Articles Posted in Structure

Sistema is Russia’s largest private-sector consumer services company, with 2006 turnover of $10.9 billion. According to Legal Business, Iss. 179, Nov. 2007 at 31, the corporate center has 15 lawyers and there are squadrons of lawyers in the company’s many subsidiaries – “The total number of lawyers in the group runs well into three digits.” If we guess that 120 lawyers are embedded in the subsidiaries, then the lawyers-per-billion-dollars-of-revenue ratio of Sistema is a bit higher than 10.

From the article, I glean the following other facts about management features of this large Russian legal department. It has decentralized reporting for most of its lawyers; it hired a partner from Latham & Watkins recently as group general counsel; the new GC is a woman; the legal department has an “informal panel of preferred advisors”; it identifies as its preferred firms four US and one British megafirm; one of its primary firms had a relationship partner (now the GC); and the legal team feels pressured by the fast pace of its business clients.

From this, my first post about a Russian legal department, I conclude yet again that the issues general counsel face as managers are ubiquitous around the globe (See my post of Sept. 3, 2006 with references to law departments in eleven countries.).

The largest legal departments in the world represent government agencies (See my post of Nov. 6, 2005.). For example, the US Department of Homeland Security has 1,500 attorneys according to InsideCounsel, May 2007 at 96. The State of Massachusetts boasts something like 650 lawyers (See my post of Aug. 2, 2006.).

On the commercial side, quite a few companies have in-house teams that number more than 500 lawyers. There has probably been a compilation of the global law departments with the most lawyers but this blog has identified a few (See my posts of May 23, 2007 – General Electric and its 1,225 lawyers; Sept. 10, 2005– Citigroup and more than 1,000 lawyers; May 24, 2007 and Corp. Counsel, Vol. 14, Dec. 2007 at 51 – Allstate and its 700 lawyers and 1,300 total employees; May 27, 2007 – Royal Dutch Shell and 700 lawyers; Dec. 14, 2005 – Shell with 650 lawyers; and Feb. 15, 2006– Unilever with 500.).

Charles James, the general counsel of Chevron, argues that the compliance organization of a company should be kept distinct from its legal function. Writing in InsideCounsel, Oct. 2007, at 8, James puts forward three reasons for the separation he prefers and that exists at Chevron.

(1) The law department would need enough resources. A corporate compliance function must carry out ongoing monitoring, testing, and auditing programs. This takes people, money, and infrastructure and should not be placed on a law department unless its resources are sufficient.

(2) The law department’s lawyers will be forced into two clashing roles. As James writes “will clients who view lawyers as the internal police actively seek out legal advice? And will lawyers in a dual role change the nature of the legal advice they render?”

According to Counsel to Counsel, Jan. 2007 at 6, the law department of Cummins, a $9.9 billion manufacturer of engines, has 21 lawyers but only 9 non-lawyers. Another example of a staffing ratio tilted heavily toward lawyers is Cisco Systems. According to 2005 material from the GC Roundtable, reproduced by Business Integrity at 2, Cisco has 75 in-house attorneys and 37 non-lawyers.

The traditional ratio of one lawyer for ever one non-lawyer are common (See my posts of March 26, 2006 on EMC and the ratio of one-to-one; May 10, 2006 on 160 lawyers and 140 support at the Dept of State; Jan. 25, 2007 on GM with its 107 attorneys and 109 support staff; Dec. 23, 2005 on the ratio of one-to-one in prosecuting attorney’s offices.)

My sense is that the proportion of administrative assistants will decline (See my posts of May 17, 2006 about the proliferation and inflation of titles for this position; and April 23, 2006 about the change in ratios of secretaries to lawyers toward 4 to 1.). A major reason for that decline, and eventual virtual extinction, will be better dictation and voice recognition resources (See my posts of Nov. 20, 2006 on dictation; and Feb. 4, 2007 and Feb. 6, 2007 on word-to-text capabilities.) and the ubiquity of lawyers who can type rapidly and search for documents quickly. Sometimes lawyers who office in the midst of their clients share secretarial support with non-lawyers and those support staff do not show up on the law department headcount.

This blog has cited several deputy general counsel (See my posts of Nov. 9, 2005 – Miriam Rivera then of Google; Jan. 4, 2006 – Nancy Anderson of Microsoft; Aug. 14, 2006 – the former chief auditor of Mellon Bank; March 6, 2007 – Mark Morril of Viacom; and April 13, 2007 – William Mostyn of Bank of America.). I also read recently that Lucy Fato has become the sole deputy general counsel of Marsh McLennan.

Some deputy general counsel, whose role is significantly administrative, run the law department while the general counsel focuses on the strategic relationship with the CEO and the Board. In a large department, a deputy GC can have immense responsibilities (See my post of April 15, 2006 in support of this point.).

Another category of deputy general counsel are the heirs apparent to the general counsel. They are the second in command. In structures that include a deputy general counsel, the general counsel often is responsible for more than the legal department, or succession planning is in progress.

An executive of Robert Half Legal, Charles Volkert III, opines in Met. Corp. Counsel, Vol. 15, Nov. 2007 at 43, how global law departments can best be managed. I have some comments on his assertion that “The most successful legal departments have adopted the following [five] best practices:”

1. “Establish clear reporting lines.” Obliquely Volkert seems to advocate that all lawyers report to the general counsel, but only because he writes “dotted-line reporting for local attorneys is helpful.” Mostly he writes about communications methods between general counsel and the troops. He does not address important structural practices such as regional reports or the location of lawyers.

2. “Create specialist hubs.” In a far-flung law department, I doubt that a “specialist” could advise on antitrust or labor laws of local countries. No one can know the laws well of more than a country or two. If a law department had global specialty lawyers, they would manage outside counsel mostly. Meanwhile, Volkert doesn’t address the divide between commercial lawyers and specialist lawyers.

Corporate Board Magazine and FTI Consulting collaborated on a survey last year that obtained responses from 235 US general counsel. One set of questions had to do with “enterprise risk ” (ERM) (See my posts of Nov. 15, 2005 and references cited which grapple with definitions of “legal risk”; Jan. 10, 2006 on ERM [defined as legal, financial, hazard, operating and strategic, but not reputational]; Jan. 4, 2006 on intelligent agents sleuthing to help with ERM [referring to litigation, compliance, assets]; Dec. 22, 2006 on a law firm’s enterprise risk practice group.).

According to the press release, “48% of general counsel spent more time on ERM in 2006 than in previous years.” The respondents as a whole – many were members of boards of directors – identified corporate governance and M&A risk as the two areas in most need of ERM assessment. Some 35 percent of the general counsel picked out governance changes while slightly less picked mergers and acquisitions as the riskiest.

My point is twofold: what are the confines of “enterprise risk” and why should the general counsel be concerned, other than as any other senior executive, with non-legal risks? If risks for a company are what might go wrong in the assets, compliance, financial, hazard, legal, operating, reputation and strategic arenas, every aspect of a company presents a risk. How thinly should general counsel spread themselves?

Michael Cunningham is the general counsel of Red Hat, the world’s leading open-source and Linux software provider. A profile of Cunningham, in Nat. L.J., Vol. 29, April 9, 2007 at 8, describes an eclectic mix of functions within his department:

“a two-person corporate affairs group that oversees government relations, a commercial contracting function that keeps 10 people busy, a core legal team of 10 that is allocated roughly half for corporate matters and half for IP, and an equity compensation team.”

Red Hat probably enters into a raft of licensing agreements, so the “commercial contracting function” may consist of paralegals and staff who process such agreements (See my post of May 6, 2006 on contract administration and references cited.). The “core legal team” may include around five lawyers, given the usual ratio of one lawyer for each non-lawyer and that such a complement of lawyers would put Red Hat at about 15 lawyers per billion dollars of revenue. The odd-ball is the “equity compensation team.” But I suspect that its role is to track options and restricted stock (See my posts of Sept.17 and Oct. 18, 2006 on the law department’s role in the task of tracking option grants and exercises.).

Freddie Mac has in its Legal Division 175 people, which is comprised of approximately 95 lawyers. According to an interview of Robert Bostrom, its General Counsel, in Met. Corp. Counsel, Vol. 15, Oct. 2007 at 21, that legal group is organized “around areas of expertise rather than functional lines or business units.” (See my post of Dec. 14, 2005 on “functional” reporting; March 28, 2006 on PPG’s former functional reporting by legal specialty; Dec. 23, 2005 on Royal Dutch Shell’s three levels of assignments; and March 1, 2006 with my stab at a definition of “functional.”).

Maybe “areas of expertise” has common ground with “core competencies” (See my post of June 4, 2007 for nine references to such competencies.). Even without know precisely what Bostrom means by “areas of expertise,” I have reservations about them as an organizing, structural foundation.

A profile of Raytheon’s General Counsel, Jay Stephens, gives some insight into reporting structure of that 75-lawyer department (Nat. L.J., Vol. 30, Sept. 17, 2007 at 8). The profile explains that Stephens has reporting to him seven business unit “legal leaders” and “several assistant general counsel who preside over areas such as transactions, litigation, labor, business services and intellectual property.” His direct reports could number from 10 to 12. From a separate source I know that the department’s administrator does not report directly to Stephens (See my posts of Dec. 31, 2006 on Raytheon’s legal department; and Nov. 16, 2005 on two non-legal reports to Stephens.).

I think there are no useful rules of thumb about the number of direct reports to a general counsel (See my posts of May 1, 2005 on a proposal to quantify leverage and reports; and May 31, 2005 on some benchmarks proposed for municipal law departments.). The tally depends on the experience of that person and of the lawyers who might report up, the size of the law department, the other responsibilities of the general counsel, personnel situations (egos, for example), corporate tradition, and HR policies (See my posts of June 16, 2006 on 15 direct reports to Peter Kriendler and the notion of 15% of lawyers as direct reports; but see my post of Jan. 17, 2006 about Gloria Santona and her 3 direct reports, plus she has marketing, compliance and international reporting to her.).