Articles Posted in Clients

This on-the-money quote appears in the NYSBA J., Oct. 2010 at 37, and is attributed to a senior lawyer at United Technologies. It hits the right note.

In-house lawyers give their advice as part of a larger business problem. They are rarely king of the hill, with pivotal decisions resting on their statutory interpretation, decision analysis, or other legal legerdemain. Always, financial considerations, risks to reputation or business, resource constraints, competitive tactics, and host of other business factors overlay and dominate executive decisions.

For this reason, lawyers mostly react to business problems; for this reason client satisfaction matters most highly; and for this reason knowledge of the business stands on a par with knowledge of the law for in-house counsel.

Like the Pacific’s Rim of Fire, litigation shakes where the tectonic plates of business shift or collide. Providing two examples, the Economist, Oct. 23, 2010 at 75, describes the titanic legal struggles between the giants of technology over the next generation of platforms, software, and technology. Three pages later the same issue describes the colossal clash between pharmaceutical companies and those who make biosimilars. Hundreds of billions of dollars are at stake. Hundreds of millions of legal fees will erupt on the battlefields.

General counsel may feel that they are at the epicenter of these competitions but actually the fights are also or even principally along many other fronts: public relations, marketing, lobbying, M&A, talent hiring, R&D decisions, pricing, strategic thrusts, and more.

Litigation is but business by other means, to convert an old military expression. The enormous, budget-busting costs of lawsuits shake up law departments and raise law firms to new heights but the generative faults, so to speak, wrench and jolt from the business side, not the legal side. The sideshow of litigation reflects vastly more powerful movements in the mantle of business.

An article in the ACC Docket, Sept. 2010 at 22, mentions that the small legal department of Bangor Hydro Electric used a web-based survey last year to gather client satisfaction data (See my post of March 26, 2007: Snap and Survey Monkey as choices.). Large companies may have their own software that can handle such a survey but others have to make do.

Small legal teams can resort to inexpensive survey options. As to that choice, clients may feel more comfortable, in fact, if their candid replies go not to a corporate server that can track them but to a third-party host that will not.

Assume that the workload of a law department increases steadily yet the CEO requires cuts in both legal staffing and outside spending. Does the imbalance of professional obligation as a lawyer to a client and the exigencies of a company struggling to stay afloat financially squeeze a general counsel between an ethical rock and hard place? A quote by an unnamed general counsel from a transportation company in Texas appears in Met. Corp. Counsel, Sept. 2010 at 49 and suggests such a pivot point. “At what point does the expanded workload and reduced budget become an ethical issue for the GC?”

Even though the head of human resources or information technology or finance may face no comparable rules of professional conduct (a lawyer must fully and adequately represent a client), are they less troubled by budget cuts that prevent them from delivering the level of service they believe is needed by their company? All employees have recourse to resignation if the demands on them are unreasonable or harmful to others or their employer. Why is the top legal officer any different?

The most important contracts handled by a legal department are those with customers. Whoever wants to purchase your company’s goods or services deserves the most attention and creativity. No customers, no company.

Second in priority come contracts with suppliers. Cost and quality, to be sure, bear on how well in-house lawyers prepare those agreements, but the leverage stacks up on the buyer’s side of the table. The legal liabilities and issues may be comparable to sales, but the importance to the company is less.

In third place are contracts for indirect services. If a contract covers something other than revenue production or materials and supplies that go directly into the item sold (direct purchases), the contract applies to “indirect” services. Expenditures on contracts covering maintenance, employment, operations, leases, and so forth are secondary to the costs of goods sold and tertiary to what generates revenue for the company.

A few days ago I unveiled seven koans about legal risk (See my post of July 29, 2010: seven paradoxes about risk.). For those of you who have not reached enlightenment, my sketched explanations may spur you on.

“Risk flirts with dollars but marries reputation.” Some risks put money at issue, others put the company’s reputation on the line. The former call a business executive can make, perhaps with legal input. The latter, decisions that jeopardize corporate ethics or reputation, are much more crucial and ought to have more significant legal input.

“Up the line can mean end of the line.” A material risk, one that might be taken improperly by an executive, brings in the specter of reporting up the line to comply with Sarbanes-Oxley. An in-house lawyer who “tells” may lose a job.

A few days ago, Jon Olson, the thoughtful general counsel of Blackbaud,commented on my post about legal departments as multi-dimensional (mathematical) spaces. He explained his own theory:

“One theory that I find useful is the idea that law departments essentially manage the externalities of a business. That is to say, law departments manage the friction point where the untrammeled corporate will meets the greater society. It happens that many of these friction points are legal in nature; and the many that aren’t strictly legal still benefit from good “lawyering” skills (e.g., the ability to communicate clearly, analyze an issue, build consensus). As such, the “space” is at the intersection of corporate strategy and the outside world, with all the layers of politics, culture, personal preference, laws, legal delivery systems, internal process and policy, risk appetite, and technology that entails. Multi-dimensional, indeed !”

Olson certainly envisions a transcendent, fundamental role for legal departments, on the ramparts between clients and the world with the protection going both ways. My image of in-house legal teams is less grand, to be sure, but Olson certainly sketches a fascinating perspective about the attributes lawyers can bring to bear and the contribution they can make.

Showing the value of a legal department can be accomplished in various ways. One way that may be overlooked is to do what the company wants. If the company wants process maps, use Visio for lots of boxes, triangles, and arrows. If Six Sigma is the initiative of the moment, collect black belts. When HR changes the evaluation process, fill out the forms. In other words, playing well in the sandbox helps legal departments be seen as cooperative, good corporate citizens.

Too often, lawyers think they are a breed apart or above. “We are lawyers so we don’t need to comply with the corporate expense policy.” That attitude creates a perception of trouble-makers and malcontents who diminish value. Instead, pick your fights and mostly do what the company wants on travel policies and high potentials. Take part in the leadership development programs. Show value by linking arms, not arm wrestling.

I’m out on a limb here, since all I claim to know a bit about are law departments, but what does this quote suggest: “[O]ur study found that many organizations have a negative perception of their IT departments. Often executives agree that technology is important – but that their IT departments are not.”? The quote comes from MIT Sloan Mgt. Rev., Summer 2010 at 17.

Somewhat similarly, HR departments endure their share of disparagement – endless paperwork, expense, delay, little value added. And who praises finance with its disbursement delays, P.O. policies, constraints on budgets, and other irritations.

What right does the legal department have to think it should escape the scorn of business clients? In their heart, business executives dislike the strictures of the law, its delays, arrogance, costs, and dice-rolling. They would not mourn if the legal department were to evaporate so, since it doesn’t, they carp and criticize.