Articles Posted in Structure

Since March 2008, when I last assembled posts on legal risk and risk management, I have expounded on both topics a fair amount (See my post of Nov.15, 2005: legal risk with 7 references, see risk management; and March 23, 2008: risk management with 18 references, see legal risk.).

Several posts look at the role of the general counsel in risk mitigation (See my post of June 10, 2008: four reasons why the general counsel is a good choice to help manage risk; June 17, 2008: embedded risk management overseen by a central risk committee on which the general counsel sits; Nov. 22, 2008: control functions, except risk management, should report to the general counsel; Jan. 2, 2009: BAE Systems’ “Dispute Resolution and Risk Management” group; and May 15, 2009: chief compliance officer’s mandate converted to general counsel’s.).

Other posts discuss legal risk more generally (See my post of Feb. 15, 2009: reducing business risk should not be “critical legal issue facing business today”; June 17, 2009: operational and financial risks outrank legal risks; Aug. 12, 2008: most frequently encountered legal risks for European companies; Feb. 7, 2009: Standard & Poor’s to incorporate legal risk assessments into its ratings; Feb. 9, 2008: explain legal risks and considerations to clients; March 1, 2009: cost-effective compliance risk assessment; May 21, 2009: Nestlés legal group formally assesses risks; and Aug. 13, 2009; risk management compared to compliance, internal audit, and legal.).

Laura Schumacher, the general counsel of Abbott Laboratories, heads 162 lawyers and total staff of 328. The ratio of lawyers to staff is almost exactly even (See my post of April 18, 2009: lawyers as percentage of total legal staff and more with one to one; March 26, 2006: EMC ratio of one-to-one; and July 9, 2009: one-to-one ratio is normal.).

Within that group runs a sizeable operations department responsible for purely business functions, such as information technology systems, finance and human resources. The operations group is also responsible for electronic discovery and records management, outside counsel and legal vendor management, intellectual property operations, performance enhancement and measurement initiatives, assisting the litigation groups with management, and administration. Speaking of this group, Schumacher said, “Together, we run the legal division as a business, making sure that we have the necessary infrastructure and financial planning and controls to account for the budget for which we have responsibility.”

In an article by Richard Acello, Nat’l L.J., Aug. 6, 2009, she said the department budget runs to “tens of millions” of dollars.”

Doctors only trust doctors, CPAs only respect CPAs, and lawyers only accept direction from lawyers (maybe). Since administrators (especially non-lawyers) can only go so far to tell lawyers what to do, it is not surprising that a large legal department would appoint a senior lawyer to run the operational sides of the department.

Rio Tinto, the Anglo-Australian mining group, brought in Leah Cooper in May 2007 to serve as the “managing attorney” for the company’s 100 lawyers around the world (See my post of June 4, 2007: 50 lawyers worldwide for Rio Tinto and decentralized reporting; May 4, 2009: 100-year relationship with major firm; and June 18, 2009: describes offshoring arrangement and annual £60 million external legal bill.). Cooper’s responsibilities and decisions are laid out in Legal Strat. Rev., Summer 2009 at 13, and they appear to be broad (See my post of Feb.13, 2008 administrators with 21 references.). Many legal departments of this size might consider a similar position and incumbent lawyer.

Back in the day, companies thought of their international operations on a country-by-country basis and it made sense to have a local lawyer or two in-country report to the general manager of that country.

Times change, as pointed out in E. Leigh Dance, Bright Ideas: Insights from Legal Luminaries Worldwide (Mill City Press 2009) at 91 in a chapter by Paul Smith, a partner at Eversheds. Global companies have reorganized into larger regions of oversight. “We saw that companies were organizing themselves on bigger geographies, such as Europe, Middle East and Africa (EMEA).” That shift at the client level has caused shifts in legal departments in several respects.

Generalizing very broadly, the business shift to larger geographic regions has been followed in legal departments by shifts in at least six management phenomena. We have seen more:

Here is an interesting quote from BNA’s HR Department Benchmarks and Analysis 2008: “HR departments are continuing a past decade trend of taking on more and more responsibilities. The percentage of HR departments taking on new responsibilities minus those giving up existing responsibilities has more than doubled during the past 10 years.”

No study has come to my attention that shows the percentage of chief legal officers who have taken on more responsibilities in recent years. A priori one might assume that to be likely as companies have become larger, more complex, and laden with more functions (think of corporate social responsibility or risk management). Still, an overall increase in responsibilities of top lawyers is an untested hypothesis.

I have defined a large law departments as one that has more than 20 lawyers (See my post of June 27, 2006: large law departments defined; and Aug. 26, 2006: four largest law departments in France.). The topic is, shall I say large, but I scanned my 4,600 posts and gathered those that use the term “large law department.”

To keep this post manageable, I have not included here the many references to large law departments that involve staff numbers, technology or compensation.

As compared to smaller departments, large ones can support more and different kinds of resources (See my post of March 6, 2007: obtain accreditation for CLE; March 12, 2006: maintain librarians; Aug. 27, 2005: dedicate IT staff; Sept. 10, 2005: stock specialist lawyers; May 1, 2006: run internal think tanks; July 25, 2007: explore alternative fee arrangements; March 9, 2009: come up with slush funds for investments; and May 3, 2008: create internal discovery teams.).

The following quote comes from Stephen Mayson, writing in Laura Empson, ed., Managing The Modern Law Firm: New Challenges New Perspectives (Oxford Univ. Press 2007) at 152.

‘Organizational capital is thus distinct from both human capital (which is embedded in individuals) and social capital (which is embedded in the relationships between individuals).”

“Organizational capital can be regarded as relating to either or both of: (a) the method of delivering legal services (such as teams, knowledge management systems and routines), or (b) the context for that delivery (such as reputation and brand, culture, contracts, structure, and strategy).”

At one time decentralized, IBM’s legal department recently centralized as it “’dis-embedded’ its lawyers from its business units and created a single global team.” This description comes from Corp. Counsel, Vol. 16, June 2009 at 75, and reminds me of a comparable decision at Schneider Electric to have all the lawyers report ultimately to the general counsel (See my post of July 15, 2009: centralization at Schneider.).

In 2009, eight assistant general counsel at IBM report to the General Counsel, Robert Weber, along with six senior attorneys. That span of control at the top (14 at least) is about as wide as you will find (See my post of May 29, 2009: direct reports to the general counsel with 12 references.).

The assistant general counsel and the senior lawyers work in a matrix, with duties crossing geographic and business lines. A matrix is inevitable in a large, global department. To cover both regions and lines of business mandates a matrix structure.

From Corp. Counsel, Vol. 16, June 2009 at 66, we learn about the compliance function at The Hartford Financial Services Group. “The law department’s compliance group has a staff of 35 (13 of them lawyers); another 250 compliance officers, only some of them lawyers, are deployed in business compliance units.” Packed into that single sentence are several management points worth unpacking.

a) Compliance at the Hartford relies on the legal department for legal guidance, but does not report to it (See my post of Jan. 20, 2009: reporting lines of compliance function with 11 references.). No reporting line dominates among US companies.

b) The decentralized lawyers deployed throughout the company who do compliance exemplify what I refer to as “hidden lawyers” (See my post of March 9, 2009: one survey estimated the percentage of hidden lawyers at 8 %.).

The Hartford Financial Services Group won Corporate Counsel’s 2009 Best Legal Department award. It has 210 in-house lawyers supporting 2008 revenue of $9.2 billion. Further, “All firms that do a significant amount of [litigation] work for the company are assigned in-house ‘relationship managers.’ Similar to relationship partners at law firms, about 40 of [its] 56 [litigation] lawyers play this role.” These facts come from Corp. Counsel, Vol. 16, June 2009 at 66. My reflections:

a) At more than 21 lawyers for every billion dollars of revenue, Hartford is off the customary charts. By comparison, the same issue states that Exelon’s $18.8 billion in revenue rests on 59 lawyers – 3.1 lawyers per billion and IBM’s $103.6 billion rests on 580 lawyers – 5.6 lawyers per billion.

b) Litigation lawyers account for almost one out of three Hartford lawyers, which seems quite high (See my post of April 11, 2009: distribution of specialty lawyers; Nov. 22, 2007: practice-area metrics for litigators; and Aug. 27, 2005: about one litigation lawyer per ten inside lawyers.).