Articles Posted in Structure

A good example of a complex law department is Raytheon. Its general counsel, Jay Stephens, spoke at a Director’s Roundtable, as reported in a special supplement to the Nat’l Law J., Feb. 2007 at 3, 12. First, it is not Raytheon’s “law department” but the Office of General Counsel. With about 125 professionals in total, 75 or so of them are lawyers. There’s also an ethics organization in the office with an ethics person in each of the businesses and a vice president of ethics. The office also is home to a real estate group of lawyers, an insurance group. and an environmental health and safety group.

As to the structure of lawyers within the company, there are seven operating companies and the Washington international operation, so reporting to Stephens are the general counsel of each of those functions. At headquarters there are several assistant general counsels that handle shared service areas — transactions, litigation, labor, business services, corporate securities, and intellectual property – who may or may not report to Stephens. On the international side, Raytheon has inside counsel in the UK and is putting legal counsel into Australia. All the business counsels have a solid-line reporting to the general counsel.

HSBC, the globe-straddling financial powerhouse, has some 650 lawyers worldwide. According to a profile of Richard Bennett, HSBC’s general counsel, in Legal Week, Vol. 9, Mar 1, 2007 at 11, in half the 82 countries where HSBC has branches there is a domestic legal department. The senior lawyer of each of those country legal departments reports to a top business executive of the country and “everyone has relative autonomy.” The senior national lawyer also reports to the “legal boss” for one of five regions in the world.

In the United Kingdom the team of 30 lawyers looks after the corporate, investment banking, and markets sides of the business. Those lawyers were recently realigned into three teams, one to support each area. Bennett adds, curiously, “previously, as one legal department we were seen by the business as a cost center over which they had no control. Now they can decide how much they want to spend on in-house legal resources.” The last sentence quoted is confusing. It does not necessarily follow that when lawyers in a law department are assigned to support a specific unit, the unit’s head can then decide how much legal service are needed and worth spending for.

Although I generally favor law departments that assign a lead lawyer for each significant business unit (sometimes called a single point of contact), such an alignment is not without problems (See my posts of Oct. 14, 2006 on SPOCs – single points of contact; and March 23, 2006 on SPOCs at PPG Industries.).

The amounts and type of work required by different business units may result in work imbalances. While one person or group is extremely busy, another may languish. The work for some business units may be deemed more interesting or attractive to lawyers so there is perception of unequal quality of work. Everyone wants to support the satellite division, none the roto-rooter.

A third drawback could be that a department, especially a smaller one, simply doesn’t have enough lawyers who fit the mold that is needed for the lead-lawyer position. Further, the single-point-of-contact arrangement may lead to delay or duplication of effort when the lead lawyer must collect and diagnose the issue, then reach out to a specialist lawyer. The solution to that problem usually comes down to direct calls from clients once they know whom to call. Finally, many lawyers enjoy being generalists, and don’t want to be slotted into a role where they have to give up some kinds of representation.

The general counsel of EMC Corp., Paul Dacier, interviewed for InsideCounsel, Feb. 2007 at 69, responded to a question regarding why the corporate secretary of EMC is an outside lawyer. Dacier explain that “we wanted someone that could give the board a different perspective.” The function was structured that way when Dacier joined the company in 1989 – when the company had one patent lawyer and no other lawyers on staff. Its legal complement now numbers 70 lawyers.

I do not understand the unusual outsourcing of the corporate secretary function, and tradition is not a good rationale. Perhaps the functions of the outside lawyer are more circumscribed than those of a typical in-house corporate secretary. Otherwise, to track subsidiaries, prepare board books, deal with corporate housekeeping and governance like minutes and consents, stroke directors, and handle other corporate-secretary functions is better suited for in-house lawyers and staff.

The Bus. Lawyer, Vol. 62, Nov. 2006 at 1, contains a 36 page article entitled “The Tensions, Stresses, and Professional Responsibilities of the Lawyer for the Corporation,” by E. Norman Veasey and Christine T. Di Guglielmo. It describes eight different roles of general counsel and heavily footnotes previous articles that have discussed the roles. A solid piece of scholarship, one which pulls together much of the academic writing on the in-house lawyers, and therein lies the reason for some of my lingering doubts.

Nowhere does this article refer in any significant way to metrics or benchmarks. For example, no mention is made of the ample survey data on the reporting lines of general counsel. My second criticism is the absence of quotes from actual general counsel; nearly all of the material appears to be drawn from secondary sources written by law school professors. The article has the feel of a scholastic, prescriptive view more than a numbers-and-reality based view of general counsel.

Forgive the bad pun, but there is a new meaning to “IP replacement”: “Historically, the general counsel has handled IP, but that’s an antiquated model,” says an IP lawyer quoted in IP Law&Bus., Jan. 2007 at 16. The arrival of the IP “czars” – at companies such as Hewlett-Packard (Damon Matteo), General Electric (Q. Todd Dickinson), Boeing, Microsoft and Yahoo! (Joseph Siino)– asserts a broader perspective on IP management than the narrower view legal departments hold. IP assets are a multidimensional issue, influencing fundamental business practices and procedures, marketing strategy, legal policies and practices, and igniting heated political agendas. Writ so large, the IP message shouldn’t be written by mere lawyers.

Many posts on this blog concern the scope of a general counsel’s responsibilities, but until now I had thought IP legal protection was sacrosanct. The article, however, introduces a broader view on the “strange beast” of enterprise-wide IP, and puts on the table for discussion whether it should report to legal, R&D, a chief technology officer (CTO), CEO or COO.

The whole domain of this handful of responsibilities remains very much in flux. An in Corp. Secretary, Jan. 2006 at 12, provides data from a large-scale survey and some thoughtful commentary on the turbulent scene. For example, at Edwards Life Sciences (Irvine, CA) the company’s general counsel also holds the title of “corporate responsibility officer.” In that role, says the lawyer, Jay Wertheim, “the corporate responsibility officer has primary responsibility for the business ethics of the company” (at 16).

Nor are reporting lines of these various positions established. The survey reported in the article found that 24 percent of the respondents said the chief compliance and governance officers report to the CEO, followed by 14 percent report to the general counsel (See my post of Sept. 10, 2005 with some data on reporting lines of governance officers and Nov. 25, 2005 on reporting lines of chief compliance officers.). A slightly lower percentage reports into the audit committee of the board of directors. The tussle for oversight continues.

A recent large-scale survey discovered that 39 percent of the respondent companies have split the rules of general counsel and corporate secretary. The other 59 percent (2% did not answer), reported that the same person holds both positions. For instance, the General Counsel of Toro Company, Lawrence McIntyre, holds both roles and is also the chief compliance officer. This data and interpretation comes from Corp. Secretary, Jan. 2006 at 14.

There appears to be little consistency among companies of similar size or industry as to whether the roles are split or rolled up. One person suggested that if a company originally had a corporate secretary and then started a law department, the roles are more commonly split. Another suggested that if the general counsel comes to that position with a corporate background, as compared to say a litigation or intellectual-property background, the general counsel is amenable to or insists on the combined role.

Corp. Secretary, Jan. 2006 at 12 reports on survey data from nearly 400 corporate secretaries, general counsel and other governance professionals, many of whom belong to the Society of Corporate Secretaries and Governance Professionals (until recently the American Society of Corporate Secretaries). Of the respondents, 16 percent said that the company has a chief governance officer. A bit more than half of the companies have a designated chief compliance officer.

The article quotes John Coburn, III, secretary and senior governance counsel at Nike, who explains that Nike created his title and position of “senior governance counsel” about a year before: “We created it to recognize the governance and corporate secretary functions were really different roles, and that the governance position has evolved.” Coburn is also in charge of corporate compliance and has a staff of four paralegals to help him discharge his responsibilities.

Cummins, a $9.9 billion manufacturer of engines, has 21 in-house lawyers as well as 9 paralegals and administrative personnel located in five countries. As well, the internal legal group collaborates very closely with Foley & Lardner. According to Counsel to Counsel, Jan. 2007 at 4-6, Foley & Lardner handles Cummins’ warranty litigation as well as its intellectual property issues. The firm has done so for many years and is closely connected.

At two lawyers per billion dollars of revenue, Cummins is certainly at the low end on that metric (See my post of Jan. 18, 2007 on lawyers per billion of revenue across industries.). To what degree is the partnering relationship the reason why the inside lawyers are so low? One hypothesis is that a very close relationship with a firm, one receiving major payments for much work in an area of law over a period of years, stunts the growth of the law department in that area.