Articles Posted in Structure

In a brief profile of Beat Hess, Group Legal Director for the Royal Dutch/Shell Group of Companies, the Practical Law Company noted that the company has approximately 650 lawyers worldwide (excluding tax lawyers). Those lawyers have offices in over 50 countries.

Hess takes much credit for having all Shell lawyers functionally report, directly or indirectly, to him as Legal Director. I emphasize the term “functional reporting,” because it appears synonymous with “centralized” reporting. Everyone in the function reports to the head of the function.

Hess has also strived to create a “single global legal functional budget,” so that all costs of the budget, presumably, from around the world roll up to be his responsibility.

In a group of 23 law departments in companies with more than $20 billion in revenue, the average percentage of lawyers at the largest site was 63 percent. This finding, from the Hildebrandt Law Department Survey, surprises me because these are huge companies, with multi-national operations that all need legal support. To have on average two-thirds of all the lawyers in these companies based at a single location seems high (See my posts of Sept. 21, 2005 on arbitraging local compensation levels, Oct. 10, 2005 on ex pat packages, and Oct. 10, 2005 on purchase power parity.)

With the pressures to be close to the business, the globe-straddling reach of most large companies and their lawyers, and much frowning over “headquarters” and “corporate overhead” costs, I would have thought the lawyers would be more dispersed. If the executives of these companies are similarly concentrated geographically, then the clustering of lawyers has a rationale.

Integrity Research Group and Altman Weil reported results from their study of compliance functions (Legal Week, Vol. 7, Oct. 13, 2005 at 84). Two-thirds of the survey’s participants have created a compliance function separate from the legal function.

Of those two-thirds, one-third of the compliance functions report to the CEO, one-third to the general counsel, and one-third to someone else. (See also my posts of July 31 about law and compliance under the same roof; Aug. 27, 2005 about Microsoft’s compliance function reporting to the General Counsel; Sept. 10, 2005 about Chief Governance Officers and compliance; M.L.E. Post of Sept. 17, 2005 noting that Citigroup’s huge compliance function reports to the chief risk officer; and Oct. 21, 2005 on where compliance should report.)

The chief intellectual property officer (CIPO) is a position that has recently been created at several large companies, including IBM, HP, SAP, Yahoo!, Boeing, GE, and Microsoft.

The CIPO is the senior officer of the company responsible for maintaining and enhancing a company’s return on investment for its IP assets, and a primary responsibility is the creation and maintenance of a worldwide patent portfolio. Traditionally, the chief IP attorney of the company, reporting to the general counsel, has handled IP assets. The CIPO is part of executive management and is able to direct the IP decisions of all parts of the company. Managing Intellectual Prop., Oct. 2005 and Hildebrandt Headlines of Oct. 28, 2005.

Risk Management, the Chief Financial Officer, Internal Audit, direct to the CEO, a Board Member, a composite Compliance, Ethics and Investigation (CEI) function? I have even heard it raised that the compliance function should report to a committee of the Board.

John McGuckin, the General Counsel of Union Bank of California, offered some sage comments on the two reporting paradigms of compliance (Corp. Legal Times, Oct. 2005 at 78): to the GC or to someone else. With the GC reporting line, “how do you know when the general counsel is speaking in a legal capacity or as a non-legal company officer? While there is greater coordination between Legal and Compliance when both report to the general counsel, confusion of roles and risk to the attorney-client privilege require careful attention.”

Under the second paradigm, which reports compliance outside of legal, compliance officers become clients of the law department. Then, what happens when these clients are in conflict over interpreting a law or regulation, or assessing the legal compliance risk? McGuckin’s answer, which applies at Union Bank: “the company has to create a shared understanding of the respective roles of Legal and Compliance by the board, executive management and the business and support personnel with whom Compliance and Legal constantly interact.” Essentially, lawyers interpret the law as it applies to the facts and compliance professionals help assess the reputational, operational and other risks before the client makes an informed business decision.

Many law departments have organized a chunk of their lawyers around and in support of business units. Further, they designate one lawyer to be the person any client can call from the business unit. That single point of contact (or “go-to” lawyer) then figures out who among the business generalists or legal specialists – or what team – should take on the issue. (See my post of July 30, 2005 on dual reporting of specialist lawyers and July 31, 2005 about distributing specialist lawyers to business unit groups of lawyers.)

Managers of law departments may think they are doing the right thing when they focus on selecting the right person for a position. But some researchers, cited in the Financial Times, Aug. 11, 2005 at 7, argue that it is the position that is structured for high performance. The article commends control, accountability, influence and support as the pillars of a position.

My understanding of this pronouncement is that if you thoughtfully design and empower a position in a law department, you have advanced your cause more than if you leave those essential details vague and focus on placing a talented person in an ill-defined position. (But see my post of July 31, 2005 for the claim that Emotional Quotient (EQ) most significantly determines job success.)

I have been collecting Bartholomew GCs, those who wear many hats. From 40 AZ Attorney 12 (Nov. 2003), here are two with a half dozen on their heads.

In 2003, the General Counsel and Secretary of Dial Corporation, Chris Littlefield, oversaw two full time lawyers and two contract lawyers, as well as two paralegals. He also had responsibility for internal audit, corporate and governmental affairs, building services, and real estate.

The General Counsel for America West Airlines, Linda Mitchell, had four lawyers and a paralegal as well as corporate secretary, compliance, corporate real estate, airport affairs, and risk management and insurance programs.

For those law departments with several litigation management attorneys, a perennial issue revolves around the question of (a) should we keep the litigators together as a group or (b) should we assign the litigators to groups of business unit lawyer?

Note a common wrinkle. Often, litigators are handling legacy law suits that belong to no existing business unit. What should be done with those lawyers? A second wrinkle arises from the general distaste of litigators to handle only one kind of law suit. They like variety also and being in a group can mean a wider range of case types.

My leaning favors assigning litigators to business units. The message is that litigation is a business problem, not an activity in its own right. The litigators need to work with business people to resolve disputes as early and as effectively as possible. On their own, litigation can take on a life of its own; embedded with a client-supporting group of lawyers, litigation is a cost of business to be resolved promptly and cheaply. (See my posts on July 30, 2005 about dual reporting of specialists, July 31, 2005 about legal specialists and their reporting in general, and Aug. 5, 2005 about who should lead litigation.)

According to the National Law Journal, in 1997 the 200 largest firms had 67,853 lawyers. The same year, according to Corporate Legal Times, the 200 largest law departments had 20,930 lawyers.

Using the same sources, the largest law firms in 2000 had 88,012 lawyers and in 2004 had 102,882. The largest 200 law departments in 2000 had 25,836.5 lawyers and in 2004 had 27,420 i

Hence, the firms grew 29.7% from 1997 to 2000 and an additional 16.9% from 2000 to 2004 while the departments grew 23.4% from 1997 to 2000 but only 6.1% from 2000 to 2004. For the longer period, the 200 largest firms grew 51.6% from 1997 to 2004, while the 200 largest law departments (non-governmental) grew 31%.