Articles Posted in Showing Value

Hans Peter Frick has been group general counsel at Nestlé for 17 years. An article by him in Legal Strat. Rev., Spring 2009 at 18, offers four tasty morsels.

Trust the work of your external counsel. He writes that “we focused on reducing the amount of duplication in the work that we do; for example, in the checking of work that has been outsourced to external counsel.” I would hope that law departments trust and rely on the services of their external counsel and do not think of reviewing the work other than occassionally for specific reasons. Applying the research and analysis of outside counsel to your client’s problem is one thing; checking their footnotes, cases and legal analysis is quite another.

Formally assess legal risks. The department introduced “new legal risk assessment protocols, making as much more proactive in our approach.” The article offers nothing more. Perhaps his staff have developed red-flag indicators, tiers of matters or tasks by estimated legal risk, or risk guidelines.

Sainsbury’s general counsel Nick Grant has challenged the eleven firms on his legal panel to compete against each other in a novel way. He asked the firms introduce their other clients to Grant so they can pitch a new product or service to be sold on the supermarket’s shelves. Five of the companies will present their ideas to a group of Sainsbury’s directors, who will choose one winner.

In total, Sainsbury’s reviewed 16 pitches. Ideas included a fizzy drink called Carbonaid, which would put a portion of profits into carbon reduction schemes, a business selling designer chairs, an IT company and an entrepreneurial school.

Grant said that the initiative, which he intends to run annually, is more than just a distraction from the serious business of solving legal issues. “[The question is] how does our legal community add to Sainsbury’s?” he said. “Community is about the flow of ideas, not just me sucking value out of a firm then dispensing with it. Firms will hopefully be proud of [having referred] clients in these hard times.”

We need a sniglet (a made up word for a common situation) for the idea that specialist lawyers can usually find one of their arcane issues tucked into any set of facts. A knowledgeable tax lawyer can find subtle tax implications in any business transaction; an anti-trust specialist spots collusions and combines lurking everywhere; a litigator anticipates risks of future causes of action. For a carpenter every problem is a nail; for a highly trained lawyer, business transactions resonate with specialized risks.

Let’s call this experteyes.

Experteyes saves us if the specialist peers ahead and avoids a significant risk; experteyes complicates life, delays business and expands into a heftu bill for outside counsel.

During interviews in a consulting project, I heard about “legal audits” conducted at a US company that brings in roughly 50 percent of its revenue from overseas, Every year or two a team of senior lawyers visits a country where the company does significant business. The team kicks the legal tires.

They look at processes, form contracts, client education, knowledge management, and other steps taken by the in-country legal group. The audit team brings in outside counsel to obtain attorney-client privilege and a recordal (See my post of Nov. 13, 2005: IP audit at Dow Chemical; and Aug. 27, 2005: litigation audit.).

Inspired by Elliott Hurwitt in Corp. Counsel, Vol. 16, May 2009 at 102, who spoofed PR releases by technology vendors, here is my similar approach for general counsel who want to praise their group. When words fail you, don’t fail to use these crunchy words. Simply mix-and-match to fill in the blanks of this sentence:

“As chief legal officer, I am proud that MegaBigCo has a [adjective] Law Department committed to [noun] and devoted to [verb].”

Adjective

What will happen to Sun’s hefty legal department, which listed 170 lawyers in 2006 after Oracle acquires it? Consider the axe orgy after Oracle’s acquisition of BEA in April 2008. Of the 20 or so lawyers and eight legal staffers that worked in the BEA legal department, only two staffers and one lawyer based in Sweden have jobs at Oracle now, according to Zusha Elinson, The Recorder, April 24, 2009 That means 95 percent of the lawyers in the acquired company were cut down.

“Unless they have a very unique area of expertise where there might be a need for Oracle, I would suggest they would start looking for jobs,” said a former BEA lawyer in the article. “A year after the thing closes, my guess would be, less than 10 percent of the Sun legal department will be left” (See my post of Jan. 16, 2009: layoffs after mergers with 9 references.).

“Lawyers, as a group, have a higher aversion to change than business people.” This adamant quote comes from Janet Langford Kelly, Susan Sneider and Kelly Fox, “The Relationship Between the Legal Department and the Corporation,” in Successful Partnering Between Inside and Outside Counsel (Robert Haig, Ed.) Vol. 1, Chapter 16 at 16-16. The authors adduce no support for this unflattering proposition, as if it is self-evident (See my post of Dec. 21, 2008: change management with 16 references cited.).

More analytic, perhaps than business executives, lawyers may tend to poke holes in proposed changes; with more tendencies to be risk averse, lawyers may resist the unknowns of change; steeped in precedent, lawyers may not want to venture into new ways of working; imbued with a sense of tradition, novelty has less allure; and bent on stamping out legal risks, why change if that creates different risks than the status quo?

Pop psychology aside, the more in-housers align with their clients, the more they may learn to accept change. The more creativity and innovation finds rewards, the less lawyers will baulk at change (See my post of Aug. 24, 2008: lawyers and risk averse behavior with 11 references.).

Some legal departments seem to get into the klieg lights of favorable publicity more than others, perhaps because they have on retainer their own PR firm (See my post of Jan. 30, 2008: publicity by law departments with 12 references; and June 11, 2007: publicity with 12 references.)

One such arrangement is that Crosby Marketing Communications is on DuPont’s Primary Law Firm wheel of preferred providers.

What Crosby does for DuPont’s legal team I don’t know, but its efforts are probably one reason the legal management world hears so much from the Wilmington giant. Not only is the law department aggressive and innovative, it knows how to get the word out (See my post of June 30, 2006 on the marketing of law departments and four references to DuPont.).

Neither my heart nor my head support the idea that law departments should strive to be a profit center (See my post of April 27, 2008: profit center with 18 references.). Law departments should focus on productivity, quality and legal risk management (See my post of April 8, 2009: the three horsemen of every general counsel.).

That said, if a legal team can help monetize corporate intellectual property, that is commendable. So, if the patent lawyers can rummage around and find some “fallow patents” that other companies deem valuable, or even contribute the patents to a consortium that benefits the industry, let’s give a cheer (See my post of March 27, 2009: secondary patent market.). As one instance of this, at a recent conference, a senior lawyer from AT&T mentioned that his company has sold some patents that had value to other companies but not to his.

What is the goal of management in a law department? To improve productivity, to increase the quality of legal advice, or to reduce legal risk?

Clearly, we need operational definitions of these slithery PQR terms and some way to measure progress toward achieving these objectives (See my post of Oct. 22, 2008: ACC Value Challenge; Nov. 21, 2008: definitions of Value Challenge; Jan. 2, 2009: how to measure productivity; and March 23, 2008: risk management with 18 references; and Oct. 19, 2005: the quality of decision-making.). Setting aside definitions, we have to acknowledge that general counsel want to accomplish all three.

It is not possible to rank the PQR objectives. They are incommensurables (See my post of July 27, 2007: trade-off between risk reduction and productivity increases.). Like constitutional principles they clash at their boundaries as in the old saw, “You can have it cheap, fast, or good, but only two of those three at any time.” My nagging worry is that general counsel can optimize only for one of these at any moment or decision.