Articles Posted in Showing Value

An article in the Harvard Business Review, June 2014, at 67, by Clayton Christensen and another author, includes a sidebar that criticizes overuse of spreadsheets. When strategic decisions are based on spreadsheet analysis, the authors believe managers are often misguided.

Without a doubt, spreadsheets can mislead or can create a false sense of certainty. Nevertheless, efforts to gather data and look at what that data suggest help combat the well-known shortcomings of intuition, selectively-remembered experience, and less-than-rational gut instinct.

More than that point, spreadsheets require data, and the discussions that should result from deciding which data to collect and how to collect it and then how to weight the various pieces of data should help planners think through future scenarios. Data has value in its own right, that is to say, as well as value in stimulating thinking.

“Nothing strikes fear into the heart of a corporate general counsel like a call from celebrity attorney Gloria Allred.” That is the over-hyped opening of an article in Bloomberg BusinessWeek, July 23, 2012 at 55. Perhaps.  If one’s boss, the CEO, is embroiled in a messy breakup and the wife has hired a ferocious lawyer adept inside and outside court, it’s no fun to be the general counsel, but the CEO is not a personal client.

In contrast, a press release from an aggressive competitor announcing a hostile takeover, a call from the Enforcement Division of the SEC, a dawn raid by European government, or service of process regarding the company’s crown jewel patent might grey the hair and disturb the sleep.

In 2007 Australia’s federal court called into question whether e-mails and documents prepared by in-house lawyers were subject to attorney-client privilege. In response to that threat, Telstra Corporation took a number of actions.  For example, it amended the employment contracts of each of its 150 lawyers “to make it crystal clear that each lawyer’s ethical obligations and duties to court prevailed over our duties to our employer.”  These are the words of Sue Laver, Telstra’s General Counsel, in Canadian Corporate Counsel Association Magazine (Autumn 2010) at 36. They promulgated a corporate policy to spell out that lawyers must give independent advice and prohibited internal clients from requesting a particular legal opinion. Further, Telstra created new compensation arrangements for its lawyers that were no longer tied to the stock performance of the company.

Telstra revised its organizational charts to reflect that lawyers act as lawyers – not commercial managers. They changed the titles of lawyers from “managing counsel” to “supervising counsel” to make a clear distinction between legal responsibilities and management responsibilities. All this because of the possibility that attorney-client privilege might not protect activities of internal lawyers.

Almost 900 in-house counsel from 10 countries responded to a survey published as Deloitte’s Global Corporate Counsel Report 2011. Five years ago, a similar survey found that the top three choices for ways the legal team demonstrates value were “timely resolution of legal problems,” “achieving best legal outcomes,” and “reducing legal risk.” In last year’s survey, the top three ways were timely resolution, reducing legal risk, and “achieving cost-effective resolution of legal problems.” The remaining two were “reducing external legal expenditure” and “building internal legal expertise of organization.”

Note that the respondents were choosing from a list and were voicing how they felt they were adding value. What clients might feel about the value proposition was not addressed. The question could have been “How do you think your clients would rank the following choices.”

The choices given on the survey did not include something like “helping the business achieve its goals.” The orientation toward “problem resolution suggests litigation presents the optimal role for law departments, but in my view it is commercial support that creates the most value.

Lawyers, sometimes pummeled by non-lawyers as arrogant and prideful, bring that opprobrium on themselves if they try to elevate their department as grander and more influential than others would agree. A number of instances of inflated self-regard and self-promoting have appeared on this blog (See my post of July 24, 2011: all staff functions provide input to business managers, and legal is not special.). Let me pull together five culprits.

“We lawyers are deep strategic thinkers”: The GC argues that it should play a role in all corporate decisions of significance (See my post of April 13, 2012: no, don’t try to intervene in all strategic decisions.).

“Our legal team is unique and superior as a support staff group”: The law department that sets itself above other support functions earns no respect (See my post of April 19, 2012: uniqueness of law departments as serving others.).

In the ACC Docket, March 2012 at 24, the general counsel of NetScout Systems holds high the banner that that the “legal team should be an active participant in all critical corporate decisions.” Unless “critical corporate decisions” is deemed synonymous with “decisions where legal input must be had,” in which case the sentence is a tautology, this is a mischievous assertion. It would have law departments step far beyond the bounds of where in-house lawyers have skills and should be actively devoting chunks of time.

A decision to sell a major business unit certainly ought to involve in-house counsel at some stage, but the decisions that precede legal input have everything to do with business concerns like competition, corporate resources, fit, growth markets and nothing to do with laws and statutes. Decisions to locate manufacturing or distribution sites are likewise primarily based on revenue, costs, logistics, and taxes, not on statutes, cases, regulations, or the common law.

The legal department is not and should not be the hub of the company. It should not try to stick its thumb into every pie.

A survey of more than 50 function heads of European companies found that “fewer than one in 10 function heads felt they had received sufficient guidance on how their function should contribute to the company’s overall strategy.” Reported in MIT Sloan Mgt. Rev., Spring 2012, at 12, the research by the Ashridge Strategic Management Centre found that the functions often had KPIs but “these rarely assess the overall contribution of their function.”

The thesis of the article is that without CEO guidance, a legal department, for example, can under-perform and disappoint clients. They can become self-serving. They fall short of helping the business divisions with “the practical support they want and need.” Instead, “corporate functions measure themselves against industrywide best practices or implement initiatives that increase their influence or simplify their own work”

The article suggests that CEOs fail to direct functions because either (1) they focus on business units or (2) they feel they lack enough technical knowledge to give direction to the staff group.

The general counsel of NetScout Systems co-wrote a piece in the ACC Docket, March 2012 at 22. Early on, a sidebar sketches how general counsel over the past century have been perceived. The early 20th century, was the “golden age” of corporate counsel, “where the majority of corporate executives were lawyers, and the general counsel was often one of the three highest paid individuals in the company.”

The picture darkened in the second half the 20th century, “when large law firms became dominant, and the focus of commercial activity shifted to marketing and finance accounting.” So far did esteem for general counsel decline that their legal written opinions “were generally not deemed acceptable for various transactions.”

Today, “the pendulum is swinging back in the direction of corporate counsel as vital and influential members of the executive team.”

Assuming the general level of managerial skill in U.S. law departments has risen over the past 20 years, how might we detect that progress? One clue could be that the number of lawyers and dollars required to support each billion dollars of revenue has held steady (See my post of April 6, 2011: in-house counsel climb the value curve.). Even with the burdens of increased complexity, scope and size, legal resources per unit of income have stayed stable. Managerial improvement could account for that, but so could increased ability, training, or intellectual aptitude of lawyers wholly apart from how they are supervised and structured. So could cleverer clients or the accumulated reduction of legal mis-steps because of processes, or general awareness.

Clue number two might be that the legal functions of companies have over those two decades absorbed less of the corporate fisc. But that hasn’t happened, if the metrics above hold. Worse, a smaller legal slice of the corporate pie might suggest that CEOs have perceived that the management contribution of general counsel has tailed off!

Third, management consulting to general counsel has perhaps shrunk, which if true might have to do with increased abilities of those who run legal departments. Other reasons might account for this such as more publications, conferences, groups for general counsel – thus making consultants less valuable – or the decline and retirement of consultants without replenishment.

This quote, “leadership involves a delicate combination of plumbing and poetry,” struck me when James March spoke it during an interview (Acad. Mgt. Learning & Ed., Sept. 2011 at 504). Law department leaders have to get the basics rights, the water flowing and the heat heating. Contract review, timely filings, never a default, and few surprises for management. The top lawyer has to attend to the plumbing and both hire, motivate, and direct well.

At the same time, But the top lawyer also has deeper issues to grapple with, such as leadership, power, role modeling, culture, scope and goals. These are grander and more poetic. They call on artistic glow more than mechanical plodding. Both are necessary; general counsel should be poetic plumbers.