Articles Posted in Showing Value

At the Corporate Legal Times 2003 Super Conference, June 12-13, 2003, Craig Glidden, the General Counsel of Chevron Phillips Chemical Company (CPCC), displayed a fascinating slide. The left, vertical axis shows low value-added services up to high value-added services. The bottom axis moves from “specialty work” on the left over to high volume “commodity work” on the right. The right vertical axis has low-cost service providers on the bottom up through “partnering” to “outside counsel specialists.”

The CPCC law department inventoried all its work done inside and outside and categorized it based on the graphic’s scales of value and cost. Even better, they estimated the time they spent on the various combinations. Those services in the upper left of the graph, the high-value specialized work, amounted to an estimated two to four percent of the services. This included antitrust and securities litigation, complex commercial litigation, IP litigation and a few others services.

Moving down the curve to intermediate value and intermediate volume, the so called “experience matters” accounted for 35 to 40 percent of the department’s work. In that category were complex contracts, environmental issues, and some specialty work like international contracts.

Something puzzles me about the prevailing view on legal specialists. People often characterize in-house counsel has generalists, dabbling in lots of legal issues, and private-practice lawyers as specialists, skilled in a niche area. The first part may somewhat hold true for the lawyer in-house who is alone or in a small department, because she is more likely to have to handle a wide variety of legal issues as a gatekeeper or issue spotter.

The point is wrong, however, where in-house work focuses on a narrow area of law (See my post of Jan. 20, 2006 about CLE not being useful because the in-house attendees are too sophisticated.). Whatever areas of law you face repeatedly, be it export compliance or online privacy concerns or the FDA approval process, you become deeply experienced and knowledgeable about that subject.

Outside, in a law firm, if the firm is small, lawyers and to handle whatever work they can rummage up. They too are generalists to that extent. Only the larger firms have the volume of work in a narrow area of law to support a degree of specialization as lawyers – after several years of focus – home in on a complex area of law

Protiviti obtained survey responses from 150 “CEOs, CFOs and other senior-level executives from among the top 2,000 companies.” As reported in the Wall St. J., June 5, 2007 in a supplement on risk, those respondents ranked the “top ten risks to organizations.” Most were business concerns: competition, customer satisfaction, IT and security, market evolution, financial markets, and technology innovation. Two have a legal gloss to them: brand image and reputation, because of trademark issues, and human resources, because of the prevalence of legal problems such as discrimination and harassment claims.

The remaining three, in the third, seventh and ninth positions respectively, were “regulatory environment,” “legal environment,” and “legal.” Set aside the obvious overlaps, these risks are still straightforwardly in the charge of most law departments.

Of late, many general counsel have had their mug shots taken, which is undesirable notoriety for a law department. Many more law departments, however, garner favorable publicity from a variety of activities.

Here are some examples (See my posts of Sept. 21, 2005 on publicity that benefits vendors; Aug. 21, 2005 on being quoted; May 20, 2005 on having a star lawyer in the limelight; June 30, 2006 with citations to several high-profile law departments; May 3, 2007 and Dec. 12, 2006 about announcing preferred provider firms after a competitive process; May 28, 2007 and June 11, 2007 #1 on law departments in advertisements; Feb. 24, 2007 about publicity rights granted to law firms; May 4, 2007 about Marriott and an article on its pro bono services; and June 10, 2007 about contests and honors for law departments.).

All of this recognition is not necessarily sapid (See my post of May 21, 2007 about executives possibly having distaste for their law departments being in the news.).

A late-blooming flower, honors and awards to law departments have recently sprung up everywhere. Law departments can seek recognition in a growing number of competitions. Evidently, many law departments strive for these recognitions.

InsideCounsel magazine hosts its ten-innovative-law-department awards. Corporate Counsel produces an annual best law department issue. The Minority Corporate Counsel Asssociation honors law departments that promote diversity. The Financial Times sponsors its Innovative Lawyers Report, which this year for the first time will accept in-house submissions. The College of Law Practice Management presents its InnovAction awards. Then there is the Annual Corporate Counsel Work-Life Balance Award sponsored by Constangy Brooks & Smith. The Directors Roundtable organizes “World Recognition of Achievements in Diversity in the Law.” The International Law Office and the Association of Corporate Counsel bestow the Global Counsel Awards.

Next we will see American Idol for General Counsel and reality shows pitting in-house management advocates in survival struggles against each other.

A US government agency, Immigration and Customs Enforcement, requires from employers documents that prove their employees’ eligibility to work in the US. Thousands of companies have been caught employing unauthorized workers, according to InsideCounsel, June 2007 at 40, and the penalties can reach millions of dollars. As part of the compliance process, a Form I-9 is integral to the reporting of eligibility documentation.

Some vendors offer software that helps companies track I-9’s. For example, Form I-9 Compliance offers a package and VisaNow licenses an online service. Wal-Mart wrote its own program to help out. Note that in the earliest days of specialized software law departments often decide to roll their own (See my post of May 23, 2007 about GE’s technology efforts, the disadvantages of customized software, and references cited.).

Wholly apart from the technology, my view is that a law department should not be burdened with the administrative, quasi-legal task of filing papers about the immigration status of its company’s employees (See my post of July 21, 2005 and the article on quasi-legal tasks that it cites.).

In 2005, a company bought Clayton Holdings, a company that trades and manages loans, and promptly merged it with another firm in the same line of business, thereby creating a $200 million combination. At the time, Clayton used a Chicago firm as its outside counsel and had one internal lawyer. By mid-2007, according to the Conn. Law Tribune, April 12, 2007, the legal department of Clayton will have grown to three attorneys, a paralegal and two administrative assistants.

Clayton’s general counsel throughout the period, Steven L. Cohen, believes in a philosophy as to how to allocate legal work: “[T]he optimal model is to do the redundant work in-house and the more high-end work out of house.” Days full of redundant work can hardly excite a legal staff, but Cohen believes that this allocation “allows in-house lawyers to become better integrated with the business by working with other departments.”

Many general counsel would quarrel with this distribution of plum work and plumb dumb work (See my post of Dec. 5, 2005 about the reverse pyramid of inside and outside work.). My further belief is that clients want their employee-lawyer colleagues deeply immersed in “high end” work that is by definition important and strategic.

In the Mich. B.J., Jan. 2007 at 35, Susan Diehl, the general counsel of Holcim (US) Inc., one of the country’s largest cement manufacturers, contributed an article entitled “How to run your in-house legal department like a profit center.” In it she outlines a three-step program that starts with four fundamentals, continues with strategic planning, and culminates in execution. Diehl proudly claims that all the effort and initiatives have paid off for her company handsomely.

“Since 2001, when we began to track the outcomes of our initiatives, the department has contributed over $30 million in EBITDA (earnings before interest, taxes, depreciation, and amortization) and an additional $50 million in cash flow. This outcome required an internal investment of approximately $1 million for the legal department and $4 million for outside legal resources.” As she modestly concludes, her effort “in business terms equates to a solid return on the investment in the department.” Hmmmmm

Neither the article nor the Swiss company’s website suggests how many lawyers are in Diehl’s department, but there are approximately 2400 employees in the US. Given the typical number of lawyers per 1,000 employees (See my posts of April 23, 2007 — about 1.5 in large US companies; Feb. 19, 2007 about a New Zealand figure much higher; June 7, 2006 that criticizes lawyers per 1,000 employees; and Dec. 22, 2005 that refers to 2.55 lawyers per 1,000 US employees.) and the $1 million internal spend – which I presume to be per year and not a total over the years between 2001 and 2005), her lawyers might be approximately four. If the five million total legal expense per year has resulted in $80 million of earnings and cash flow, that means a $20 million something investment reaped gains of four times as much. If true and verifiable, that’s all she needs to show!

Under the promising headline in Inside Counsel, April 2007, “How do you demonstrate that your legal function adds value?,” Luke Baer, general counsel of Robert Bosch Corp., purports to offer four ideas, except that three of them do not apply. More precisely, three activities may deliver value but they do not prove it: to emphasize clarity in legal advice, to “put remote legal outcomes into perspective,” and to manage outside litigation counsel with client involvement don’t prove value added by the law department. Each of those activities has value and may be appreciated by clients, but like all good deeds of in-house lawyers they do not demonstrate value delivered let along quantify the contribution.

The fourth step by the Robert Bosch legal team has some probative worth: a client satisfaction survey. “Every department lawyer is required to list his or her top 20 client contacts, and each of these contacts is surveyed once a year.” My view, expressed in my book, Client Satisfaction for Law Departments, is that you can best prove a law department adds value when its clients say so.

Hildebrandt Headlines, April 6, 2007: “Australian investor and workers’ rights firm Slater & Gordon will become the first law firm in the world to open its ownership to the public. According to a prospectus issued April 2, the offer for 35 million shares at about A$1 each will open on April 11 and close on April 27. Proceeds will be shared with seven vendor shareholders, who will own 48.8% of the firm.” The newsletter cites The Lawyer, April 30, 2007 and Legal Week, April 30, 2007

Once law firms file disclosure statements as publicly-traded entities, law departments will be able to know much more about the firms’ operations, prospects, plans and resources. Not only will those firms have more capital to invest in client-benefiting capabilities but they will have a marketing edge in an industry that is notoriously secretive. Imagine a day when RFPs will shrink drastically and there will be investment industry analysts scrutinizing the law firm sector!