Articles Posted in Structure

In 2008, the UK had approximately 130,000 lawyers according to an article in Law Bus. Rev., Winter 2009 at 54. By some estimates, the same year the US had somewhat more than a million practicing lawyers. Other estimates suggest that the US has roughly one lawyer in a legal department for every ten lawyers in private practice (See my post of Dec. 3, 2006: worldwide ratio of 3.1 applied to Fortune 500.). That same ratio of 10 percent carried to the UK would mean about 13,000 employed lawyers in corporate practice. Is it just coincidence that the Commerce & Industry group in the UK has 11,000 members, roughly nine percent (9%) of the country’s practicing lawyers?

Across the Channel, The European Lawyer, Issue 92, Jan. 2010 at 21, states that while “there are around 45,600 private practice lawyers working in France, it is estimated that an additional 40,000 lawyers work in-house at legal departments.” That ratio of external counsel outnumbering internal counsel by a mere ten percent differs enormously from the ratio in the United States and the UK.

Thus, in the US and UK about one-tenth of the practicing lawyers are in-house, but in France the ratio is close to even. Perhaps different definitions of lawyers are involved.

The General Counsel Survey 2009 from the Belgium-based consultants, FrahanBlondé, astutely discusses the issues that are top priority for general counsel (at page 12). Of the 10 issues, the third highest priority (after client relations and efficiency) is to “manage organisational complexity.” What that curious phrase means is that “as the organization model of large companies is becoming more complex, globalised, and fast-changing, many of the General Counsel are struggling to work out an effective organizational matrix for the Legal Department” (at 52).

The report presents the many questions that a chief counsel could ask to arrive at an answer, an organizational answer that should last only as long as the structure of the business clients lasts. To learn more about this report, write Antoine Frahan.

HSBC, the global financial powerhouse, has a huge legal department. To manage the 700-plus lawyers in 54 countries, the general counsel (Richard Bennett) set up a “legal executive committee” in 2007. The European Lawyer, Issue 89, Sept. 2009 at 12, refers to this group of senior lawyers who help govern the department. Running such a large and scattered group requires extra effort.

It turns out that this blog has often drawn on HSBC for ideas (See my post of March 17, 2006: decentralized team weakens cost-center complaints — some 650 lawyers worldwide in 41 countries; March 17, 2007: client alignment; April 13, 2008: pilot program with Malaysian branch legal support; July 27, 2008 #3: 50 secondees; April 2, 2009: HSBC’s Japan general counsel and various points; May 10, 2009: a knowledge-sharing venture; and Sept. 21, 2009: offshoring to Malaysia of branch legal support — with 850 lawyers and 1350 legal staff.). I notice that not all the staff metrics seem consistent.

Int’l In-House Counsel J., Vol 2, Summer 2009 at 1299, comments broadly on the advisability in larger legal departments to divide into regions and appoint a top lawyer for each. “It is likely advisable to do so if the business is operating in more than 10 countries.” That is one trip-wire, but I believe that distant time zones and a babble of languages justify regional legal heads more than sheer numbers of countries. Europe can be one region even though it covers far more than 10 countries.

More deeply, I favor an organizational structure based on the client’s structure, so if the client operates around the world through business units, that is the better alignment for the legal department than geographic slices (See my post of Dec. 23, 2005: Royal Dutch Shell’s regional head lawyers; Feb. 15, 2006: Unilever’s regional counsel; March 17, 2006: five regional legal groups at HSBC; May 2, 2008: regional general counsel vs. business unit general counsel; Aug. 5, 2008: various allocations of responsibilities within global law departments; Oct. 24, 2008: Eli Lilly and its early counsel heads in regions; Feb. 13, 2009: Cadbury and its eight regional heads; and April 25, 2009: Schneider Electric and its three regional counsel.).

Sabine Chalmers mentions in her recent column the “some 200 individuals worldwide” in her legal department at Anheuser-Busch InBev. She emphazes “retaining and building local talent” as well as “the even distribution of in-house lawyers throughout the company’s markets – as opposed to a large US or European-based legal team with a smattering of attorneys in other countries – helps minimize risk and bolster business on all sides.” That management belief, expressed in the ACC Docket, Vol. 27, Dec. 2009 at 90-91, is freighted with consequences for the structure of the legal team.

Chalmers may be a bellwether as she probably runs her department ahead of the curve on location. It makes sense that increasingly global legal departments will match where their lawyers are with where their customers and executives are (See my post of Jan. 16, 2009: decentralized law departments physically with 13 references.).

Given the legal tar pits engulfing BofA, you might think that its general counsel would be and has been the right-hand of the CEO. Wrong on both.

Edward O’Keefe, the new general counsel for the bank’s 525 lawyers, reports only to the bank’s chief administrative officer. A sidebar in Corp. Counsel, Vol. 16, Nov. 2009 at 69, quotes an incredulous former law department insider: “That’s like telling your general counsel to report to the head of human resources.”

The former general counsel, Tim Mayopolous – now subject to controversy about his role in the Merrill Lynch fiasco – never reported to the CEO. Instead, at first he was under the CFO and at the end of his tenure under the chief risk officer.

Corp. Counsel, Vol. 16, Nov. 2009 at 15, says that Peter Solmssen, Siemen’s general counsel has also been acting CEO of its U.S. division since September. I find that dual role troubling.

Practically speaking, how can someone do a decent job in the face of such massive responsibilities?

Legally speaking, what troubles me is that we all know the adage about representing yourself and having a fool for a client. More seriously, doesn’t attorney-client privilege run huge risks if one person splits the role of legal counselor and legal counselee? How can anyone make good decisions about budgets and strategies of the legal department? Solmssen is undoubtedly a very capable lawyer, and many general counsel have been promoted to CEO (See my post of May 26, 2007: GCs report to former GC with 10 references.). It is not uncommon for a general counsel to have held a non-legal position at some point (See my post of Aug. 4, 2007: GCs and non-law positions held with 7 references.). But this concurrent straddle bothers my understanding of checks and balances.

Computer Sciences Corporation (CSC) has, according to an article in the Practical Law J., Vol. 1, Nov. 2009 at 71, “over 400 global contracting staff.” Its legal group has around 100 lawyers, which means around 200 total legal staff if normal benchmarks hold. Thus, the contracting arm of CSC outnumbers the legal arm by something like two to one. That is an intriguing metric, one for which I have seen no other examples. There must be some range of ratios between contract professionals and legal professionals, so perhaps a reader or two will send me data from their company?

As a side note, the contracts group of CSC has offshored its project for an integrated, global “obligations management” tool to a company with operations in India.

Several posts point out the vulnerability of general counsel when the CEO leaves (See my post of May 14, 2005: GC vulnerable when CEO is removed; June 20, 2007: most risk to GC when new CEO comes from outside company; and Nov. 7, 2007: GC depends on fortunes of CEO.).

Several items on this blog make different points about the CEO’s right to anoint a general counsel (See my post of May 30, 2005: CEO and choice of external counsel; June 5, 2006: Boards and CEOs commonly designate a GC successor in the event of an emergency; CEO hires GC from outside; March 1, 2007: should Board or CEO select general counsel; Nov. 21, 2008: most CEOs have never hired a GC; April 28, 2009: Board vs CEO in hiring GC; and June 16, 2009: right of Board to replace GC.).

The views CEOs supposedly hold about their legal function appear at times (See my post of Aug. 14, 2005: CEOs think general counsel should spend more time on governance; Oct. 23, 2005: survey of CEO’s views; June 11, 2007: CEOs pick out risks, including legal; May 16, 2007: CEO (Chairman) of Chevron wanted a world-class law department; Feb. 23, 2009: Google’s CEO – hire lots of lawyers; Aug. 15, 2008: to whom is GC most accountable, views of GCs and CEOs; and July 29, 2007: views of retired CEO of Lockheed Martin.).