Articles Posted in Showing Value

Out of a sample of 235 US general counsel surveyed this year, 27 percent of them said they spent more time on crisis management in 2006 than in 2005. The press release of the joint surveyors, Corporate Board Magazine and FTI Consulting, obliquely defines a crisis as “a natural or man-made disaster requiring temporary relocation, off-site data storage and backup facilities, or a legal or public relations issue threatening credibility and stakeholder trust.” The last clause opens wide the door, as any significant law suit can threaten the credibility of a company and the trust of its shareholders. So can potential legislation.

We can all understand natural calamities like earthquakes, floods, or hurricanes as crises. Sarin gas released in subways, jets crashed into buildings, maniac gunmen on the loose and power outages also fall into the crisis pit. But we stretch the term too far when it envelops “legal or public relations issue threatening credibility.” The blog has few posts on law departments and crises (See my posts of Nov. 6, 2006 about virtual law firms to help in a crisis; March 21, 2006 about law departments as “emergency management profession”; and Aug. 28, 2006 on crisis planning for the law department – business continuity.).

My basic view has been that not everything in a company should be “legalized” and made a primary concern of the general counsel (See my post of Dec. 20, 2005 that argues that law departments should not lead corporate crisis teams.).

A sizeable sample of US general counsel reported they spent more time in 2006 on compliance than in 2005. Some 235 general counsel responded to a recent survey by Corporate Board Magazine and FTI Consulting. A press release announced that 55 percent of those general counsel increased their time on “compliance” in 2006 from 2005.

Such a result begs a question: what did those respondents understand by the term “compliance”? The concept can be extremely broad. Everything a general counsel advises on and oversees ought properly to be in accordance with our statutes, regulations, governmental positions, and judicial decisions. What parts of in-house legal services are not observant of compliance with our laws?

The press release unhelpfully quotes an FTI consultant: “Over the past five years, compliance requirements have become acutely more complex, meaning that general counsel have had to assume a broader corporate role in identifying problems and keeping their firms out of the regulatory maze.” “Identifying problems” has no limits (See my post of Nov. 8, 2007 on enterprise risk management.), whereas if compliance comes down to observing regulatory requirements, the task is more manageable.

Freddie Mac has in its Legal Division approximately 95 lawyers, who must keep quite busy. According to Robert Bostrom, Freddie Mac’s General Counsel, in Met. Corp. Counsel, Vol. 15, Oct. 2007 at 21, “In 2006, we provided legal support for almost 2,000 single-family and multifamily mortgage transactions, almost 1,200 debt offerings, over 1,000 swap transactions, over 190 mortgage securities offerings, a common stock repurchase and two preferred stock offerings.”

But who’s counting? Seriously, if your law department tracks the deals and activities it handles, clients will have a tangible set of accomplishments to connect to you. Clients can value a measurable output more than a risk avoided or good advice given.

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Two authors, writing in Met. Corp. Counsel, Vol. 15, Oct. 2007 at 18, provide an overview of the global situation regarding this privilege (See my post of Nov. 17, 2006 and three references cited about the privilege and its bearing on law department management.). For example, in France, Italy and Sweden, confidentiality of advice provided by in-house counsel does not exist.

If a General Counsel is so inclined, opportunities abound to speak at conferences (See my posts of May 21, 2007 about the internal risks of publicity for the department; June 11, 2007 on publicity generally and 11 references cited; and Aug. 19, 2007 #3 on conferences.).

When you speak at conferences, you inevitably pick up ideas from fellow presenters, consultants, and audience members. You also strengthen your network of people whom you can call for advice. It may also be a good career move to be seen and heard; you never know when you might be looking for a new position. Finally, there is the ego gratification of applause, praise, and your name and photo in the brochure.

Many law departments fancy themselves to be “full-service.” I believe that is the wrong vision.

Law departments need to concentrate their expertise in those key areas of legal practice that are crucial to the company’s success. The fortunes of few companies rise and fall their real estate activities; few create shareholder value with environmental strategies; none – except perhaps patent trolls – litigate to make profits. In short, many specialties of law will come under attack from this perspective.

In general, I feel that employment law is mostly preventive law and litigation rather than anything to do with developing talent in a company, so it is not a core competency. Securities law is responsive, not business generating, and anti-trust counsel is defensive.

Do lawyers make a difference? Do they bring value? Yes, and here is an anecdote from MIT Sloan Mgt. Rev., Vol. 48, Summer 2007 at 63, that highlights the point.

“In the spring of 2006, Boston Scientific Corp., a medical device manufacturer, acquired its rival Guidant Corp, outbidding Johnson & Johnson in the process. Earlier, in order to gain rapid antitrust approval, Boston Scientific and J&J had both signed deals with pharmaceutical giant Abbott Laboratories in anticipation of the Guidant acquisition. J&J was first to strike a conditional licensing deal with Abbott, but the agreement failed to include a non-compete clause so Abbott was then able to help Boston Scientific — which it happily did. After Boston Scientific outbid J&J, it sold Guidant’s lucrative stent business to Abbott to alleviate regulators’ monopoly concerns. Thus, by exploiting a weakness in a complex legal agreement, Abbott was able to claim the best part of Guidant’s business in return for its assistance of Boston Scientific.”

Whether the lawyer was an employee or retained, some lawyer failed to bind Abbott and thereby hugely disadvantaged J&J. Whichever lawyer spotted the loophole created a business-creating opportunity for Boston Scientific.

An interview of a law firm partner in the Met. Corp. Counsel, Vol. 15, July 2007 at 47, goes on and on about mythical general counsel and their expanding – exploding is actually closer – roles. The height of folly was the following quote: “A General Counsel of a major company I work with describes her role as having moved far beyond the legal issues. Her legal department has gained such credibility that it is the hard issues — irrespective of whether they carry legal implications — that are referred to it” (emphasis in the original). That general counsel is off the reservation.

If it were to come to pass that a law department becomes a general solver of business problems, then there would be no managerial boundaries for its size, scope, mix of employees, attorney-client privilege, structure or performance measurement.

Decisions to act set in train all manner of responses and changes that managers often do not foresee (See my posts of Aug. 1, 2006 on second-order consequences and Aug. 28, 2005 on unintended consequences.). One ironic outcome happens when a well-intentioned decision boomerangs.

This blog has touched on several instances of “no good deed going unpunished.” This is not to discourage ameliorative actions, but to point out that all decisions involve tradeoffs and reverberate without complete control (See my posts of February 10, 2007 on law firm experience in an industry being held against them; March 16, 2006 on IP recovery programs that encourage wrong priorities; Sept. 21, 2005 on knowledge management efforts that raise litigation risks; May 21, 2007 on good publicity about a law department that irritates senior executives; May 20, 2005 on having a star lawyer but risking his or her loss to a recruiter; Sept. 22, 2006 on marketing the department’s services but then facing overload and an instance at May 10, 2006 with Kraft; and Nov. 21, 2005 on client satisfaction surveys that raise the bar of performance expectations.

The pullout section of the N.L.J, Vol. 29, May 28, 2007 at S1, highlights 50 women lawyers “who have had a national impact in their fields and beyond during the last five years.” Ten women who are not partners in law firms made the list. Of that group, two are deputy assistant general counsels in the Department of Justice, one heads the National Chamber of Commerce’s Litigation Center, two are academics, and one is a retired Federal Court of Appeals judge.

The remaining four are general counsel, two with very large law departments: Stasia Kelly of American International Group (more than 300 lawyers) and Louise Sams of Turner Broadcasting (leading about 80 lawyers). The other two are with much smaller law departments, Rachel Robbins of NYSE Euronext (who has been there six months) and Cindy Cohn of the Electronic Frontier Foundation (a not-for-profit).

With only four percent of the profiled women being general counsel of a major corporation, the message seems to be overwhelmingly that partners in law firms have influence, not general counsel of companies. To the strong contrary, I believe that a general counsel of a large company has much more influence on the law than a partner in a law firm. She picks the firms, chooses the partners and staff, makes the key legal decisions on strategy, persuades and advises fellow executives, manages budgets in the scores of millions of dollars.