Articles Posted in Clients

During a recent consulting project, I interviewed a lawyer who spends much of his time on sales agreements. “Sometimes I spend more time tussling with my sales force over terms than I do with the other side,” he said. This complaint goes back to a point made previously – business decisions must precede legal drafting (See my post of Nov. 17, 2010: can’t improve contracts unless business side agrees to positions.).

Sales people look less far down the road and barely at risks as do lawyers. So the lawyer has to rein in the inclination of the sales person to give away the farm or toss a slow-burning match into the farm. At the same time, the in-house lawyer, locking the barn doors and dousing the flame, doesn’t make friends with the commission-hungry sales person. To hit the right balance, and to pile on one more metaphor, means it is hard for the lawyer to get the porridge to just the right temperature.

Until recently, an easy recommendation to a law department said to simplify the gaggle of contracts they dealt with both in number and in content. With some experience, however, it has become clear that lawyers on their own can only go so far to clean up contractual language. They can’t unilaterally select or revise significant terms of contracts for the reason that the terms reflect fundamental risk tolerance and business decisions. So for example, you can’t reassemble a document until there is agreement on underlying business terms like revenue recognition or the business model of support offered or sought.

A legal project team can look at multiple agreements that deal with similar issues and pick the better text in the sense of clearer language. Boilerplate provisions may be amenable to a reasoned and agreed-to choice by lawyers. The substantive parts of the agreements, unfortunately, rest on business considerations far more than on legal drafting.

The Admin. Sciences Quarterly, June 2003 at 311, reviewed a book called The Company Doctor: Risk, Responsibilities, and Corporate Professionalism (by Elaine Draper). The author interviewed more than 100 professionals engaged as or working with physicians in large corporations “whose primary economic activity is not related to health care.” It troubled me that “corporate medicine is governed by practices that are in conflict with commonly held medical ethical standards” and that similar distortions may afflict employed lawyers.

I will not try to review the review, and very few readers have probably reached even this point in this blog post. Enough for me to point out, I suspect, that being an employee and a manager in a company changes the perspective of any professional, including lawyers, and raises ethical challenges. Role conflicts surely arise, yet in the US at least, the privileges of legal certification apply and the assumptions of objectivity and professionalism from lawyers hold.

When a legal department goes hat in hand for a budget increase, having paid more than was projected that year for, say, outside counsel, clients accumulate and confirm stereotypes. Invidious beliefs about lawyers (to some degree, but not entirely, urban legend myths) find reinforcement. Here are some of those myths, which I have adopted from a thoughtful presentation by the general counsel at lawyer conference. The quotes are my own take.

Lawyers can’t manage. “You may be smart, but you couldn’t manage your way out of a paper bag.”

Lawyers run to outside counsel when they could handle it inside. “You’re a lawyer, so why aren’t you confident in their own experience and judgment?”

Even strenuous efforts to “team” with clients, to be “business partners” and to “align” may all lead to disappointed in-house legal departments. At bottom, clients may grudgingly appreciate that their lawyers guide them through the legal thickets, but more fundamentally those clients wish for grassy leas – no legal issues hedges and thorns in the first place.

When you are a card-carrying member of a profession that is perceived to throw up business obstacles and siphon off the bottom line, when you are a lawyer that is and clients think lawyers create problems, how can you ever expect to be genuinely embraced? For them, the perfect legal world would hum along with handshakes, trust, and fair dealing – no fuzz rubbers.

It should be irrefragable that business executives do not retain outside counsel on their own. With rare exceptions, such as the CEO once in a long while or a Board committee, the legal department should be the sole arbiter of when to go outside and to which firm as well as on what basis. If the Board and senior executives hold the general counsel accountable for all legal decisions of the company, no one but the lawyers should independently make representation decisions.

A corollary however deserves recognition. Even if the law department has retained a law firm, lawyers at that firm should not communicate directly to any non-lawyers at the client company unless an in-house lawyer is present or has given explicit permission. The law department remains accountable for all legal advice given its client so it must know what is being counseled.

Jamie Dimon, the CEO of JPMorgan Chase, “insists on full allocation of overhead – everything from legal to marketing expenses – to the parts of the business that use them.” I favor that discipline: the legal department should allocate its internal (and external) costs to the general ledger account of some staff or business function. Allocation introduces some market-like discipline to legal spending.

The quote from the Harv. Bus. Rev., Nov. 2010 at 98, goes no further on this point and I do not wish to be naïve about the formidable accounting and managerial difficulties it could set in train. Neither do I advocate time tracking by inside lawyers. What I do advocate are mechanisms to link legal costs to business operations.

Some costs, such as for legacy litigation, as orphans without business owners may only have a corporate account and some executive at least nominally responsible for the spend. Allocation should increase the accuracy of legal cost data. More importantly, as the article says, it should “motivate managers to become actively involved in discussions about the value of corporate services provided.” Not all general counsel look forward to that prospect and the intervention it encourages but it furthers sound corporate behavior.

Consider these reasons why clients might criticize the speed of their legal team.

• The in-house lawyers might be not very capable. They lack training, draw on inadequate experience, or make do with feeble intelligence
• The law department might be understaffed to handle even a normal flow of client requests for services.