Articles Posted in Structure

The terms centralized and decentralized are used with two unrelated meanings. To many people who describe law department structure, they refer to the geographic location of lawyers (together physically at headquarters or spread around).

For others, it means the reporting relationships of the lawyers. In the second sense (which I use), a centralized department has nearly every practicing lawyer, no matter where they are physically located, reporting to the general counsel, while a decentralized department has at least some lawyers reporting to the heads of business units.

Confusion follows from people not defining their terms, and from the obvious fact that all the lawyers in some far-flung, multi-location law departments ultimately report in to one lawyer and the equally obvious fact that in a few legal departments there may be many lawyers under one roof who report to different business executives.

A shared-services law department has three hallmarks. The head lawyer reports to an executive who runs the shared-services organization, which typically includes other units such as human resources or accounting. Second, and more important, clients can choose to use the shared-service lawyers or they can turn to outside counsel. This choice, and the market-based competition it engenders, distinguishes the shared-service model.

Last, and following from the second hallmark, shared-service lawyers charge their time to their clients. In one variation, headquarters lawyers do company-wide work such as securities, corporate secretary, major M&A; shared-service lawyers handle services needed from time-to-time by business units while on the payrolls of the units.

A pure shared-service structure for a law department is rarely seen. Senior management of corporations probably feel that if they want to have what amounts to an internal law firm they might as well use external law firms (See my post of Dec. 17, 2006 on the sole inside lawyer of Advo.).

Many businesses have an ethics officer whom employees can call anonymously to report a possible infraction. If employees do not want to call someone from their own company sometimes they can call a law firm that handles such reports. Often ethical complaints are reviewed by a committee on ethics and even by the Board. “Practices vary widely about how ethics violations are reported and responded to. Almost always, however, the general counsel is in the chain of analysis and response,” according to Jay B. Stephen, general counsel of Raytheon, in “The Defense Industry, Raytheon and Building a Compliance Culture,” Met. Corp. Counsel, Aug. 2005.

According to Raytheon’s Stephen, “We have an ethics officer who is sort of a progenitor of all the ethics, values, and cultural pieces but is also responsible for most investigations triggered by the ethics hotline inquiries. We also have a chief compliance officer who looks at the more straightforward legal compliance issues. They both report directly to me.”

A narrow interpretation of “legal” would bypass the general counsel when it comes to responsibility for ethics, compliance, and the farther reaches of risk management (See my posts of Aug. 27, 2005 on the general counsel as “reputational risk protector”; Sept. 4, 2005 #4; and Jan. 13, 2006 and McDonald’s scope.). Raytheon has taken one of the broadest interpretations of legal’s role.

There are probably survey results that limn the distribution of paralegals in law departments by practice area, but I can’t locate one. A clue might be gleaned from an article in Met. Corp. Counsel, Vol. 14, Dec. 2006 at 53. A vice president of Special Counsel, Jodi Nadler, offers some thoughts about paralegals, and lists “practical tasks that paralegals can manage on a day-to-day basis in common practice areas.”

Under litigation, she includes 21 tasks, under corporate 8; for real estate she lists 9 tasks and for intellectual property 5. It would not surprise me if that distribution of tasks suggests accurately the distribution of in-house paralegals by practice area. That is to say, there may be as many litigation paralegals as all others combined and also that corporate and real estate are the next two practice areas most likely to have paralegals.

Setting the side “law” and “legal” in the phrase law or legal department (See my post of May 24, 2005 for the difference between “law department” and “legal department.“), what is the essence of department? Related terms include “function,” “team,” “office,” “group,” and “unit” – all groups of people with a shared goal. But that definition of a group with shared goals applies not just to a department but to an entire company!

The essence of “department” (See my post of June 13, 2006 on words compared to concepts.) is a small unit of a company, recognized to have a specialized purpose, a fair degree of managerial autonomy, a budget, and something akin to professionalism because its senior members share values, an education, and collegial expectations. A department does not manage profit and loss and it plays second fiddle, as a support function, to client-facing business operations.

A good example of a law department that has assigned its lawyers a major responsibility and several minors comes from top of mind, Vol. 5, 2006 by Kirkpatrick & Lockhart Nicholson Graham at 4.

Radio One’s law department has four lawyers, each of whom is a generalist but also a specialist for one or more fields of expertise. One lawyer, for example, provides general business counsel and is also the company-wide resource for SEC and corporate governance issues.

If a law department has not grown large enough to sustain a specialist lawyer, it makes sense to charge each generalist to stay abreast of, to minor in, one or more specialty areas (See my post of Nov. 30, 2005 on specialty lawyers in law departments, and references cited.).

I invite readers to enlighten me. The reason doesn’t seem to be that tax law is so arcane that a general counsel can’t manage those skilled in its cabalistic mysteries. ERISA is pretty daunting too.

It can’t be that the CFO has a particularly tight bond with tax attorneys, else why wouldn’t HR have an equivalent closeness to and reporting control over HR lawyers.

Nor can it be, it seems to me, that tax lawyers are somehow not really practicing law. They sign opinions, read cases, interpret statutes, and both point out and minimize legal risks. M&A lawyers are equally amphibious between the legal waters and the business land.

In 2001, FMC Corp. had 48 lawyers and $3.9 billion in revenue. It spun off FMC Technologies as a $1.9 billion company — but that company had only eight attorneys. The larger company, with 12.3 lawyers per billion of revenue, spawned a company with 4.2 lawyers per billion!

Even more astonishing, by the end of 2005 FMC technologies had grown to $3.2 billion but still had only eight attorneys, which meant an even skinnier 2.5 lawyers per billion of revenue! According to Counsel to Counsel, Nov. 2006 at 10, one reason this ultra-lean staffing meets the needs of its clients is that each lawyer has responsibility for one business unit as well as a specialty shared across business units (See my post of Dec. 21, 2005 about Ascential Software’s major/minor system.).

It would be interesting to know equivalent figures for other spin offs, such as Lucent from AT&T, and then Avaya from Lucent.

Where a law department assigns some lawyers to be responsible for the primary legal needs of a particular business unit (See my post of Oct. 14, 2005 on single points of contact.) and assigns the rest to handle specialized areas of law, it helps to clearly draw the lines of responsibility between the business generalists and the corporate specialists.

Carillion, an $8 billion British company, has about a score of lawyers, of which the business unit generalists are often co-located with business unit they advise. According to Richard Tapp, group company secretary and general counsel, in Law Dept. Quarterly, Vol. 2, Sept. /Nov. 2006 at 39 the business lawyers and the specialists know their respective roles: “For example, the legal team has a specific remit to handle construction law, services or facilities management and finance issues, while corporate and competition issues are dealt with centrally by the general counsel’s office.”

A professor at the Harvard Business School, Pankaj Ghemawat, researched six key measures of cross-border economic and other business activity. He looked at telephone calls, management research, direct investment, private charity, stock investment, and trade. His conclusion belies the stridency of those who trumpet rampant internationalization: “Most types of economic activity that might cross borders are still largely concentrated domestically,” Harvard Bus. Rev., Aug. 2006 at 32.

The percentage of trade, at about 26 percent, was much higher than direct investment (below 10%) and all the others clustered around 10 percent. What this suggests for law departments is that truly international legal work is the exception; by far the largest portion of in half-housework is applying domestic law (See my posts of March 19, 2006 about the modest need for “international” lawyers in US law departments; and April 9, 2005 to similar effect.).