An influential literature in private law argues that the legal system interferes with modern markets’ “private ordering.” Private ordering refers to parties relying upon informal institutions, like social norms and reputational sanctions, to enforce legal obligations. This informal governance is made possible by thick networks of social or commercial relationships, which circulate information about parties’ behavior. Social networks, not the state, govern commerce.

This Article is the first to analyze a sea change in bank governance—the precipitous rise of lawyer-directors in the past two decades. Using novel empirical evidence, we show that lawyer-directors are associated with efficient changes in risk management and significant increases in bank value. Banks with lawyer-directors assume more risk in ordinary circumstances and less risk when a crisis arises, in each case making those banks more valuable.