Articles Posted in Clients

Many commentators about law department management speak of “legal risk.” They use the term as if its meaning were self evident. It is not, and therefore I want to draw on a discussion paper by Roger S. McCormick, dated February 2004, about the management of legal risk by financial institutions. Commendably, he took care to define the term (See my post of May 3, 2006 on definitions of key management terms and posts cited.).

McCormick defines legal risk as the risk of loss to a company that is primarily caused by: (1) a defective transaction; (2) a claim (including a defense to a claim or a counterclaim) being made or some other event occurring which results in liability for the company or other loss; (3) a failure to adequately protect assets owned by the company; or (4) change in the law. Broad, to be sure, but at least the definition states what he means by that much-used term.

Visualize a tall ladder, with each rung one of your law department’s lawyers. Where the rung is on the ladder summarizes its lawyer’s unique collection of skills, seniority, motivation, EQ, experience, training and other attributes. Now visualize a second ladder, but for this one each rung represents a set of your clients’ needs for a certain kind of legal counsel and services. Where those client rungs are depend on the set’s complexity, sophistication, pacing, relationship to other areas of law, client personality and other attributes.

Simplifying reality a tad, imagine finally that each lawyer handles one legal area and each client need requires one lawyer. Ideally, then, the rungs on the two ladders in your company match, like a zipper. Lawyer A has just what Client Service A needs – without unused capacity, and like a spiral helix the law department’s resources mesh with the company’s legal needs. Where a client service rung lacks a counterpart lawyer rung, outside counsel come to the aid. Where a lawyer rung lacks a client service need, you had a hiring mistake.

But in the real world, some rungs are force fit. Lawyer A does the best she can for Client Service A, because there are only four lawyers in the department. The rungs are at different levels; the round peg services the square hole. Withal, the ladder metaphor may help a general counsel think through the fit.

Relatively few law departments track their lawyers’ time and charge it back to clients, like a law firm (See my post of Jan. 13, 2006 about disadvantages and April 27, 2005 about Kodak’s practices.) Those departments that do typically use the same billing rate for all their lawyers.

That is a better practice than charging different rates, because you don’t want clients lobbying for one lawyer as against another on cost. To challenge a lawyer’s billing rate would also be primarily a challenge of that lawyer’s compensation, the major determinate of the rate.

What does make sense, however, is to charge time for paralegals and to set the paralegal internal billing rate – a single rate, by the way – at a lower amount than the single lawyer rate.

I hadn’t appreciated the number of my entries that pound on the notion that in-house lawyers, especially senior lawyers, must grasp their company’s business if they are to succeed.

Legal skills are assumed at that level; hence the differentiator is the JD-to-MBA shift (Meta post: See my posts in 2005 of July 16 on “business acumen;” Aug. 3 on rotations through a business post; Oct. 23 on “corporate executive first” for GCs; Nov. 6 on CLE should be Continuing Business Education; Nov. 6 on GCs should broaden their business experience; and in 2006 of March 17 on “business aptitude;” and April 12 on university training for in-house lawyers.).

Do clients, alone, determine the value of work done by lawyers? In other words, if a client wants it done, is it prima-facie valuable (See my post of May 1, 2006 on “value-added.”).

One school of thought has it that if clients value the task that inside counsel does, there can be no higher authority. If clients think the lawyer is pulling the oar appropriately, what better measure can there be?

A competing school points out that this determinant of the work of a law department can lead to lawyers doing quasi-legal work (See my post of July 21, 2005 and the article cited.) and too easily pushes in-house counsel to go native – to abdicate their professional objectivity. Instead, shareholder value is the sounder – albeit much harder to determine – measure of the value of in-house counsel (See my posts of Aug. 21, 2005; Jan. 27, 2006 on Ernst & Young’s formula of value added.).

When the general counsel of Nestle USA, Kristin Adrian, named the most important skills of the top lawyer, she started with legal knowledge and experience, and then added, “the ability to listen.” Friends, Romans, and lawyers, lend me your lawyEARS!

To listen successfully is to overcome several traits in-house counsel sometimes exhibit. Quickly jumping to a conclusion while the client explains the situation; feeling that value comes when the mouth is in gear; and patronizing clients, since how smart are they anyway?; resorting to intellect rather than empathy (See my post of July 31, 2005 on emotional intelligence.). Adrian’s comments are from inform: Life Law, & Business, Issue 1 at 5, with a coda by Harry Turner, the general counsel of Renesas (id at 20). Turner reminisces that lawyers learn to listen better once they’ve been “burned by the experience of acting on a client’s ‘story’ without probing and understanding the full scope and all the facets of an issue.”

One difference in the law department between different practice areas is whether they have a client. Is there someone in the company who cares about the efforts of the inside lawyer?

Personnel staff go to Human Resource’s lawyers; clients under the CFO turn to finance lawyers, as environmental workers look to their EH&S lawyers and R&D is served by the patent and trademark lawyers.

No one, however, is the client of a litigator. Some financial analysts may care about the cost, sometimes, but defensive litigation rarely advances the business, so no business executive pays it much heed. Perhaps only the general counsel cares and is a surrogate client. Most notably, if the litigation concerns disposed of or closed assets – legacy litigation about the past – client apathy is at its greatest (See my post of July 16, 2005 on legacy litigation.).

A “contract general counsel” is neither fish nor fowl. They are neither employees of the company – because there may not be enough legal work to keep someone busy or no one can competently handle the expansive variety of legal issues – nor are they in private practice and retained for individual matters. Instead, according to an article by Vida Harband of Advanced General Counsel, on the website of the San Francisco Bay Area Chapter of the National Association of Women Business Owners, you have a third option: an experienced contract general counsel who commits to work a set number of days a month on your premises.

According to Harband, a contract general counsel keeps overhead down, and may have lower cost structure than a law firm partner, yet provides more objective advice than an employee can give. The CGC can also choose and manage outside counsel. For companies not quite ready for a first in-house lawyer, this intermediate step meets a need.

Nat Slavin, the thoughtful editor of InsideCounsel, urges general counsel to keep their ear to the clients’ ground, InsideCounsel, March 2006 at 6. With that prescription, as the author of Client Satisfaction for Law Departments I have no quarrel.

I do push back, however, on Slavin’s exhortation to “create a short, online survey that leaders of the business units can fill out after they interact with the legal department.” To ask senior executives to go online and complete a questionnaire, no matter how brief, after an “interaction” – abominate that flaccid, over-used word, as I do “environment,” “synergy,” and “strategic,” but back to the point – imposes on leaders too much.

Post-mortems on major matters make sense; an annual satisfaction survey these days even bumps into client resistance to “yet another survey,” so the implied frequency of post-“interaction” efforts to assess “leaders’” attitudes lower satisfaction through alienation.