Articles Posted in Structure

On the heels of my post that argues for a more limited role of a legal department than a recent white paper advocates (See my post of Jan. 29, 2009: extremely broad scope of responsibility asserted for legal departments.), I started thinking about turf wars among a CEO’s direct reports. Internecine struggles will surely break out if a general counsel lays claim to wide swathes of what other C-suiters believe are their domains. If a chief legal officer reaches for all risk management, what will the CFO say if she has internal audit? Or will the head of human resources quietly cede control over personnel policies? If “systems” are in play won’t the CIO fight back? There will be blood outside the boardroom.

The cited post draws on a white paper that sees the legal department as the pinion that turns much of a company: “Within corporations, legal departments are the axis around which all other departments revolve, especially when it comes to regulation.” We may have a heliocentric universe, but lawyers are not the sun of the company.

“Essentially, legal departments must ensure accountability, defensibility and transparency in a company’s processes, systems, protocols, structures, operations and controls.” That prodigious comes from a White Paper on Legal GRC: November 2008 at 4.

I disagree. It is not the responsibility of a general counsel to manage the entire company, which is what the extraordinarily broad scope amounts to (See my post of Aug. 5, 2005: “pre-law” groups; July 19, 2007: GC’s role too expansive; Nov. 9, 2008: legal advice but not operational implementation; June 22, 2008: easy to ascribe responsibility to legal department; and Nov. 22, 2008: “control functions”.).

Aside from the traditional legal services provided commonly by law departments, many more functions could and do fall to the general counsel. I list below 17 of them, in roughly the order that I think are appropriate to be the responsibility of the general counsel. The final group all stands in about the same position: they should not be part of the law department.

A General Counsel Roundtable survey in 2007 collected from one hundred law departments the “non-legal” functions that fall to the general counsel. Compliance ranked third after Corporate Secretary and Corporate Governance (See my post of Jan. 18, 2008: “Corporate Governance”.). Fine, but the percentage of respondents who said that Compliance is within the set of responsibilities of the chief legal officer was a surprisingly high 70.6 percent.

Posts on this blog have described other surveys’ results on the frequency of compliance reporting to the legal functions, and they haven’t come up with such a high percentage (See my post of Nov. 1, 2005: one-third to general counsel; June 11, 2008: 20% of “top compliance executive” report to the general counsel; and Oct. 21, 2005: where should compliance report if not to law.).

Other posts comment on compliance-law reporting (See my post of May 20, 2005: compliance and law together; July 31, 2005: compliance and law within same group; and Dec. 22, 2005: law department relationship to ethics and compliance heads.).

A recent survey by the General Counsel Roundtable collected from one hundred law departments the “non-legal” functions that fall within their general counsel’s set of responsibilities. The corporate secretary function, for example, came first, with almost 90 percent of the general counsel having that role (See my post of Dec. 12, 2007: corporate secretary with 13 references; and Aug. 12, 2008: corporate secretary with 21 references.).

Next in frequency, 80 percent of the respondents said their top lawyer leads “Corporate Governance.” I have not thought of that as a distinct responsibility, such as with a senior lawyer assigned as the Corporate Governance officer and the like (See my post of Aug. 17, 2008: corporate governance with 18 references.).

One of the contributors to Yale Law School’s Career Development Office employment guide for law students is a senior lawyer at Medtronic. In his bio he writes: “In 1990, after British company Grand Metropolitan PLC acquired Pillsbury, it cut the management staff including the legal department roughly in half.” Other mergers have unsheathed similar bloodbaths (See my post of Nov. 20, 2005: Reuters legal team slashed by 20 percent; Sept.13, 2005: layoffs after Honeywell-AlliedSignal, and Oracle’s merger with PeopleSoft let go “almost all of 50 lawyers” while El Paso-Coastal was less than a third; July 28, 2008: Linde-BOC merger reduced lawyer count by 40%; Aug. 4, 2008: Sprint-Nextel merger resulted in 30% reduction in legal staff; and Dec. 9, 2008: Akzo Nobel-Imperial Chemicals merger caused 25% reduction.

Other posts address cognate issues (See my post of April 14, 2005: morale boosters after layoffs; May 5, 2008: layoff repercussions; Feb. 19, 2007: BellSouth/AT&T and GC left; and Sept. 13, 2005: GC survival after a merger.).

Data of close to 100 law departments, from predominantly US companies, show an interesting pattern. The pattern involves the percentage of lawyers located away from corporate headquarters. Approximately one third of the companies had all their lawyers clustered at headquarters. Approximately one third (actually 42%) based one-third to two-thirds of their lawyers away from headquarters. And approximately one-third (24%) located two-thirds or more of their lawyers geographically away from headquarters (See my post of Sept. 16, 2008: foreign locations of in-house counsel with 11 references.).

Hence, from this sizeable sample, roughly one-third of the law departments fall into each geographic-dispersal band (See my post of June 7, 2006: dueling best practices about lawyers contiguous with clients; May 1, 2005: percentage of lawyers at “headquarters” and legal spend; Nov. 25, 2005: 63% of counsel in one location per study of large law departments; Jan. 18, 2007: “decentralized” and geographic meaning; Nov. 13, 2006: co-location of Carillon lawyers with business unit clients; Sept. 19, 2008: percentages of lawyers at home office of global departments; July 31, 2005: example of co-location at GE; May 5, 2006: Convergys and its three lawyer locations; Sept. 19, 2008: Bombardier’s structure; Dec. 7, 2008 #3: Cargill’s geographic reach; Oct. 3, 2008: Gucci’s spread of lawyers; and June 20, 2008: GE’s dispersed lawyers in Asia.).

Research suggests that diaspora departments may be more efficient (See my post of Jan. 9, 2008: financial performance and geographic spread of talent.).

If a law department staffs a lawyer in a foreign country, that lawyer probably concentrates first on the support of the business unit that provides an office (See my post of Jan. 11, 2009: Microsoft’s generalist policy.). That being likely, it is also likely that the business unit provides secretarial and support assistance to the lawyer. The law department budget might not have to absorb the cost of that support (See my post of Jan. 14, 2009: no appreciable increase in overhead with international offices.).

At first blush it might seem that a law department with several international locations would incur materially higher overhead costs. Conversely, a geographically centralized law department, with nearly all of its lawyers in one location, might enjoy what we can call economies of co-location.

That first blush might turn to red-faced embarrassment, because international offices of in-house counsel always nestle in existing corporate offices. Unlike a law firm, which may have to create infrastructure for each branch office – rent, parking, security, technology, cleaning – the law department lawyer is simply one more person in the complex and overhead barely registers.

Travel costs might rise for a department because of trips from and to headquarters, but more travel costs are probably saved by having a lawyer much closer.

In the simplest meaning of the term “to report to someone,” the supervisor whom you report to is the one who can hire you, fire you, decide what your pay is, and decide on promotions. The sound byte is hire, fire, pay and promote.

Another aspect of a reporting relationship ought to be mentioned. The person you report to is also a person whom you should communicate with its something significant happens. Third, one’s supervisor typically assigns some amount of the workload.

I have previously collected posts on decentralized reporting of lawyers (See my post of Aug. 5, 2008: decentralized reporting with 7 references.).

“Unlike in law firms, where the reporting lines are obvious to everyone, there is ambiguity in corporate reporting structures, and they usually do not work in reality as they appear on paper.” Not so, say I. Official reporting lines are always clear in law departments, contrary to this assertion in the ACC Docket, Vol. 30, Nov. 2008 at 53.

What is often murky, however, is the plethora of people that an in-house attorney must attend to and satisfy. Who asks you for help and whose work has priority fluctuates all the time, but that is not a reporting relationship. In my terminology, a reporting relationship means someone who determines your career, sets your compensation, expects your prompt updates and communication when appropriate, and governs your workload (See my post of Jan. 12, 2009: a definition of reporting with 13 references.).