Articles Posted in Talent

In his thoughtful retrospective, Joe Ryan, the long-time General Counsel of Marriott Corporation, proffers sage advice. In Acc Docket, Vol. 24, Nov./Dec. 2007 at 98, Ryan puts forward the view that a general counsel is stronger whose background is transactional rather than litigation. That makes sense to me, because litigation is the unusual circumstance, not what advances the cause of the business generally, whereas contracts and acquisitions and financings promote the ends of the business.

Exceptions to this general rule might be in industries where intellectual property dominates, in which cases an IP lawyer might ascend to the top, or in companies subject to intense regulatory approval, which might give the nod to a lawyer with background in the appropriate regulatory arena.

Take note of one more practice of the law department of Cummins, a $9.9 billion manufacturer of engines. According to Counsel to Counsel, Jan. 2007 at 4-6, each year the 21-lawyer department holds a conference for all of its lawyers, many of which are based in four countries other than the US. Although the article characterizes the conference as a session to bring attendees up-to-date on the law, it undoubtedly serves an important additional purpose: bringing members of the law department together and helping them become more collegial (See my posts of Sept. 22, 2005 and March 25, 2005 on law department retreats and offsite conferences.).

Agency theory, one of the most influential economic theories according to Jeffrey Pfeffer and Robert I. Sutton, Hard Facts, Dangerous Half-Truths & Total Nonsense: Profiting from Evidence-Based Management (Harvard Bus. School Press 2006) at 65, “presumes that people at work seek self-interest with guile, deceit and cunning.” Moral hazard runs rampant. In economic theory, the term “moral hazard” refers to the possibility that the redistribution of risk changes people’s behavior. Accordingly, when a company agrees to pay one of its lawyer-employees a fixed salary, that decision transfers risk from the employee to the employer and changes the lawyer’s behavior. The lawyer may coast, freeload, and malinger unless there is constant supervision and control.

Pfeffer and Sutton maintain that there is much evidence to the contrary (See my posts of Jan. 16, 2006 on the principal-agent problem; Aug. 13, 2006 on moral hazard; and Dec. 23, 2005 on information asymmetries.). Lawyers may not want to sweat constantly over difficult and tricky legal conundrums (See my post of Oct. 18, 2005 on lawyers not wanting to think hard all the time.), but neither are they unscrupulous and conniving agents, shiftless gadabouts who shirk routinely.

In my experience, nearly all in-house counsel work steadily and try to do the right thing the right way.

Quite a few positions in law departments end up being molded to the lawyer’s background, preferences, and styles (See my post of March 16, 2006 on A-positions more than A-players.). This makes sense because “It turns out that a surprisingly high percentage of jobs are idiosyncratic, created, designed and customized to fit the preferences and skills of some unique person,” in the words of Jeffrey Pfeffer and Robert I. Sutton, Hard Facts, Dangerous Half-Truths & Total Nonsense: Profiting from Evidence-Based Management (Harvard Bus. School Press 2006) at 81.

A high-performance law department might not comfortably be described by a traditional org chart. The gifted manager in a law department makes the most of the talent available, shifting and adjusting responsibilities and workloads to best match positions and roles to the paralegal or lawyer.

According to a recent piece in Agenda Week, Boards of Directors are intruding more and more on the selection of the company’s general counsel. According to one board member, “the board should never outright veto a candidate the CEO is considering because their role is to offer recommendations without dictating who the General Counsel will be.”

A wise CEO should consult with the Chairman of the Board and maybe with the heads of important board committees, but the decision of whom to hire or promote to general counsel rests with the CEO. The trust and respect between those two officers is the paramount consideration.

An item in MIT’s Sloan Mgt. Rev., Vol. 48, Winter 2007 at 6, distinguishes between developmental coaching, where a supervisor addresses an individual’s knowledge or performance gaps, and executive coaching, which is more about peer guidance and addresses differences in behavior and managerial style.

In either situation, “coaching is set to address specific performance deficiencies or gaps, as opposed to general-purpose training.”

For lawyers in-house, the equivalent of executive coaching is more likely to be the appropriate technique (See my posts of April 14, 2005 on coaches for general counsel; July 14, 2005 on knowledge coaches; April 30, 2006 on the looseness of the term “mentor”; and July 14, 2005 on the difference between a mentor and a coach.). For those lawyers, on the upper rungs of the corporate ladder, basic skills and knowledge are presumed, but more subtle behavioral adjustments may be needed.

In June 2006, George Stansfield, Senior Vice President and Group General Counsel of the £72 billion AXA Group, spoke at the 18th Annual General Counsel Conference (See my post of July 25, 2005 for more on AXA’s legal team.). In Stansfield’s slides on the challenges facing a global organization, one said “AXA’s Legal and Compliance Organization consists of over 300 professionals operating in a decentralized environment all around the world.”

Everyone would agree that a lawyer is a professional, but who else in a law and compliance department should be deemed a “professional”? Does the term include paralegals? Compliance managers? I suspect that Stansfield is bestowing the honorific on all members of his department.

He uses the term “decentralized,” which is also subject to multiple interpretations (See my post of Jan. 18, 2007 on the geographic and reporting denotations of this word.). His next bullet adds that “this decentralized structure reflects the structure of our operating businesses.” At least the law department is in alignment with its clients, whatever that means.

All companies have contracts; all have employees. All companies have real estate issues; all have some corporate activities like finance, subsidiary housekeeping, and securities. All companies have some level of litigation, so these five areas of law don’t account a priori for the wide differences across industries in median lawyers per billion dollars of revenue.

The biggest causes of the differences probably arise from patents and regulations. Companies in industries that rely on technical innovation and patent protection, notably pharmaceuticals and telecommunications and high tech, can staff up to half their law departments with intellectual property lawyers. Companies in industries that navigate through pervasive governmental regulations – banks, insurers, financial services – likewise have more lawyers per unit of revenue.

An interesting benchmark would be “core lawyers” – lawyers in-house other than IP and regulatory. We could refer to this as core lawyers per billion and have a much more comparable metric for law departments across industries.

“Confident leaders are not afraid to surround themselves with the brightest people at their disposal, including potential rivals.” Hire people smarter than you, in short, is what Stefan Stern, Fin. Times, Oct. 3, 2006 at 8, could have added in his column on seven principles for a leader. A related Stern principle is to understand your weaknesses as a leader, since those bright bulbs you hire can make up for your dimness.

It all sounds glowing, but I doubt that many GCs actively try to hire lawyers who put them in the shade. Few people are comfortable with brighter-than-they subordinates.

Also, from my consulting to general counsel, I have only rarely sensed that any of them feared displacement by someone who reports to them. Far from that, they worry that no competent replacement exists among that group (See my post of July 31, 2005 on succession planning.). Perhaps that shortage evidences a failure to hire people smarter than themselves

Jeffrey Pfeffer and Robert I. Sutton, Hard Facts, Dangerous Half-Truths & Total Nonsense: Profiting from Evidence-Based Management (Harvard Bus. School Press 2006) at 125-127 explains why bonus programs can cause dissatisfaction in law departments. The co-authors give three reasons, which reinforce each other: self-enhancement effects, under-funding, and social relations.

The self-enhancement effect involves the commonplace that most people believe they are far above average. If a bonus disabuses the lawyer of that inflated self-image, the manager who awards it is met with disbelief, resistance, and anger.

Funding undermines the presumed effectiveness of incentive bonuses because most companies don’t put enough in the bonus pool to make significantly bigger awards to those who performed well. If the pool is too shallow, the awards from it can’t differentiate one lawyer’s performance sufficiently from another lawyer’s.