Articles Posted in Showing Value

Cross selling is when a partner at a firm you use introduces you to another partner there who has a skill or knowledge base the introducer hopes is advantageous to you. This common practice has good points and bad points.

The most obvious advantage is confidence. You trust the partner you already use, so you have good reason to rely on that lawyer’s recommendation of a colleague.

Second, if you send more work to a firm, you might be able to obtain better rates or non-rate benefits. Or if the cross-sold lawyer’s work is not up to snuff, you have more leverage to insist on changes than if the lawyer were the only one you use at a firm. Cross selling also leads to convergence.

Some in-house lawyers prevent partners from law firms having direct contact with senior executives, partly from a fear of being upstaged and supplanted. “If the partner comes across as smarter, more experienced, more likeable, what will become of me?” A natural fear, so it was good to read in the ACC Docket, Vol. 27, March 2009 at 14, the solid wisdom of Sabine Chalmers, the chief legal officer of Anheuser-Busch InBev.

“A common instinct of in-house lawyers is to get the external advisors as far away from the clients as possible — often out of the mistaken notion that they may make the in-house team look redundant. If you choose the right advisors, quite the opposite is true — not only will you look smart for having made the right choice for the company, but the whole exercise will ensure that the external lawyers have skin in the game as a result of being in the same firing line as the internal team. It will also ensure that your key stakeholders have the same sense of confidence in your advisors that you did — especially when you hit bumps in the road, which you eventually will.”

Solid and progressive thinking, I believe. Each side brings its own value to clients (See my post of Dec. 27, 2008: gatekeeping independence of inside and outside counsel.).

These four practices, lit up by Law Tech. News, March 2009 at 39, and its profile of Gardere Wynne Sewell jking@gardere.com make sense to me. I keep composting scraps of ideas for how law departments can improve the environment (See my post of March 11, 2009: conservation steps for law departments with 7 references.).

1. Push (and enable) people to reduce junk e-mails, and remove them from servers, which decreases server heat and electricity (See my post of Nov. 6, 2006: email with 6 references.).

2. Move archived data to non-spinning drives. I think this might include some electronic discovery documents.

Readers, please send me your law department’s tips for going green. Here are four more ideas. Provide trash containers that have round holes for cans and bottles. Recycle toner cartridges. Discard computer equipment responsibly. Encourage car-pooling.

Along with those four steps, this blog has cited several others that law departments can easily take (See my post of April 23, 2008: environmental impact of filing cabinets; April 27, 2008: six steps to help the environment; Dec. 26, 2007: lights and energy-saving; April 27, 2007: environmental sensibilities of recycling; Oct. 12, 2008: eight modest steps; Nov. 9, 2008: energy arguments against double monitors; and Nov. 9, 2008: three more tips for saving energy.).

A research paper concludes that general counsel have a positive effect on controlling insider trading during so-called “blackout windows.” The paper, “The Impact of the General Counsel on Corporate Governance,” by Alan Jagolinzer, Daniel Taylor and Daniel Taylor and David Larcker (May 27, 2008), gathered insider trading policies of 260 US companies. For 80 percent of those companies, share trades by executive officers (referred to as Section 16 individuals) are prohibited during blackout windows. More precisely, without general counsel approval, officers may not buy or sell company stock for some number of days before and after an SEC filing, most commonly a quarterly earnings release. The aim is to prevent insider trading.

Even so, for various reasons, a fair amount of trading takes place during blackout periods. The authors calculated the profitability of insider trading within the blackout period and the effect on that profitability of required general-counsel signoffs: “[W]hen General Counsel approval is required, insider trades earn lower abnormal returns.” Hence, this study demonstrates that general counsel of a publicly traded corporation “can effectively limit the extent to which officers use their private information to extract rents from shareholders” [meaning, make money improperly on the stock market].

The authors also cite a paper by Kawk, B., B. Ro, and H. Suk in 2005: “The role of corporate in-house counsel and firms’ voluntary disclosure of forward-looking information: The case of management earnings forecast,” a Working Paper, Krannert Graduate School of Management, Purdue University. In a footnote, the authors say that the Krannert study “focus[es] on the compensation of legal counsel and show[s] that increased compensation is associated with more frequent management forecasts and more accurate forecasts.”

An interview in the McKinsey Quarterly, 2009, No. 1 at 146, of Eric Schmidt, the CEO of Google, should hearten Google’s in-house team and most in-house lawyers. Toward the end of a long session, the McKinsey interviewer asked Schmidt about dangers he foresees “as the Internet continues to develop.” Schmidt comments first on legal and political challenges to the evolution of a “global standard for the Net.” Then he explains what companies should do:

“The most important thing in these situations is to have a large number of lawyers. The reason is that the laws have become so complicated that, to operate globally, every large corporation I know of has to have a lawyer who understands Brazilian law, one who understands Turkish law, and one who understands the European court. In the case of information, and in particular cultural information, there are widespread differences in what’s legal and what’s not. The Internet [response is] that people are subject to the local laws.”

Hooray, and I hope Eric Schmidt is right about the important role of lawyers, notably in-house lawyers.

A good example of fuzzy overlap between a legal department and other functions lurks with Codes of Conduct. How far should a general counsel claim to be the ethical beacon for the company? To what degree is ethical behavior a matter of laws and attorneys? What lines exist between the purview of compliance and that of law? What sustains the culture of a company and what do its inside lawyers contribute to that?

Any fool can ask questions a wise consultant can’t answer, so let me offer very preliminary thoughts. I do not believe that lawyers should be regarded as the conscience of a company, the icons of integrity. Of course, in-house counsel should behave morally, but so should everyone. Passing the bar does not knight anyone as a moral Jedi.

Nor do I believe, that enforcement of compliance with laws and regulations is the responsibility in the first instance of the legal department. The first line are business people, educated and supported by lawyers. As for culture and values, they extend far beyond acting legally. Thus, for the involvement of in-house counsel in Codes of Conduct, my first thought is to see things negatively: what is not the ultimate responsibility of the in-house legal team.

No. I disagree with this quote, which comes from ACC Docket, Vol. 27, Jan./Feb. 2009 at 58.

Sure, if you run a company that specializes in consulting on compliance solutions, like the author of that tendentious quote, every corporate problem is a risk-creating nail for your compliance hammer.

But the view expressed seriously cramps law departments. If in-house attorneys see themselves principally as reducers of business risk then they will continually be at cross-purposes with their clients, who need to make money. No single, critical issue exists. That is a reductive claim that badly distorts the changeable, evolving mix of legal services law departments should provide.

Some general counsel aspire to have their law department operate at a “world-class” level (See my post of May 16, 2007: misguided goals embedded in the aspiration.). By that term they mean their team should perform at the level of the best law departments. That is a rhetorical goal, not a practical one, because no one knows which law departments are best; indeed, we do not even know what practices are “best” (See my post of Feb. 9, 2009: best practices with 24 references and one metapost).

Instead, general counsel should strive each year not for some mythical blue ribbon but to improve measurably on one or more aspects that make a material difference to the company in productivity, quality, or risk. Continuously getting better yields more than does a quixotic pursuit of some end state and then stasis.

Standard & Poor’s plans to assess enterprise risk management (ERM) practices at non-financial companies. The assessments will look at four components of ERM that S&P considers common to all industries: “risk-management culture and governance, risk controls, emerging-risk preparation, and strategic management.” From a write-up in CFO, Vol. 24, March 2008 at 18, this new analysis for ratings will include more specifically a company’s “resiliency and ability to respond to regulatory risk, [and] lawsuit risk.” The ratings agency will base its final assessment largely on interviews with senior managers of the companies.

Does that mean S&P will try to ask the general counsel how well the legal team is prepared to handle major litigation? Or respond to changes in regulations? I don’t see how those responses, hardly disinterested, will help quantify ERM.