Articles Posted in Structure

At the start of a piece in ACC Docket, April 2007 at 96, Phil Crowley, a senior lawyer with Johnson & Johnson, mentions that “our law department has grown from 40 lawyers in one office location to over 240 lawyers in more than 35 office locations around the world.” Since a large chunk of the J&J lawyers are located at the headquarters in New Jersey, is it plausible that something like 140 of them are in the remaining 34 locations? If so, many lawyers are solo in their location, or only one or two stationed together.

It becomes difficult for a law department to share a culture, feel like one department, operate on common standards – in short, work as a productive team – when its lawyers are as scattered as those of J&J (See my posts of Oct. 19, 2005 on communication tools for virtual law departments, May 14, 2006 on the difference between communication and collaboration; March 23, 2007 on the decline of communication frequency with distance; but see my posts of Dec. 7, 2005 on communication time wasters; and Nov. 30, 2005 on the clamor for more communication; of Sept. 10, 2005 on communities of interest on retreats to bring lawyers together; of Feb. 19, 2006 on decentralized lawyers and a subservience risk; and Jan. 1, 2006 on decentralized reporting at GE.).

James Nortz, the director of compliance for Bausch and Lomb, worries in ACC Docket, April 2007 at 94, whether the nascent field of dedicated ethics and compliance professionals will “persist and grow over the long term” (See my posts of Jan. 17, 2006 on the Ethics Officer Association; and Oct. 25, 2006 on the rebranding of the association to become the Ethics and Compliance Officers Association (ECOA).). His concern arises from the fact that more than 19,000 corporations in the US have taxable income above $8 million yet only somewhat more than 600 have a member of ECOA. He fears that traditional corporate functions will continue to manage legal/ethical risks of companies.

Nortz lists five fundamental questions that compliance/ethics officers are typically asked to answer:

1. What are the most significant legal and ethical risks facing the enterprise?

William Mostyn, Bank of America’s Deputy General Counsel & Corporate Secretary, among his other duties keeps track of some 2,000 subsidiaries. In his spare time, Mostyn is Chairman of the Board of the Society of Corporate Secretaries & Governance Professionals (SCS&GP). In a profile published by Met. Corp. Counsel, Vol. 15, April 2007 at 64, he makes clear to whom he thinks the corporate secretary should report:

“In light of the legal underpinnings of so many corporate governance issues, and of the legal nature of the company’s relations to the investing and general public, I believe that the corporate secretary should report to the general counsel.”

Being a lawyer, however, and current chief of SCS&GP, he has to be politic, and point out that this conclusion depends. “I am aware, however, that a great many report to the CEO or to the board chairman, and there is something to be said about both those reporting lines.”

This snippet of law department history comes from the UVa Patent Foundation website, with emphasis added:

“In 1998, the Patent Foundation of the University of Virginia embarked on a new initiative to develop an in-house patent department. Over the next year, the Patent Foundation hired two in-house patent attorneys, a patent paralegal and a legal secretary. This new patent department, the first of its kind at a university, is responsible for preparing and filing patent applications for UVA inventions, and for monitoring outside counsel’s work on existing applications. The result has been outstanding reduced patent costs, more applications filed, increased inventor satisfaction, and reduced burden on licensing agents with respect to patent issues.”

Times have certainly changed, since now several university law departments boast IP law resources.

CounseltoCounsel, April 2007 at 8, lays out a number of steps the legal department of McDonald’s has taken to improve oversight of workers’ comp claims (See my posts of May 19, 2006 #4 about the huge payments by the City of Los Angeles on workers comp and April 23, 2006 on workers comp metrics). The piece starts with a fact: “In most corporations, workers’ compensation claims are managed by the human resources, insurance or risk management departments.” McDonald’s has thousands of these claims, most of which are “garden variety.” Its lawyers, however, took a different view of the claims process.

Until 2006, a third-party administrator handled McDonald’s’ workers comp claims, until a review by the legal department disclosed that the company was spending “four times as much on [them] as on general liability lawsuits.” As part of the reason for the high costs, 140 law firms were handling the claims under a hodgepodge of selection methods and payment terms.

After the legal department agreed to take over the claims management process, it analyzed spending data and handpicked 40 law firms, generally one per state, and negotiated volume fee discounts. The department also “implemented a new national rate and/or flat fee schedule for each type of claim.” The next step was that the department set fees for specific tasks, like filing an appearance or attending a hearing. Finally, the department now monitors claims more closely and tries harder to get employees back to work more promptly. All of these changes – fewer firms and better economics, detailed schedules and more attention paid – have reaped considerable savings for the self-insured company.

Ben Heineman, in Corp. Counsel, Vol. 14, April 2007 at 88, notes that “As general counsel, I had a strong ‘dotted’ line to lawyers in the field working in the business divisions …”

Why did a general counsel who now writes and speaks so frequently and passionately about all that a business should expect of that position not insist that all practicing lawyers report solid line, directly, to him? Why did he settle for “having a major role in decisions about their cash compensation, equity grants, and promotions”?

How can a general counsel magnify the role and accept accountability for all things legal if all people legal are not under direct control?

Not uncommonly, large law departments grant the title “general counsel” to a senior lawyer who has responsibility for the legal issues of a major subsidiary, division, region, or operating group: General Counsel EMEA, General Counsel, Power Operations, General Counsel North American Enterprise Group. That lawyer serves as the top lawyer for the group, quite often with a large staff reporting up, close involvement with the executives of the group, and immense responsibilities (See my posts of April 16, 2006 on solo GCs’ stress compared to Deputy GCs’ stress.; and of Oct. 14, 2005 on single points of contact.).

Even so, Marc Gary, BellSouth’s former general counsel, makes the point in Corp. Counsel, April 2007 at 19, that a lot of truly general counsel work is not done by such a titular general counsel. “You’re not advising the board of directors or most of the members of senior management. And you’re no longer focused on some of the most interesting legal issues, such as in the securities area, corporate governance with [SOX], and executive compensation.” For these reasons, some general counsel oppose diluting the title of general counsel since the potential anointee has responsibility for much less than the full gamut of legal challenges.

When the general counsel is promoted to become CEO, the successor general counsel usually reports to that executive, a lawyer (See my post of Jan. 27, 2006 regarding promotions of general counsel; Feb. 10, 2006 #1; March 13, 2006 #2; April 10, 2006 #3; Oct. 2, 2006 #3; April 12, 2006 on UK GC ambitions; Oct. 25, 2006 with more examples and references; and March 1, 2007 on Angela Braly’s promotion.).

An example came to light in InsideCounsel, Sept. 2006 at 76. Marschall Smith, who has the distinction of having been general counsel at three companies before taking that post at Brunswick Corp (See my post of Oct. 2, 2006 #2), reports to the former general counsel.

Smith finds all benefits in reporting to someone who understands his job and its pressures and difficulties, and acknowledges none of the possible disadvantages: second-guessing, dueling interpretations, avoidance, or competition.

Knowledge sharing, it turns out, depends crucially on proximity. Research described in Cal. Mgt. Rev., Vol. 49, Winter 2007 at 25-27, which studied interactions between engineers and scientists in terms of the distance of their workstations from each other, found that the separation distance dramatically affects the probability of weekly communication. The conclusion, confirmed in other studies and across several countries, is that “communication probability declines to an asymptotic level within the first 50 meters of separation.”

In other words, the farther lawyers’s officers are from each other, even just a few feet, the less they communicate with each other. Once lawyers are more than about 150 feet apart, their interactions and sharing of knowledge has declined precipitously but falls no more.

Moreover, evidence from studies indicates that “vertical separation always has a more severe effect than an equivalent amount of horizontal separation” (at 33). It’s bad enough to have you lawyers scattered at a distance, but to place them on different floors of a building really dooms their communication (See my post of July 31, 2005 on the general counsel having a remote office.).

It’s unusual for an in-house lawyers not to have a private office, but some law departments have adopted the so-called “open plan” arrangement (See my posts of Feb. 20, 2005 and Nov. 8, 2005 on SEI; and Nov. 19, 2005 and May 7, 2006 on cubicles for lawyers.). Call me conservative, but the new layout of open office spaces for lawyers troubles me.

At last, some backup for my discontent! In Cal. Mgt. Rev., Vol. 49, Winter 2007 at 9, an article on workplace design – in an entire issue devoted to the physical space of offices – there is some objective corroboration. “In a recent longitudinal study conducted to survey employee satisfaction when moving from a traditional office space to an open plan office space, the researchers found out that employee satisfaction decreased over all dependent measures used.” Privacy, prestige, and personalization are just some of the felt benefits of one’s own office; rearrange them and morale moves downward.