be disappointed. If you're not on that deal, you'll be at least 50% of the time. Because deals never end the way you think they will, or the way they normally don't.

Actually, 60%, 70% of the time they don't end the way you...does that answer your question? What other thing? It's time for maybe one or two more. Anything else? AUDIENCE: How do you handle an unreasonable demand from a client, maybe in terms of a deadline by which you want something done or if you're making a certain deal and you want something that's kind of a provision in the agreement? very unreasonable? How do you balance that between explaining to them that it's not possible? JIM DONOVAN: Yeah, that's a very good question. Because you will achieve that. You will face that often.

I think the best way to do that is to get to my intangible skill number three, which is taking control. So what I would do in that situation, what I've done thousands of times, is tell the client that no, it's not in your best interest to do this. And I'm sorry. My job is to protect you. I can not do it. I don't mind. I am happy to include this provision. I am happy to accept this deadline. If I include this provision, it will be terrible for you and your company. I'm not going to do it.

If you give me this deadline, I won't be able to achieve the product, the work product that you want. I will not be able to deliver the work product you want me to deliver. I won't do a good job. I'm not going to do that to you, client. So you turn them around. You don't say... you never say, well, that's not reasonable. I can't work that hard. I can't meet that deadline. No no no. That's not what you say. You say, I'm not going to do that to you. Do you want me to finish this in two weeks?

No, I won't. I'm sorry. I won't do that to you. You are too important to me to do that to you and your company. Because if I meet that deadline, it will be bad for you. Because I will not have done the work necessary to make this transaction complete the way it should be completed for you and your company. That works most of the time. If it doesn't work, then you're not a good customer. Good? Because I mean, you don't really care about providing for yourself, that you're being asked to do something unreasonable. You know it's objectively unreasonable.

And it's not going to get anywhere. Good? Then tell them I'm not going to let you do that to yourself. I'm not going to do it to you. I won't be part of that. I worry too much about you. Good? Sometimes I say similar things to my children. They are here. So I can't give more details than that. But I'm not going to let you do that. Because it's bad for you. Good? No, you can't be 17-something, you know, sweet. It's not good for you. I won't let you do it. What other thing? Anything? OK. No?

Okay great. Well, thank you all. And have a good rest. Thank you for sitting here on a Friday and listening to me speak.