Articles Posted in Structure

During 2004, PricewaterhouseCoopers conducted a major study of compliance in financial institutions and published the findings in Protecting the Brand (May 2005). More than 73 internationally-active financial institutions took part in the study.

One portion summarized the various reporting permutations of compliance (pg. 45). In 49 percent of the institutions, compliance was stand-alone, “often reflecting explicit regulatory requirements.” Co-reporting with the legal function to the general counsel was next most common, at 25 percent. For 16 percent of the companies (primarily in Australia and the UK), compliance was part of risk management, while for 8 percent, compliance was one of several internal functions, such as internal audit, legal, and risk management, that reported to one individual. Only 2 percent of compliance functions were aligned with internal audit.

In Winning Legally: How to Use the Law to Create Value, Marshall Resources, and Manage Risks (Harv. Bus. School Press 2005) at 61, Prof. Constance Bagley of the Harvard Business School writes: “Ideally, the general counsel should report to the board of directors to ensure a clear line of communications.” This prescription comes in the middle of a chapter on compliance and corporate governance.

It’s unclear whether Bagley means “report” in the sense of communicate directly to the Board of Directors what its members should learn or whether it means being managed, evaluated, compensated and otherwise supervised by the Board. If the latter meaning, and the CEO is not the “boss” of the general counsel, then I do not understand Bagley’s recommendation. If her point is that a general counsel ought to have unfettered, direct access to board members, I understand.

Avery Dennison, a manufacturer of pressure-sensitive technology and self-adhesive products that maintains more than 740 US patents, created an IP Management (IPM) group to manage IP decisions across different business units, geographies, and technologies (Thomson Scientific’s KnowledgeLink Newsletter, Aug. 2005 at 1). IPM coordinates with several areas within Avery Dennison, including Intellectual Property and Legal.

By comparison, Honeywell International, a $23 billion diversified technology and manufacturing company, has been issued roughly 13,000 patents world-wide, and obtains approximately 500 new US patents each year. Honeywell has 25 IP lawyers located in various business units around the world. Supporting them is a central patent-services staff that manages the docket and coordinates international filings.

Two prolific inventors; two divergent approaches to the roles of patent lawyers.

According to a survey of members of the American Health Lawyers Association released in July 2004, jointly conducted with the Health Care Compliance Association, a key question is whether the general counsel can or should be the company’s chief compliance officer. Does such a dual role create conflicts of interest?

The survey results, based on 429 responses from 1,964 in-house counsel and 2,490 healthcare personnel, deserves careful review, because its general guidance applies beyond the heavily-regulated healthcare industry. The report is available from the US Dept. of Health and Human Services, Office of the Inspector General and has been republished in Practicing Law Institute’s, Advanced Corporate Compliance Workshop 2005 (No. B-1504 at 435).

To the question, “Does your in-house counsel or one of your in-house attorneys also serve as the corporate compliance officer?” the answer was: “yes,” by 25 percent of the respondents; “no, we have an in-house attorney, but he or she does not serve as the compliance officer” by 60 percent.

So often, it seems the patent and trademark lawyers trundle along on their own track, barely heedful of the “general” lawyers in the department, while the generalists in turn remain oblivious of their intellectual property colleagues. Frequently with offices in different places, usually with cultures on the two sides of C.P. Snow divide, and always with some level of stereotyped prejudices, the generalists and the IPists co-exist at a distance.

Yet the truth is that the two sides often commune together. For an acquisition or divestiture, the MA& group calls on their IP colleagues for due diligence. Licensing agreements may twine the two sides. Litigation over patents or trademarks combine the forces, and marketing managers need to hear from both sides of the house.

A paragraph in Legal Week, Vol. 7, Dec. 15, 2005 at 45, captures the essence of lawyers NOT reporting to a company’s most senior lawyer (See my post of Dec. 14, 2005 on “functional” reporting and July 25, 2005 on AXA’s decentralized reporting.):

“GE has 11 separate business departments, each with its own legal department headed by a general counsel who reports to the chief executive of that division. GE Consumer Finance’s general counsel is Elizabeth Lee, who oversees a legal staff of more than 110 lawyers in 21 countries.”

Not only does this structure suggest that the corporate legal group of GE, based mostly in Fairfield, Connecticut, has an indirect coordinating role at best for much of the legal work done for the company, it also bespeaks a country-by-country assignment of lawyers (at least in GE Consumer Finance). (See my post of Dec. 23, 2005 on Royal Dutch Shell’s three levels of assignments.)

The restructured legal department at Royal Dutch Shell has divided its lawyers into “corporate counsel,” “business counsel,” and “regional counsel.” All of these counsel report to the General Counsel, Beat Hess, according to Legal Week, Vol. 7, Nov. 10, 2005 at 62 (See my post of Dec. 21, 2005 about the dual responsibilities of Ascential’s lawyers.).

What “regional counsel” do that differs from what their corporate and business counterparts do, I can’t imagine, except serve as a coordinating layer. The department has hundreds of lawyers, and perhaps needs that extra dollop of management for control and coordination.

Undeniably, the law has much to say with how long a company must retain records, when they can destroy them, and how they may be stored. That those laws and regulations exist, however, should not dump records retention in the lap of the law department.

As with compliance, where lawyers need to interpret the requirements of the law, the nitty gritty responsibility for storing and destroying documents belongs properly elsewhere in a company. So too does training on document retention practices. (See my post of Dec. 20, 2005 on lawyers’ supporting role with crisis management and my post of March 18, 2005 on whether the law department should manage contracts.)

During the summer of 2005, 412 inside corporate counsel responded to an online survey sponsored by ACC and Corpedia, a provider of ethics and compliance training. Some 85 percent of those respondents were at US-based companies; and 60 percent were with publicly-traded companies.

One finding was that “32 percent of all organizations have a dedicated Chief Ethics Officer as well as Chief Compliance Officer and approximately one-third of the time these duties and titles are handled by separate individuals.” I think this means that one-third have two Chiefs and one-third combine the posts.

The report summary does not say whether either of those Chiefs are sometimes the general counsel. (See my posts in 2005 on ethics: Aug. 27 and reputational risk, Sept. 10 and Chief Governance Officers, Oct. 29 and the OECG survey, Nov. 16 and Raytheon’s general counsel, and Dec. 19 on BP’s law department and ethics training.)

As reported in Of Counsel, Aug. 2005, A large technology company had law offices in 11 European locations, each staffed with two or three local lawyers who were only able to carry out very limited assignments, spending most of their time essentially as a liaison between headquarters and the local client.

“By introducing a sophisticated (although inexpensive) document-managed system, the company was able to reduce the number of offices employing lawyers to four. Each one of the four became specialist centers servicing the whole group. As a result of dramatic reductions in both real estate and administrative costs, the company was in a position to spend more on hiring real legal experts in their fields.”

I doubt this account. Technology had only a bit part in a dramatic restructuring that changed much more of this department than gets credit from this snippet.