Articles Posted in Structure

The other day a wise general counsel pointed out a nuance of reporting lines: his dotted line authority vis-à-vis the lawyers who did not report to him varies in “thickness” according to the subject. As to FCPA measures, with the lawyers who report solid line to a business unit executive, he described the line as bold and close together; in contrast, with settlements of trip-and-fall litigation the line was light and the dots far apart – the leash was very loose. With FCPA policy and practice he could tell even dotted-line reports what to do and enforce it. On lesser matters, he was advisory at best.

The font and proximity of each dot to the next, so to speak, makes visual a useful metaphor for different degrees of control and oversight both in decentralized and centralized reporting departments.

A fascinating study looked at collaboration on papers in terms of academics’ physical proximity. Professors and grad students who had offices near each other, it turns out, published papers of higher quality, as determined by subsequent citation counts of their papers. This quantification of proximity’s value appears in the Harvard Mag., May-June 2011 at 12-13.

When a department’s lawyers have offices near each other, they can informally learn from each other, share ideas, cross-pollinate. That potlatch of knowledge can be fertile as compared to small bands of lawyers in isolated offices around the globe. The trade-off is that lawyers next door to their clients probably create more value than lawyers next door to their lawyer colleagues.

In late 2005, Sunoco’s litigation was handled by various in-house lawyers who were commercial lawyers dedicated to business units. The general counsel then hired a senior litigation partner from Reed Smith, Marilyn Heffley, to create a centralized litigation group. Heffley started by finding all pending cases and transferring responsibility for them to her initial group of four, which has since quadrupled to 15. In the five years since, she has instituted many changes as described in the ACC Docket, May 2011 at 135.

One notable change has been the level of work done by her group. “[L]itigation group staff members conduct all first-and second-level document reviews in major litigation matters, handle all small claims matters, draft responses to standard pleadings and discovery requests, and respond to third-party subpoenas.” The group supervises more than 900 current cases. One other practice I should note: Heffley meets every three months with Sunoco’s senior management team to review all the cases that pertain to their units and to answer their questions.

So-called tradable sectors, which produce goods for export and deal with foreign countries, include manufacturing, commodities, and services such as finance, law and engineering that compete globally. Non-tradable sectors such as government and healthcare and personal services have very little or no export or international output. This distinction comes from the Economist, April 30, 2011 at 34, which refers to a research paper on productivity in the two sectors.

It would make sense that law departments in tradable sectors would be larger because they would have export laws to observe, more specialists (such as privacy or antitrust), and possibly coverage in overseas offices. Non-US tradable companies would have more litigation managers, if only to deal with litigation exposure in the United States. In short, the sheltered sector of mostly domestic services would have less legal intensity, I would posit, than the sector buffeted by international competitors and global legal complexities.

Law departments of US companies can handle internally much of their client’s legal needs, the exceptions being litigation and some relatively infrequent specialty advice. International legal questions make up a small portion of the work (See my post of April 30, 2011: globalization overstated.). By contrast, with a company based in a smaller country, such as Greece or Portugal, that has grown to trade substantially outside its home market, you would assume a higher proportion of its legal issues would concern foreign laws. The balance depends on the proportion of the company’s revenue that comes domestically or internationally.

But this split is surmise. The General Counsel Metrics global benchmark survey does not ask law departments to break their headcount into domestic and international. Some companies with global cultures might not even see the relevance of that geographic distinction. Were data available it would allow the start of a more definitive response to the surmise.

The Economist, April 23, 2011 at 72, praises a book by Pankaj Ghemawat. His World 3.0 demolishes the world-is-flat argument, proving from many angles that globalization has much more modest manifestations. For example, “according to a study a few years ago, less than 1% of all American companies have any global operations.” Or, “Exports are equivalent to only 20% of global GDP.”

Ghemawat explodes the myth that the world is being taken over by a handful of giant companies. “The level of concentration in many vital industries has fallen dramatically since 1950 and remained roughly constant since 1980.” It follows that the number of law departments has not shrunk (See my post of Dec. 31, 2010: estimates of total number of worldwide law departments with 9 references from 2010.).

The very largest law departments deal with international legal issues, and the biggest law firms want to play up that angle (as they angle for clients). But by and large the fearsome tidal wave of globalization may be a modest breaker (See my post of Dec. 5, 2010: globalization and internationalization with 13 references and 3 metaposts.).

A commonplace holds that half the lawyers practicing law privately in the United States, meaning not as an employee of a company, government agency or other entity, practice solo. Behind the shingle is a single. It may be that half the internal law departments – using an expansive term “department” – are also lawyers practicing solo.

One-lawyer departments make sense if there is a power-law distribution of law departments by size (See my post of April 27, 2010: power-law distributions with 6 references.). One lawyer departments make sense if that solitary lawyer wears multiple hats. One lawyer departments, finally, are necessary stages for all larger departments to have passed through; you have to hire the first one to get to two lawyers, three, and more.

Many companies have spun off parts of themselves, thereby sundering their legal departments (See my post of March 12, 2011: spin-offs with 6 references.). Perhaps none of them created a new law department of the size of Motorola Solutions’. According to Diversity & The Bar, March/April 2011 at 14, the spin-off has more than 100 lawyers and 150 other legal personnel. Some of the allocation of personnel to stay or spin was undoubtedly pre-ordained, such as the commercial lawyers and patent lawyers who had been dedicated to a business unit. Other choices were harder to make, such as litigators and other specialists that could serve either side well.

A second point, on secondment, caught my eye. Lewis Steverson, the general counsel of the new spinoff, joined Arnold & Porter after law school. The firm represented Motorola and when the company inquired about borrowing a litigation associate, Steverson was chosen. The finance department of Motorola referred to him affectionately as a “rent a lawyer” recalled Steverson in the article. Motorola eventually made the secondee an offer and his path in-house was set.

The general counsel of Winn-Dixie Stores, Timothy Williams, has responsibility “for management of all legal, governance, risk and compliance, and quality systems functions.” The final responsibility – quality systems functions – stands out. I have written amply about the wide scope of functions various general counsel oversee (See my post of March 24, 2011: Anheuser-Busch InBev and “corporate affairs.), but haven’t paid much attention to quality functions. By the way, the insight into Winn-Dixie comes from Corp. Counsel, April 2011 at 44.

No less than Microsoft, however, has a similar mix (See my post of Jan. 18, 2011: Legal & Corporate Affairs.). The combination may be more common in Europe (See my post of Aug. 8, 2006: survey data on corporate affairs; and Nov. 7, 2007: Red Hat law department includes two people who handle corporate affairs.).

So, why not add in Lean Sigma or TQM or quality assurance activities to the chief legal officer’s portfolio?

“There are, in essence, only two problems in organizations: how to divide things up, thereby ensuring that the right people do the most appropriate work; and how to integrate the tasks of diverse individuals, functions and teams to ensure that the organization gets things done.”

I am no fan of simplistic dichotomies, as many would pooh-pooh this binary split from Rob Goffee and Gareth Jones, Clever: Leading your smartest, most creative people (Harvard Bus. Press 2009) at 130. Fine and agreed, but for general counsel splitting and lumping – another way to describe the bifurcation of management into two big problems – has some merit: it gives a framework to organize many of the decisions they have to make. What is more basic than who does what and how do we pull it all together?