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

undefined JIM DONOVAN: The topic today is, are you destined to deal? And I’m going to talk about what it’s like to work as a lawyer, or an investment banker, on transactions, corporate transactions. And I’m going to split the talk into two parts, mainly the second part.

The first part, I’ll spend a little bit of time on why it’s exciting to work on transactions, why it’s exciting to do deals. And then the second part will be on the skills that I think are necessary to do this job well. OK? So first part, why I think it’s exciting to work on transactions.

There are three reasons, I think. The first is what you’re working on is important. So you’re hired by the CEO of a company to advise them on taking the company public or on selling the company or on buying another company or merging their company with another company. That is, by definition, very important to the CEO.

It’s probably the most important matter the CEO has ever come across professionally. So it’s important. And secondly, you can help. You’re being hired because you have some expertise, because you know something that the CEO doesn’t know or doesn’t have. He does not have the expertise 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 job is exciting is because it’s dynamic. Every deal is different. Even within a deal, the deal changes. It morphs over time as the deal progresses. So when you work on a transaction, you’re constantly confronted with new challenges, with new issues.

And then from deal to deal, they’re entirely different. The people are different. The companies are different. So it never gets old. It never gets boring. I think that’s fun. So it’s exciting because it’s dynamic. Every transaction is different. That’s atypical for jobs. Typically, a job becomes somewhat routine over time and can become somewhat boring.

Not true on deals because every deal is so different. Third reason I think it’s exciting is because it’s intense. You are going to spend a lot of time and a lot of energy working on transactions, if you become an investment banker or a corporate lawyer. You’re going to be sequestered in conference rooms with your clients.

And you’re going to get to know them very well. And you’re going to work very hard. And that’s not always fun. But it’s mostly fun, I think. And in hindsight, when you look back on it, you’ll appreciate that it’s fun. But it’s exciting because it’s so intense. So I think the job is exciting because it’s important.

What you’re working on is important. And you can make a difference. Because it’s dynamic. It changes from deal to deal and even within a deal. And because it’s very intense. So what skills do I think are necessary to do the job well? I think there are six tangible skills that I believe are necessary, and then four intangible skills.

The six tangible skills start with interpersonal skills. You need to have strong interpersonal skills. Now, I don’t mean that in the sense that some of you may think in this room or people outside of this room may think. I don’t mean interpersonal skills in the sense of sort of slap you on the back salesman or saleswoman types of skills.

I don’t mean schmoozing skills. I mean the ability to convey to the client that they should have confidence in you, that you are competent. And that they should have confidence in you. Secondly, quantitative skills. Quantitative skills are important if you’re going to work on transactions. Now, you do not need to have been a math major or a physics major or an engineer in college to have the prerequisite quantitative skills.

undefined But you need to be facile with numbers. You need to be comfortable with numbers. Because much of what you do as a transaction lawyer and definitely as an investment banker will involve numbers and numerical analysis. So you need to be comfortable working with numbers. Thirdly, you have to have an interest in business.

You do not, contrary to popular belief, need to have a business background. You do not need to have worked in business for four, five, or three, or two, or one year. But you should have an interest in business. And the way I would say you could manifest that interest now, or what you might want to be doing now at this stage of your careers, is just The Wall Street Journal a couple of times a week, not even everyday, just a couple of times a week, just the front page, just the front page.

So take 10 minutes, that’s all it takes to read the front page of The Wall Street Journal two or three days a week. And you’ll become familiar with what’s going on economically around the world and what’s going on among some of the leading companies around the world. So develop an interest, acquire an interest, fake an interest in business.

But you know, have an interest, at least, in business. undefined Fourthly, you need to be discreet. You will be entrusted with confidential information that’s very, very valuable. And you don’t want to be the person who’s talking about the transaction upon which they are working when they’re on a train, or in an elevator, or at a restaurant.

You do not want to be divulging this confidential information. You need to be discreet. You need to treat it with discretion. And you need to exercise good judgment. undefined Next, you need to be OK with confrontation. A popular misconception that some people in law school have is they think of litigators as sort of conflict seekers.

And they think of transactional lawyers, or corporate lawyers, as the people who want to avoid conflict. You do not get to avoid conflict by becoming a corporate lawyer or an investment banker. You’re going to work on a transaction. The people sitting on the other side of the table from you have adverse interests to those of your client.

And you’re going to have to conflict with that person. You’re going to have to negotiate against that person. And you’re going to have conflict. So you have to be OK with that. You have to be OK with conflict. Last tangible skill is you need to be able to put the client first. A lot of people say that.

What does that really mean? It means that you need to be there for the client whenever they need you. You need to respond to their emails immediately. You need to call them back immediately when they call you. One, you want to really be responsive to the client. But two, you want to just as importantly, convey to the client that they are a priority.

So you’re going to get calls at 2:00, 3:00 4:00 in the morning. You got to return emails 2:00, 3:00, 4:00 in the morning. You got to return them really fast. You’re going to spend all-nighters with the client. You’re going to work very hard. You want to do, on top of that, whatever you can to make the client feel comfortable that they are a priority for you.

So those are the six tangible skills that I would say are necessary to do deals or to work on corporate transactions. Four intangible skills, the first is it’s helpful 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 start out on this career as a transactional lawyer or an investment banker.

You want to find somebody who does this job really well. And you want to study that person. Put your ego aside and learn as much as you can from that person. You need to be a student of the business for the first couple of 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 doing deals.

And they’re usually wrong. And you can’t do that. You need to put aside any preconceived notions that you might have and be willing to learn from people who are really good at doing what you’re hopefully going to do. So be a student. That’s very, very important. Secondly, have a system.

The best transactional lawyers and investment bankers have a system that they use for covering clients for doing deals. And it involves everything from mundane things to more sophisticated things. They don’t just wing it. They actually have a system that they’ve put together over time. And they follow that system throughout the course of the deal, from the time they make the pitch to the client to try and convince them to hire them to the time they attend the closing dinner and toast the client for the transaction being completed.

Have a system. Third intangible skill is take control. Most clients, in fact I think every client, wants you to take control. They’re hiring you because you have expertise that they don’t have, as I mentioned. They want you to tell them what to do. So tell them. Tell them. Don’t hem and haw.

Don’t sort of equivocate. Say, here’s what you should do. And if you do it, this is how things are going to turn out. And if you don’t, this is how things are going to turn out. But take control, take control and don’t be afraid to give the client advice right up front in a confident manner, as I said earlier, by conveying to the client you know what you’re doing.

You’re very competent and that they should have confidence in you. The last intangible skill that I think is very important, and maybe the most important of all the skills, is empathy, which is the ability to put yourself in someone else’s shoes. And too many advisors on transactions, too many deal lawyers and deal bankers don’t do this.

Take some time and think about what the CEO, or what your client, is going through. Think about what is probably important to that person across a spectrum of things, from emotional to professional. And articulate those concerns to the client as you advise them. Say I understand. You know, I bet you are under enormous pressure.

This is your company that you started. And we’re taking it public. You’re about to take it public and sell a big portion. Your name is on the sign, is on the billboard, is on the company letterhead. This is a big deal for you and your family. We got to get it right. Things like that. Have empathy for the client.

Put yourself in their shoes. Advise them accordingly. And make them understand that you appreciate the position that they’re in emotionally, professionally, and all across that spectrum. OK, so those are why I think the job is exciting. Those are the six tangible skills I would advise people to work on and to have, if you’re going 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 take questions for about 15 or 20 minutes if people would like. AUDIENCE: When you said, have a system that works for you from the danger that there’s too many things. Do you have any experience as to how you would build up that system? Do you just kind of borrow it from whoever you’re learning from? Or how do you kind of figure that? JIM DONOVAN: Yeah, that’s a very good question.

I think the best way to do it is to borrow it, as much of it as you can, from someone else. Because it’s very hard to recreate the wheel. It’s say, it’s inefficient to recreate the wheel if somebody has already created it. And so what I did for my system is I found somebody who is really good, objectively really good, I just didn’t think they were really good, they had done very well at my firm.

And I like to say about 80% of what I use in my system I copied, plagiarized with his consent from him. And then I added my own 20% over the years by bumping into walls and making mistakes and learning. But 80% I got from this person. So I didn’t have to start from scratch. If I had I would have probably been delayed five years in terms of my success.

Because that was able to really help me jumpstart my ability to advise clients and to do it effectively, not only advise them, but bring new clients in. Good question. undefined AUDIENCE: You said that you should confidently give an answer to your clients and tell them what to do. What do you do if aren’t confident in your answer or you don’t know the answer? JIM DONOVAN: I’d say two things.

First of all, the best way to convey a sense of confidence to the client is to be competent. And when I started in 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’s going to be– and I was completely wrong. Like 10 years later, all of who I thought were going to be really good, I don’t know where they are.

They’re 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 most was not how charismatic they were at that time or what business background they had or experience. It was how competent they became over the next two to three years.

So two answers to your question. First is 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. Don’t fake it. Because there’s no better way to lose the client’s confidence than to give an uninformed answer or not well thought out answer.

A corollary to that is that more about this than the client does, no matter how smart they are. You’ve been doing this for some number of years or months or weeks. They’ve never done it before. And you have the entire firm behind you that you’re bringing to bear for this transaction. So the client may know a heck of a lot more about manufacturing pieces of chalk or desks or computer equipment.

Because that’s what they do. But they don’t know nearly as much as you do, even as a first year associate, about finance or about corporate law, depending on what you’re advising them on. So you will be more competent than they are. Don’t forget that. And give them the advice that makes sense.

If you don’t know, try and put the question of until you can become confident. And you can get the answer. You just have to work hard to get it. And if it’s a judgment call, give them your judgment. And tell them it’s your judgment. Lucas. AUDIENCE: I was just wondering how you– I mean, you obvious said it’s very intense.

How do you keep a balance with keeping it being very intense and you enjoying that, but also having time to release and relax without going crazy? JIM DONOVAN: Yeah, that’s a good question. And I’ve got three of my four children here. So 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. She’s sitting there. The first 10 years of my career, I had no balance. So Emily didn’t see a lot of me from age one to six. And after that, I achieved balance by becoming senior enough at the firm and developing other interests and sort of partially transitioning out of the firm and doing things like teaching at UVA and other things.

But what I did during the first 10 years of my career, when I was really, really killing myself, pulling all-nighters, not coming home, all over the world, is I picked one thing that was really special to me. And I protected that one thing. And some of you who have been my students know this. But it can be anything.

So you pick this one thing that’s 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’s your release. And you don’t ever give it up every day. Because if you give it up for one or two days, all of a sudden, it’s three years later.

And you haven’t read anything. Right? Pick the one thing, if it’s cooking, cook for half an hour. If it’s wine, don’t drink for half an hour, but study wine for half an hour. Whatever it might be, do that and protect it at the expense of anything else. Because you need that to do the job well.

And you need that release. For me, I had to do a run. I did a run every day. I ran every day for 35 minutes, same run every day no matter what. You know, wherever I was, I had a pair of sneakers and shorts and a t-shirt, sometimes a hat and gloves depending on where I was. And I would just run outside.

And for me, I protected that. It didn’t matter what time of day. It didn’t matter how sleepy I was, how little or no sleep I had gotten. I did that no matter what. And that kept me grounded. And it gave me the perspective. Now, some people would say that’s not really balanced, right? That’s the one thing I did.

But that was the one thing I did. And then I achieved balance over time later. As my boys will tell you, I spent a decent amount of time, sometimes more time than they would like, with them. And I did that by just really working very hard at the beginning and building up enough of a reputation and enough confidence in my peers and being senior enough that I could do that.

AUDIENCE: So my question kind of combines two comments you made. One was where you talked about how there’s bound to be conflict when you’re negotiating with counter parties of transactions. And then your other comment was empathy for your client. Do you think the empathy could also apply to empathy towards the counter party? Because if you understand where they’re coming from, why they’re pushing a point, it might be able to help you navigate those tense moments.

JIM DONOVAN: Absolutely. Absolutely. So if you can put yourself in the counter party’s shoes, it can help in a couple of different ways. Substantively, it can help you come to an agreement. Because you kind of understand what their priorities are. And you see where there’s maybe some overlap between your client’s priorities and theirs.

And secondly, it can help you from a foreign perspective. Because it can just make you appear to be more conciliatory. Now, the thing you have to be a little careful about is sometimes your client doesn’t want you to appear conciliatory. Right? Because he’s very upset or she’s very upset with the party on the other side.

And sometimes, by the way, conciliatory can be viewed as weak. And so you have to know when to do that and when not to do that. But no matter what, having empathy does allow you to find common ground. Even if you’re not acting empathetic, you can find the areas where there’s some way for you to give.

And then a deal can get done. But you have to be careful not to– it depends on the situation– appear too empathetic or conciliatory. AUDIENCE: I was wondering if you had any advice for someone who is going to be a corporate lawyer at a firm focusing on finance on the legal side who might be interested in switching over to the business side of finance? JIM DONOVAN: Yes, I have advice on that.

So poor Kevin here, I am hesitant to answer this question in too much detail. I’ll tell you a story at first. And then I’ll answer the question. So Paul Mahoney, who was the Dean for most the time when I was here teaching, used to say to me, Jim, why is it that after your class, all these kids come out of the class and don’t want to practice law? What are you doing in there? What are you telling them? Right? And so I told him I’m just telling them there’s options.

Right? That you have options. You don’t have to practice law. You can also become an investor banker, consultant, public defender, whatever you want. So for people who are interested in going into let’s say investment banking or working in private equity, or consulting, or whatever it might be, I’d say two things to you.

One thing, which may not be that helpful, but I’ll say it anyway. And then the second will be helpful. The first is that statistically speaking, if you’re not going to practice law, if you’re a law student and you’re not going to practice law, statistically speaking you’re most likely not to practice law if you do it right out of law school.

So the people who have law degrees, but are not practicing law, like me, statistically there are more of them, a greater percentage of them who never practice law. And that makes sense. Because if you start practicing law, you kind of like it. It feels comfortable. You have a salary. It’s paying off your student loans.

You have an assistant. You’re at a firm. And things feel OK. So you’re not likely to leave. So if you’re going to not practice law, statistically, you’re most likely to make that move at the very beginning, not later. However, that’s not that helpful. Second point though, more to your question was, OK, if you’re going to practice law, how is the best way or what is the best way to make a transition into a different career, whether it’s investment banking or consulting or private equity, whatever it might be.

I have a very strong opinion on this. And it’s also backed up by statistics. The best thing you can do is you can practice law in the area that you think you might want to work in outside of the law. So let’s say you are interested in– I’ll take investment banking out of it– let’s say you’re interested in working in private equity, not as a lawyer, but as a private equity partner investor.

What you would want to do is work at a law firm where you cover private equity firms. And you would specialize in covering those private equity firms for a couple of years. And that’s helpful for two reasons. One is obvious. The other is not. And the other is more important than the first. The first is it helps you understand the business.

Right? The lingo, you understand what’s going on. You get educated in the business of private equity. That’s not the most important. The most important, the more important are the two by far is you develop 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 firm, whether it be a private equity firm or an investment bank, hire someone out of a law firm to come in and work, not as a lawyer, but as a banker or as a private equity person, they are hired because they knew somebody at the firm.

Not they schmooze with them or took them to lunch or played tennis or golf with them. They had worked with the firm on transactions. So you’re a second year associate at a law firm at Sherman and Sterling in New York. You’re covering private equity firm X, Y, and Z. You’re going to be sequestered in conference rooms with those private equity folks a lot.

You’re going to spend a lot of time with them. Remember it’s intense? You’re going to get to know them. After the transactions over, keep that relationship going. Because a year later, you can call up your peer at that firm. 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’s very warm. You’ve stayed in touch with them. And they’ll say, not only should you come over, but here’s the group that’s actually hiring at our firm.

Here are the people you’d interview with. Let me talk to him first. Oh, this guy here is really mean. Stay away from this topic. This woman over here is really nice. Focus on this with her. They’ll coach you through the whole thing. It’s like you can’t lose. Right? So you get hired. That’s the best way to make the transition.

Focus on the relationships that you make with the firms you cover, the people at those firms you cover, if you want to make that switch. Much easier to go that way than through some headhunter. That’s very rare that that route works. Long answer to your question. Kevin. AUDIENCE: So I have a question about you talked about the 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’s the ups. And there are the downs. And I do think that like getting to the point in your career where you embrace the dynamism and start to enjoy the dynamism is a really key part. It strikes me from listening to you talk over the years, that happened fairly early in your career.

And I was just curious if you could talk about 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 the changes will– I mean, they can either perceived and embraced as fun. Or they can be stress-invoking, stress-inducing.

Right? You can say, oh my god, everything I just worked on is now thrown it away. I got to start from scratch. This is a disaster. And by the way, the CEO just left. I got a new CEO. I don’t even know this person. All the time I spent with the CFO, whatever it is– the people can change in the middle of a deal.

The deal can change. You can view that curveball as a positive or a negative thing. You can either embrace it. Or you can become intimidated by it. And so I’d say a couple of things. The first is I early on– I think it’s helpful, by the way, to work on more transactions, rather than less. So if you’re going to work as a corporate lawyer or as an investment banker, put yourself in a position where you’re working on many deals, not just one or two.

Because one, it gives you the experience earlier to deal with curveballs. Because if you’re five years into your career and you’ve never had a deal blow up, on the one hand, that’s really lucky for you. On the other hand, you haven’t faced that adversity. And when one does blow up– and it will– you’re going to freak out.

Right? So the more transactions you work on at the beginning early on, the more likely you’re going to be able to deal with any curveball that your thrown. I was fortunate in that I got to work on a lot of different things my first couple of years, because of the way my firm operates. And so in the first couple of years, I probably got 10 years worth of curveballs thrown at me.

And after the first couple, I realized actually, these can be good. And you can learn from them. And it didn’t ruin me. I didn’t die. I wasn’t, you know, fired. The deal went on. You pick yourself up. And you proceed. So one of the best ways to deal with that issue is to try and work on many deals.

So that you experience it as early on as you can in your career. And you realize it’s not career ending when that happens. Secondly, is you just have to have the right attitude. You have to realize that along with this being a dynamic job and a dynamic process, comes the fact that it is exactly that.

It changes. And so you can’t get wedded to a particular ending to the transaction. So if you’re working on an exclusive sale, don’t pick a buyer who you think, OK, this is the perfect buyer for my client’s company. We’re going that way. Because chances are it’s not going to end up there.

So don’t become intellectually wedded to a certain outcome early on in a transaction. By the way, don’t even become intellectually wedded to the transaction occurring. Because the best advice you can often give to the client is don’t do this deal. Don’t do this deal. Talk about trying to establish credibility with a client, right? You’re advising them to do something that is directly opposed to your own interests.

You don’t get paid if this stops, right? Your mandate is over. You’re no longer being paid. And you advise the client to say, no, don’t do this deal. And by the way, terminate me. That’s basically what you’re saying, terminate our relationship. That’s a great way to establish credibility.

But also, another way to deal with the ups and downs of the dynamism of the business is to not get wedded to a certain outcome right away. If you do, you’ll probably be disappointed. If not on that deal, you will be at least 50% of the time. Because the deals never end up ending the way you think they’re going to end, or usually don’t.

Actually 60%, 70% of the time they don’t end the way that you– that answer your question? What else? Time for maybe one or two more. Anything else? AUDIENCE: How do you deal with like, an unreasonable demand from a client, maybe in terms of like a deadline that they want something done or if you’re doing a certain deal and they want something that’s sort of a provision in the agreement that’s very unreasonable? How do you balance that between explaining to them that it’s like not possible? JIM DONOVAN: Yes, that’s a very good question.

Because you will get that. You will confront that often. I believe the best way to do that gets to my intangible skill number three, which is take control. So what I would do in that situation, what I’ve done thousands of times, is I will say to the client, no, not in your interest to do this. And I’m sorry.

My job is to protect you. I can’t do it. It doesn’t matter to me. I’m happy to put this provision in. I’m happy to accept this deadline. If I put this provision in, it’s going to be terrible for you and your company. I’m not going to do it. If you give me this deadline, I will not be able to achieve the product, the work product, that you want me– I will not be able to deliver the work product that you want me to deliver.

I will not do a good job. I’m not going to do that to you, client. So you turn it around on them. You don’t say– you never say, well, that’s unreasonable. I can’t work that hard. I can’t make that deadline. No, no, no. That’s not what you say. You say, I’m not going to do that to you.

You want me to finish this in two weeks? No. I won’t. I’m sorry. I won’t do that to you. You’re too important to me for me to do that to you and your company. Because if I do meet that deadline, it will be bad for you. Because I will have not have done the work that’s necessary for this transaction to complete in the way that it should be completed for you and your company.

That works most of the time. If it doesn’t work, then they’re not a good client. Right? Because I mean, you really don’t care about the provision for yourself, that they’re asking you to do something unreasonable. You know it’s objectively unreasonable. And it’s not going to go anywhere.

Right? So you 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 care too much about you. Right? Sometimes I say similar things to my kids. They’re here. So I can’t elaborate more than that. But I’m not going to let you do that.

Because it’s bad for you. Right? No, you can’t have 17 somethings, you know, candies. It’s not good for you. Not going to let you do it. What else? undefined Anything? OK. No? OK, great. Well, thank you, everyone. And have a nice break. Thank you for sitting here on a Friday and listening to me talk.

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