Articles Posted in Structure

Not uncommonly, a general counsel has responsibility for the government affairs – lobbying – functions of a company (See my post of Aug. 27, 2005 about Microsoft). So long as that GC has the time and ability to manage the function, perhaps it is fine.

Otherwise, or in any case, it seems to me that the function of bird-dogging and influencing legislation has less to do with legal prowess than with other skills. Hence, to the degree lawyers must participate, there is a risk that their efforts fall into the suspect category of quasi-legal work (See my post of July 21, 2005 about quasi-legal work.)

A report by the Association of Corporate Counsel brought to light two law departments, John Deere and Nokia, where the lawyers who serve operating units report to the head of the unit, as well as to the general counsel by a “functional, dotted-line report.” “Leading Practices in Job Titles for In-House Lawyers: What Companies are Doing” (Assoc. Corp. Counsel, Aug. 2005 at 12, 16).

I believe that a functional reporting relationship means that how the lawyer works qua lawyer – in the professional capacity of giving legal counsel – falls to the general counsel to supervise, whereas what the lawyer works on as well as the other aspects of being an employee (compensation, promotions, location, title, support staff) fall to the solid-line supervisor.

A total of 12 HR lawyers (eight in the US) work directly with Intel’s Human Resources department and report to the Vice President of Human Resources, not to Intel’s general counsel (InsideCounsel, Feb. 2006 at 46).

One could use the same arguments to assign other lawyers: patent lawyers to the R&D department; environmental, health and safety lawyers to the EHS function; marketing lawyers to Marketing; tax lawyers to the CFO; real estate lawyers to operations or facilities, etc. etc.

Debate over the wisdom of decentralized lawyer reporting will continue forever, but the prevailing norm is to have all practicing lawyers – those who interpret laws, represent the company as lawyers, give legal opinions and advice – report to the general counsel.

The critics of structures where lawyers report to the head of a business unit – decentralized reporting – stress the risk of those lawyers’ loss of independence. The pressure to please your boss, the allegiance the lawyer feels toward their business, the bonus that depends on the business meeting its numbers – all these compromise professional integrity and insidiously cause the lawyer to “go native.”

The retained partner, by contrast, can stand up to legal wrong-doing, ask the tough questions, protest the shredding, and if the client persists in retrograde behavior, resign. Not being on payroll and needing a job, outside counsel stands strong with objectivity and independence.

The critics raise a valid concern, to be sure, but I note countervailing points. The inside lawyer knows the business and its managers much better than can any outside counsel, and being in the next office is at least in a position to spot and re-direct early on an improper decision. As for outside counsel, if Global Corp. is your biggest client and your “$2 million a year in billings,” if it is the client that made you partner the determinant of your year-end distribution, isn’t that realistically the same pressure as the inside lawyer with her job; neither lawyer gives that up without enormous pressure, efforts to rationalize, delay and hope, and huge personal difficulty. When a partner has a concentrated basket of business, the large client compromises that partner’s professional integrity.

Booz Allen calls them “organizational DNA” according to Consulting, Vol. 7, Nov./Dec. 2005 at 36.

Structure – the most visible, such as where people are located and to whom do they report.

Decisions right – where does the buck stop and who can call the coin toss.

Unilever, with its “500 strong global legal department,” has appointed lead counsel for its three regions – Europe, Asia and North America (Legal Week, Feb. 9, 2006).

Along with its regional reporting structure for lawyers, I assume there are also specialty functions, such as HR and litigation. If there are also lawyers assigned to support particular business units across regional boundaries, then Unilever’s law department would have a three-ply matrix (See my post of Aug. 27, 2005 on the matrix structure at TIAA-CREF.).

For sprawling, global law departments, some kind of matrix structure must be in place for its managers to hope for consistency and productivity. Matrix structures are like democracy, flawed but nothing has been found to be better.

Ron Friedman, the thoughtful author of Prism Legal, took issue with my post (Feb. 5, 2006) about proximity of lawyers on the same floor dramatically boosting interaction.

I don’t agree with his [Rees Morrison’s] conclusion that companies should keep their lawyers on the same floor. If proximity matters so much, then inhouse lawyers should sit near key clients.

More importantly, companies must overcome the geographic bias.

In its massive study of 73 internationally active financial institutions, PricewaterhouseCoopers reported in Protecting the Brand (May 2005) on “areas of potential interaction with the compliance function.” (See my post of Feb. 7, 2006 on the reporting lines of these compliance functions.) The report lists seven areas (at 49) of legal department interaction with compliance, under the rubric of “collaborative and supportive”:

1. Keeps abreast of developments in legislation and case law and helps interpret the consequences for the organisation

2. Collaborates with Compliance in advising management (new products, new markets, etc.)

A “multi-national” law department has lawyers based in more than one country. One country has the largest portion, and that country and location is thought of as headquarters. Many large US companies have multi-national law departments.

An “international” law department is multi-national, but some of its groups of lawyers are large and can stand on their own. Diageo’s law department is international.

A “global” law department is international, but the company has legitimate, powerful business units – and groups of lawyers supporting them, who often report to the head of the business – in more than one country. DeutscheBank’s legal department is global.

What is a typical ratio, in law departments of more than 10 or 15 lawyers, between the legal specialists (aka functions) like those handling litigation, HR, bankruptcy, environmental issues, securities, and IP, and the legal generalists who support a business unit or geographic region?

At the BBC, according to LegalWeek, Feb. 2, 2006, the “core legal team” handles corporate and IP, programming, regulatory work, and litigation and brand enforcement. Another 70 lawyers support commercial subsidiaries such as BBC Worldwide. The BBC’s ratio appears to be 50 to 70, or one specialist for every 1.4 business lawyers.

It roughly supports my view that a good ratio is close to one specialist for every two business generalists.