Articles Posted in Clients

A piece in the NY Times, Feb. 2, 2011 at B11, discusses the widely varying tax rates paid by major US corporations. Here comes the laudatory sentence: “G.E. is so good at avoiding taxes that some people consider its tax department to be the best in the world, even better than any law firm’s.”

Impressive acknowledgement. The group is not part of the law department, but still, this is fulsome and public praise for in-house legal talent (See my post of March 27, 2009: tax lawyers and reporting with 7 references.). Value delivered becomes very clear for tax lawyers.

How does EADS, the global aerospace Group that manufactures the Airbus, encourage innovation among its researchers? What it does, works. As summarized in 2010 Intelligence Report & Directory Series of Leaders League at 67, EADS had 7,200 patents in its 2009 portfolio, “of which 1,100 were first registered in 2008. [Aha, a benchmark metric of recent patent grants as a percentage of all active patent records!]

To prime researchers toward patentable discoveries, EADS gives the Airbus Award of Excellence every year to the company’s most promising researcher. It seems volume is not the measure but potential. Second, there is a bi-annual ceremony called the Airbus Hall of Fame. Each company within the Group nominates its best researcher and they receive prizes. Third, the company remunerates employee’s inventions, “giving them a fixed sum of between €300 and €50,000, and another which varies according to the value of the innovation.” In all this the IP lawyers of the company play a role.

Once before I mentioned software that changes what appears online depending on the person at the keyboard (See my post of March 27, 2005: AI on intranets for clients.), and recently I read again about software that can do this. KMWorld, Feb. 2011 at 20, describes real-time site personalization. Foley Hoag, a US law firm, uses the Sitecore Online Marketing Suite for this purpose. “Depending on the pages that a visitor [to the firm’s website] accesses, different content is presented.”

A law department could presumably set up such software so that clients would see the pages most pertinent to them, based on past visits or other indicators. Intranet sites of law departments that apply “visitor intelligence” would be much for effective and user friendly.

In that spirit, I collected my most recent posts on law department intranets (See my post of Dec. 23, 2008: patent shows GE’s intranet site; March 29, 2009: McDonald’s legal intranet; Aug. 18, 2009: CBS collaborates with its law firms on its intranet; Sept. 1, 2009: metrics to analyze usage; Sept. 22, 2009: Belgian Post and its intranets; March 31, 2010: direct clients to useful material on the department’s intranet; Aug. 10, 2010: Sidewiki annotations; and Sept. 9, 2010: IBM’s legal intranet.).

One notion in a recent article suggests that inside lawyers, working closely with managers throughout the company, can provide significant value as evaluators of their performance. Jason Mark Anderman writes that “in-house lawyers often know which low-performing managers are incorrectly perceived as being successful, what departments have squandered resources on unnecessary deals and when an intended acquisition no longer makes sense but is being relentlessly pursued by a corporate leader to justify her personal goals. On the positive side, in-house attorneys see which company employees are demonstrating outstanding project-management skills, making insightful decisions on which deals to close and which deals to walk away from, and maximizing the value of sales and expenses by providing tremendous value as a terrific return on investment.”

Even if this claimed insight exists, it would be highly inadvisable for inside lawyers to formally rate their clients on their managerial skills. Other than saying “no” too much, nothing would chill the (already often flickering) desire of clients to seek legal advice than the fear of being graded by their legal advisors. Lawyers for corporations not only lack the experience to assess managerial abilities but they also do not have the time to do this. Client evaluations would traumatize the fragile ecosystem.

In a comment to a Ben Heineman blog post last week about how compliance officers should co-report to the general counsel and the chief financial officer, one person raised yet again the fundamental criticism that in-house lawyers, beholden for their jobs, lack independence and objectivity as compared to law firm partners. The context more specifically was when the Board of Directors wants trustworthy legal counsel.

“Many Boards are themselves asking for counsel from lawyers outside of the company. They are perhaps influenced by the big law firms who profit from the kind of duplication in expertise that you [Heineman] rightly deplore, as much as by concern about their particular CEOs. But a Board’s logic of seeking to find advisers who do not depend on the CEO is inescapable in the real world.”

Inescapable logic for this writer is that Board members don’t trust employed lawyers as much as retained lawyers. It is a pernicious mistrust but who can arbitrate? Is there a premium for external honesty? Outside counsel have conservatism, profit motives, blind spots, and agendas too. Inside lawyers, you could counter-argue, care more about getting the right answer because their job, their workload in coming years, and their stock options depend on wise advice.

In March 2007, I collected references here to accounting concepts and concerns. Since then the more recent additions number 10 (See my post of Sept. 5, 2007: compensation over $1 million; Dec. 3, 2007: cash basis and reserves and P&L; Aug. 12, 2008: options expensed; Nov. 9, 2008: deal costs must be expensed, not capitalized; Dec. 31, 2008: proposed FASB rule on disclosure of reserves for individual litigations; Feb. 25, 2009: capitalized patent costs; March 11, 2009: GC fired for accounting irregularities; March 1, 2010: two accounting systems used by insurance firms; Oct. 7, 2010: accounting qualms about AFAs; and Nov. 1, 2010: full charge backs of legal costs.).

Given the centrality of business knowledge to inside attorneys, the other metaposts on accounting deserve to be repeated as well as a collection of posts on the finance department (See my post of March 18, 2007: accounting terms with 15 references; and June 18, 2009: interplay of finance/accounting and legal with 19 references and 2 metaposts.).

Attorneys hold senior positions outside the legal department in many companies. I have written frequently about CEOs who have practiced law, or even been promoted from the position of general counsel (See my post of March 24, 2007: promoted general counsel with 8 references; and May 26, 2007: GCs report to former GC with 10 references.)

Lawyers hold positions in other senior management roles of corporations. In fact, a survey of law departments in the technology industry reported that “Approximately one-fourth of the companies had either one or two attorney-executives outside the legal department.” Those positions included Director, CEO, CFO, President and Vice President.

Let’s round up six candidates that pump up total legal spending for an industry. I list them in order of declining effect as I perceive them.

Heavy Regulation. The amount, complexity, flux and level of enforcement of regulations drives legal spend (See my post of Dec. 14, 2005: legal intensity of regulation; Feb. 25, 2008: service providers for bill and regulation tracking; and April 19, 2006 # 1: complexity of federal employment regulations.).

Significant R&D. Intellectual property requires large servings of legal talent and expenditures (See my post of Aug. 10, 2010: R&D and patent intensity; March 2, 2009: R&D with 12 references; and Sept. 20, 2010: R&D spend related to legal spend with 8 references.).

The International Association of Contract and Commercial Management 2010 Top Terms in Negotiation reported no change from the year before in the top five contract terms most frequently negotiated: (1) limitations of liability, (2) indemnification, (3) “price/charge/price changes,” (4) intellectual property, and (5) confidential information/data protection. Of the 30 contract terms covered, these five did not even change their relative position (See my post of Jan. 21, 2010: IACCM and empirical research on commonly negotiated terms.).

On pages 9 and 10 of the report you can see how the importance of the five terms varies by geographic region, pages 11 and 12 analyze their importance under eight legal systems (UCC, English, French, and German included), and pages 13 and 14 break them down by ten industries. If your legal department wanted to set a policy for when contract changes must be reviewed by a lawyer, this set of five would be a good place to start. The additional granularity of region, jurisprudence and business sector would help even more. Additionally, they give a framework for what to teach clients.