Articles Posted in Clients

The official bestowal on a general counsel of corporate powers is known in the United States as a “delegation of authority.” The Board of Directors, in theory and often in practice, assigns to the CEO a broad set of powers, and the CEO in turn sub-delegates a portion of those to the top legal officer. That officer parcels out to the direct reports a restricted version of that authority to do certain things, and so on. A common example is the authority to sign off on invoices of outside counsel up to set amounts.

By this formal cascade of rights, for instance, the law department has delegated authority to retain outside counsel and no other person, possibly, has that important privilege. Another common delegation of authority to the legal department requires it to approve a settlement of litigation. There may be other delegations, such as required involvement in corporate combinations like joint ventures or M&A transactions. Good corporate governance makes clear such parameters of authority and obligation.

PwC U.S.’s Annual Corporate Directors Survey assembled the views of 1,110 directors on which topics they would like their board to devote more time to in 2010. Nine of the choices as topics are listed in Corp. Bd. Mbr., First Quarter 2011 at 10. Strategic planning occupies the top spot (59% selected it), and among the other topics four concentrated on knowledge of the business. In declining frequency of selection they were “Meeting company managers,” Visiting worksites,” “Discussing the industry,” and “Discussing the competition” (the lowest one at 38%).

As for legal concerns, the number two area where more time was desired was “Risk management” (57%), which includes litigation and other legal risks, but the broad subject enfolds much more than just legal risks. In the fine print, down in eighth place, above only “Director liability” (10%), straggled in “Compliance and regulation” at 25 percent.

Frequently when law department managers bewail their increased workload they complain of regulatory complexity and the associated compliance burdens. That may be warranted for the legal team, but based on these survey results board members do not chime in with agreement.

The General Counsel of Nationwide Building Society, the UK’s largest building society (the US equivalent of a savings and loan), believes in measurements and feedback. Liz Kelly encourages here team members to “circulate e-feedback foms across the business seeking view on the quality of their service.” That sort of client satisfaction assessment raises no eyebrows.

However, according to “From in-house lawyer to business counsel” a lengthy report by the UK law firm Nabarro at 9,“Each team has a target of three responses per quarter.” The report doesn’t state the number of teams. In any event, the general counsel’ target puts some teeth in the initiative. It gives a specific minimum goal for the activity, which is good management most of the time.

A piece entitled Ten ’In-house Secrets For Reducing Your Company’s Legal Costs” appeared on Jan. 8, 2010 on the WikiCFO site. The author is, I believe, a lawyer with the Phillips Law Group.

I don’t think much of the article, but one of its ten secrets pushed me to write. Under the heading ”Calculate Your Company’s legal costs” it says, “This requires adding up all of your legal bills for the previous year AND estimating the cost of productive executive time lost due to involvement in, concern about, or management of legal issues.” Note the second cost estimate, after the AND.

No law department has come to my attention that attempts to estimate the costs of executives, let alone other employees, in depositions, discovery steps, strategy meetings, expert testimony or other legal-related costs. The numbers might be quite significant but their estimation would be quite subjective. Without them, for sure, Total Legal Costs fall short of Total.

The legal department of the Financial Times recently introduced a practice that, taken at face value, I would question: “the introduction of questionnaires for internal clients to fill out upon completion of a job.” (Corp. Counsel, April 2011 at 26)

I question that effort because it imposes too much on clients – lots of matters, time and paperwork. It also calls for decisions of when a matter (job) has fully finished. Some matters have several clients who take part, such as a marketing campaign, not to mention questionnaires are inherently rigid.

A periodic random sampling done verbally, with a guideline of questions to ask, serves far better to assay client satisfaction.

It is quite conceivable that lawyers in a law department can estimate how promptly a client called them on a new matter. When a matter first becomes recognized, the responsible lawyer could give it a number that reflects how timely the lawyer was brought in. A scale would suffice from 1 (“late in the game”) through 3 (“par for the course”) to 5 (“very early, even too soon”) and everyone could assign a number for a matter: half-baked, nicely done, a bit burnt.

It might take a discussion or two among the lawyers to calibrate their ratings of timeliness. As a subjective assessment, it deserves definitions and examples so that the scale scores mean roughly the same thing. After a quarter or two of tracking this data, it may be useful for a senior lawyer to bring up their pattern of delay with dilatory clients or, as important, point out jumping the gun with dashing clients.

Mark Harris, the CEO of Axiom, referred to a surprising finding from one of his company’s projects. Speaking at Georgetown University’s Center for the Study of the Legal Profession conference on March 9th, Harris referred to long-term contracts and their “revenue leakage.” One company, he said, spent more than $100 million a year on its commercial contracts suffered revenue leakage from them estimated at 5-7 percent. Harris did not elaborate, but it may be that failures to renew or to raise rates or shift costs accounted for that lost income. Nor did he claim that typical companies endure such a hemorrhage.

My reaction to Harris’s vignette stems from a law department’s involvement with contracts, or as importantly with contract administration. If losses of such a magnitude afflict many companies, lawyers are letting down their clients. Somehow, better contracts should put fingers in some of those dikes, savvier interpretations of their client’s rights, or better oversight of executed contracts could turn law departments that can claim a portion of the saved money as profit centers. We need to know if revenue leakage from contracts happens at that rate and what the law department can do to apply a tourniquet.

Surveys find that richer people report higher satisfaction with life than poorer people. Data on this oft-found result comes from Eduardo Porter, The Price of Everything: Solving the mystery of why we pay what we do (Portfolio/Penguin 2011) at 62, 69. Analogously, it seems likely that higher-ranking managers give better scores to law departments because they receive more attention and service than lower-ranking managers. RHIP, even if those with the privileges of office are more knowledgeable and could be tougher graders.

Not surprisingly, law departments want senior executives to comment on the performance of the law department since they have the most say in budgets and headcount and scope of responsibility. All true, but a top-heavy response sample may bias scores toward the higher end as compared to a survey that equally plumbs satisfaction levels at lower levels of clients.

Worse still could be the introduction of a statistical device. I have previously suggested that law departments weight satisfaction scores to give more importance to respondents in the higher ranks of the company (See my post of May 31, 2005: client satisfaction scores and manager rank.). If those same executives, however, received better than average services from the department in the first place, a second step that weights their scores would further skew the results (See my post of March 25, 2005: weights given to evaluations.).

A recent post quoted someone on the view that in-house lawyers have less objectivity than external lawyers (See my post of Jan. 13, 2011: less independence inside.). This “less-objective” rationale parallels the deplorable reasoning of the European court in the Akzo Nobel decision that rejected in-house attorney client privilege. It irritates me to hear the charge. Not that either side is free of blemishes, but each of them in their own ways is behold.

Also, it strikes me as ironic that some senior executives avoid inside counsel – despite their alleged fealty and malleability – and prefer outside counsel – ostensibly with stiffer spines. Why don’t they favor the pushovers?

A metaposts collected posts over the past years that addressed the putative gap in objectivity (See my post of Jan. 22, 2009: objectivity of in-house attorneys with 11 references.). Since the first metapost, however, more comments have appeared on the same subject (See my post of June 10, 2009: similar reasoning regarding consultants; June 16, 2009: dual role as GC and head of business unit; Aug. 20, 2009: limitations on access by in-house counsel to documents disclosed during discovery; Oct. 27, 2009: we can’t be objective about how we made management decisions; Dec. 21, 2009: contrarian argument; March 9, 2010: government perceives outside counsel to have more independence; July 22, 2010: independence of chief compliance officers; Nov. 2, 2010: $50 million from Shell yet independent firms; and Nov. 27, 2010: bonuses from business units to specific lawyers.).

Information spillover as an advantage that grows with increasing size of law departments

From my various consulting projects, here are some practices of legal departments, listed in no particular order, that help them keep in touch with their clients’ business activities and legal concerns.

1. Send a bi-monthly “update” to key clients about what the legal department has done recently. Make it very low key, not in lawyer style, and focused on business activities.