Articles Posted in Structure

In two recent posts I discuss a conclusion drawn from a recent conference about globalization and its effects on law departments (See my posts of July 13, 2008 and July 27, 2008: is globalization driving the agendas of law departments.).

The press release analyzed in the two posts notes that “84% of the counsel viewed their companies as very global.” Is “global” defined by some minimum percentage of revenue that comes from outside the country with the largest footprint (the “home country”)? Is it determined by the percentage of the workforce that is not a citizen of the home country, or is it the number of countries in which the company does business? Are you a global company if you aspire to buy or sell outside your home country? (See my post of Feb. 12, 2006: the terms international, transnational, and multi-national.).

“It’s best not to position compliance and ethics people in the law department, says Joseph E. Murphy, counsel at Compliance Systems Legal Group and author of Building a Career in Compliance and Ethics (Society of Corporate Compliance and Ethics, 2007).” I have felt that one reason for this separation is that compliance professionals feel like they are second-class citizens around lawyers (See my post of March 26, 2005: second-class citizens; May 20, 2005:merging compliance and law under the GC; July 31, 2005: law and compliance housed together; Sept. 27, 2005 #4: Merrill merges the functions; April 15, 2007: compliance and its reporting lines; and Dec. 2, 2007: why it is best to separate the two functions.).

Following this quote in GC Mid-Atlantic, March 2008 at 13, Murphy recommends that law departments “hire non-lawyers to implement and run the compliance department; have a manager who is not acting in an attorney role (although the employee may or may not have a law degree) to oversee ethics and compliance, and also have one in-house counsel to oversee the legal angle.” Much of compliance is execution, not interpretation of laws and regulations, so compliance is ripe for non-legal management.

“Over the past few decades, Fortune 500 corporations have increasingly opted to self-insure, with retentions of at least $3 to $5 million per occurrence and often $25 million or more. They look to insurance companies only for coverage of catastrophic events. The insurance industry is not seen as offering cost-effective first dollar or low-retention coverage. Since they are insuring themselves, Fortune 500 corporations have had to become their own claims managers, expanding their law departments to manage the risk.” (emphasis added) Met. Corp. Counsel, Vol. 16, May 2008 at 47, blares out this staggering claim by the President of eLawForum.

It is not common for the claims function to reside in the legal department (See my posts of April 23, 2006: claims-to-litigation metrics; and March 13, 2008: Council on Ethical Billing.). Nor has there been any recent noticeable growth recently in law department staffing. Is the emphasized statement true? Perhaps “claims” should be read as lawsuits. Even with that reading, it is not true that law departments previously abdicated litigation management to insurance companies.

There, I’ve said it. Plain as day.

Perhaps that is why the blog has been almost barren of references to the function (See my posts of Oct. 27, 2005: whether workers comp claims were in certain benchmark reports; April 23, 2006: metrics on claims that result in litigation; Jan. 25, 2006: whether law departments count workers comp in their reported litigation.)

Although the function can be important and costly, it is rarely part of the law department’s scope of responsibilities (See my posts of May 19, 2006: #4: huge spending by Los Angeles; and April 6, 2007: McDonald’s transformation of its workers’ compensation program.). Some companies even turn to external advisors for this specialized field, one which is mostly administrative and procedural with little need for legal interpretation or dispute resolution (See my post of April 4, 2006 about the specialist company, AHC, Inc. that has resident experts.).

An article in ACC Docket, Vol. 30, June 2008 at 85, discusses General Electric’s Asia-Pacific legal group. It has about 140 lawyers located in 11 countries as well as Hong Kong and Taiwan. In only three locations do more than 10 lawyers sit in the same building complex “and even in these locations they are often divided into smaller groups in order to be closer to their clients.” Proximity to clients is very important.

The far-flung group uses software called Sametime (See my post of June 4, 2008: three technologies of IBM.). It displays the names of all of the company’s Asia-Pacific lawyers on the right-hand side of each person’s computer screen, showing the lawyers in green if they are at their desk and available to talk. How does it know that the lawyers are present and not on the phone?

The tool also allows instant messaging, which is frequently used by the far-flung lawyer group.

ACC Docket, Vol. 30, June 2008 at 44, explains how the law department of Starbucks Coffee Company uses paralegals “to perform a significant volume of real estate and intellectual property work.” The company’s global legal department is comprised of approximately 150 “partners,” which is the term the company uses for its legal employees.

Interestingly, about one third of the partners are attorneys, while paralegals and other staff members account for about two thirds. The customary ratio is one for one (See my posts of March 26, 2006: EMC and its ratio of one-to-one; May 10, 2006: the US Department of State and its 160 lawyers and 140 support staff; Jan. 25, 2007: GM with its 107 attorneys and 109 support staff; and Dec. 23, 2005 prosecuting attorney’s offices.).

To be sure, some law departments tilt on the side that Starbucks does (See my post of Nov. 28, 2007: Cummins and CISCO.). Where there is a flow of similar legal work, such as the real property needs of Starbucks and its trademark portfolio, it makes complete sense to move toward more support staff than lawyers.

Compliance Week conducted a survey that InsideCounsel, June 2008 at 14, draws on for some metrics. Of the companies that responded, a third (31.7%) had a position called “Chief Compliance Officer.”

As to where the “top compliance executive” reports, about a third (34.9%) report to the CEO and one out of five (20.8%) report to the general counsel. A tiny minority (2.5%) reports to the Board of Directors (See my posts of May 3, 2006: law department as the “independent beacon of ethics and compliance”; and Sept. 27, 2005 #4: Merrill Lynch had 280 lawyers and 235 “compliance executives” worldwide.).

Many posts on this blog describe reporting lines of compliance functions (See my posts of Nov. 1, 2005: one-third to general counsel; May 20, 2005 and July 31, 2005: compliance and law within same group; Oct. 21, 2005: where should compliance report if not to law; Jan. 16, 2006: in health care companies; Dec. 22, 2005: law department relationship to ethics and compliance heads; Feb. 7, 2006: in financial institutions; Sept. 17, 2005 #2: at Citigroup, compliance reports to chief risk officer; Nov. 16, 2005 #1: at Raytheon, Chief Ethics Officer and the Chief Compliance Officer report to GC; Jan. 17, 2006 #1: to GC at McDonalds.). When compliance professionals and lawyers report and work in the same group, there are potential negative interactions between the two groups (See my posts of Feb. 12, 2006 and March 26, 2005: avoiding a two-tier system of employees.).

Every now and then we learn of a law department that has expanded rapidly (See my posts of Feb. 19, 2006 #4: Home Depot; Nov. 19, 2005: Google: and Sept. 22, 2005: Wal-Mart.). In the U.S., the law department of Caterpillar has doubled in size, to 179 lawyers, since 2002, according to Corp. Counsel, Vol. 15, June 2008 at 103.

Outside the U.S., here is a more exotic example. According to Corp. Counsel, Vol. 15, June 2008 at 64, TAQA, a Dubai-based energy investment company, has been a gusher of in-house growth. As the company swelled in the past three years to $22 billion of assets, its internal legal group grew to nine attorneys. The company recruited its first general counsel from Allen & Overy, no less.

On a separate note, it pleases me to add another country to my collection of non-US law departments that have appeared in this blog (See my post of June 10, 2008: Brazilian department; Dec. 11, 2007: Russian department; and Sept. 30, 2006: 11 other countries.).

I am aware of at least six terms for legal specialties within law departments (See my post of May 5, 2008: 30 references to specialists.).

(1) Some general counsel refer to core competencies (See my posts of June 4, 2007: nine references to core competencies; and Aug. 5, 2007: clash between core competency and full service.). They mean, I think, the legal knowledge and skills most essential to the company’s profitability.

(2) Others use the phrase Centers of Excellence for clusters of very experienced lawyers (See my post of Feb. 4, 2008: Centers of Excellence.).