Articles Posted in Structure

A staff function, sometimes pervasively involved with a general counsel for its services and often crucially dependent on legal support, is Human Resources (See my post Jan. 23, 2006: training HR staff about legal issues; and May 10, 2006: most legal departments support HR functions.).

For its part, HR personnel watch out for the legal department’s needs (See my post of ; Nov. 8, 2005: contributions of HR representatives assigned to legal departments; July 27, 2007: analysis of offers extended and accepted; Sept. 16, 2008: internal recruiters; May 3, 2007: resistance to search firms; Aug. 24, 2005: exit interviews; March 3, 2006: job positions at John Deere; Dec. 2, 2007: posted open positions at TimeWarnerCable; and April 26, 2006: Internal Labor Market analysis.).

As a sibling to, HR wields considerable clout within a company (See my post of March 26, 2006: powerful staff functions like HR; and Dec. 7, 2005: HR supports law and law supports HR.), even serving sometimes as an internal benchmark comparator (See my post of April 9, 2005: finance, IT and HR benchmarks; and April 6, 2008: benchmark staff functions against each other.). Every now and then, the top lawyer moves to the HR group (See my post of Sept. 27, 2008 #2: Sears GC becomes head of HR; and Jan. 25, 2007: UPS GC becomes head of HR.).

No posts have defined this term but some posts have commented generally on those who report to the chief legal officer through no intermediate person (See my post of June 7, 2006: number of reports to general counsel; Dec. 9, 2005: direct reports in large law departments; Sept. 27, 2005: 180° evaluations of direct reports; June 24, 2007: attrition rates blamed in part on direct reports; Oct. 10, 2005: competition among direct reports; Feb. 1, 2009: “management team” means the CLO’s direct reports; and Feb. 19, 2008: a descriptive metric for direct reports and other reports.).

Some posts comment on the number of people reporting to specific general counsel (See my post of June 16, 2006: 15 direct reports to general counsel of Honeywell and the notion of 15% of lawyers as direct reports; Jan. 17, 2006: general counsel of McDonald’s and her 3 direct reports, plus marketing, compliance and international reporting to her; Nov. 4, 2007: 10+ reports to general counsel of Raytheon; May 2, 2008: Siemens’s reorganization and the new direct reports; and Feb. 13, 2009: Cadbury-Schweppes and 10+ direct reports.).

In 2005, Ernst & Young obtained surveys from 95 companies, mostly from the Fortune 1000 and highly regulated industries. One question asked on the survey, as laid out in a report in November 2005 at 9, was “Does Compliance overlap with other groups?” Of the four groups listed as having a possible overlap — Legal, Audit, Operational Risk and Business Units, the greatest “actual overlap” of Compliance was with Legal (67%)

About a third of the respondents said that as between Compliance and Legal, they had “Clearly differentiated roles and responsibilities” (31%). As mentioned, “Actual overlap” was chosen by two-thirds of the respondents (67%). Another choice – and, yes, the percentages total more than 100 – was “Perceived overlap” at 17%. Finally, “More clarification of roles and responsibilities needed” garnered 29%. I can’t figure out the percentages, but the fundamental message is clear: the legal and compliance functions have much in common (See my post of June 11, 2008: compliance with 33 references.).

In 2005, Ernst & Young obtained surveys from 95 companies, mostly from the Fortune 1000 and highly regulated industries. To the question, “Where does Compliance report?,” 52 percent of the respondents said to the General Counsel. The November 2005 report, at 5, states that about one quarter as many (12% of the total) answered to Risk Management, nine percent to the CEO, two percent each to Business Units or Regulatory Affairs, and one percent to the General Auditor.

More replied “Other” than any reporting line except to the General Counsel. In that group were the Audit Committee, Ethics and Compliance Committee, and the Chief Risk Officer. (See my post of Jan. 20, 2009: reporting lines of compliance function with 11 references.).

Jack Holleran, a principle at Ernst & Young, succinctly states the responsibilities of a chief compliance officer (CCO). Holleran, writing in Met. Corp. Counsel, Vol. 17, May 2009 at 8, notes that the “chief compliance officer does not own any substantive risk area but rather serves as the architect and steward of the compliance program.”

Since some general counsel shoulder these responsibilities and some CCOs report to general counsel, I have quoted his “five basic questions” a CCO is accountable to answer. Similar questions deserve answers from a general counsel.

“What are the company’s most significant compliance risks?” Substitute “legal” for “compliance” and chief legal officers own the challenge.

Attendees at a session of the SuperConference learned what inside lawyers need to know about the business of the company they support. For all but a few specialist lawyers, deep knowledge of how the business makes money, how accountants and CFOs think about things, and how the industry moves contributes enormously to the career success of a law department’s lawyers (See my post of May 7, 2009: know how your company and industry operates.). Conceding the importance of intimate understanding of one’s business, what changes translate that imperative into the structure of a legal department?

One change would be to assign most of your lawyers as dedicated support to business units (See my post of June 15, 2008; alignment with clients with 16 references.).

Another change would be to choose one lawyer to handle incoming calls from a particular business unit – a single point of contact (SPOC). That translates client familiarity into structure (See my post of Dec. 9, 2008: single points of contact with 6 references.).

Janet Langford Kelly, Susan Sneider and Kelly Fox, “The Relationship Between the Legal Department and the Corporation,” in Successful Partnering Between Inside and Outside Counsel (Robert Haig, Ed.) Vol. 1, Chapter 16 at 16-19. “A tool that works for the general counsel is to imagine that she is designing a new legal department from scratch that meets the needs of the company.”

It is very hard to abstract from the current lawyers and their scopes of responsibility, but this is still a commendable, stimulating exercise (See my post of Jan. 2, 2009: zero-based budgets.). To cover the topic adequately goes far beyond what this single post can attempt. In brief, the thought experiment starts with a ranked listing of core legal needs of the company and then matches staff to those needs (See my post of April 6, 2009: role-sizing.). Much easier said than done.

Let’s tease some thoughts out of unprepossessing facts from an article by Paul Dacier, the general counsel of EMC Corporation, that appears in Met. Corp. Counsel, Vol. 17, April 2009, at 7. He scatters some figures throughout his piece and I have supplemented them as a platform for these observations.

Start and growth of department. EMC was founded in1978, went public in 1986, and surpassed $1 billion in sales in 1994. Dacier joined in 1990, perhaps when revenue was half that billion dollar figure and “there was no legal department at EMC.” That sentence could mean that some lawyers practiced law at EMC, but they were not part of a formal legal department. Or it could mean that what is now a 70-lawyer department grew by 16 percent a year. In any event, the urge for an inside lawyer strikes CEOs at the couple hundred millions of revenue mark and legal teams match the rate of growth of the company thereafter.

Lawyer/employee ratio. With “more than 40,000 employees,” EMC has about two lawyers for every 1,000 employees (See my post of Jan. 27, 2006: in 2005, median of U.S. lawyers per 1,000 US employees is 1.5; Dec. 22, 2005: refers to 2.55 lawyers per 1,000 US employees; Feb. 19, 2007: in New Zealand, median lawyers per 1,000 employees was 6.86; and Dec. 7, 2008 #3: Cargill has 8.5 lawyers per 1,000 employees.). This metric offers little insight (See my post of June 7, 2006: the metric lacks usefulness.) except possibly to compare internal staff groups (See my post of April 6, 2008: benchmark internal staff groups based on staff or spend per 1,000 employees.).

A longitudinal study of 4,160 people who became lawyers in 2000 found that only two years later four percent of them served as in-house counsel. That percentage seems high, since rarely do corporate law departments hire lawyers straight from law schools. However, government law departments and prosecutor’s offices do so more and the four percent may come from those offices.

The ABA J., Vol. 95, March 2009, at 65, and its summary of an American Bar Foundation report informs us that five years later, in 2007, the number for in-house practitioners had jumped to 11 percent. That metric supports my estimate that ten percent of the lawyers practicing in the United States work in-house either in governmental or non-governmental positions (See my post of Sept. 25, 2005: ACCA estimate of 71,000 non-governmental in-house lawyers: Dec. 3, 2006: possible Fortune 500 staff figures; Dec. 11, 2006: ratios in the State of New Jersey; and Dec. 31, 2008: oblique data suggests about 21% in-house.).

It interests me that also that “the number [of lawyers admitted in 2000] working as nonlawyers for corporations increased from 4 percent to almost 8 percent.” That is the first data I have seen on what I have referred to as “hidden lawyers,” those who are admitted to practice but are not part of the law department.

If it makes intuitive sense to keep specialist lawyers (such as those who handle patents, securities, trademarks, major litigation, and antitrust) wherever the most executives are, recent data offers some proof. In the field the lawyers are much more likely to be generalist commercial lawyers than legal mavens.

Empirical support for this conclusion comes from a benchmarking study of Europe, Middle East and Africa (EMEA) law departments that collected data for 2008 from 123 departments. Conducted by Laurence Simons, a major legal recruitment firm, and this author, the report is available for a nominal cost from Laurence Simons. The report contains recommendations for most of the benchmarks for how to alter your law department’s metric. One of the study’s analyses contrasted law departments that had 30 percent or less of their lawyers based in EMEA – presumed to be subsidiaries with headquarters outside of EMEA – and law departments that had more than half their lawyers in EMEA – presumed to be headquartered there.

The result? Accepting these assumptions, subsidiaries had less than half as many lawyers per billion Euros as EMEA-based law departments. The reason is likely that the law departments of companies headquartered outside of EMEA have most of their legal specialists based at headquarters, not in their EMEA subsidiaries.