Articles Posted in Thoughts/Observations

Jeff Kaplan published a piece on May 9th about the interplay between lawyers in law departments and a company’s compliance efforts. His idea is worth pondering.

“Much has been written on the need for C&E functions to be independent of law departments but considerably less about the critically important roles of in-house counsel in assessing and mitigating C&E-related risk. For many companies, an ideal interplay of the two disciplines can be found in a model that, among other things, articulates assessment and mitigation responsibilities for both law and C&E departments in a risk-specific way.

For instance, under this approach, on a yearly basis the law department attorney with responsibility for antitrust would be required to provide the C&E officer with an analysis – using a defined set of parameters – of antitrust risks at the company (broken down, where useful to do so, by different geographies and business segments) and of the efficacy of C&E program elements in addressing such risks. He would also offer any suggested improvements to the latter in light of the former.

Praise this quote from a general counsel: “We have defined our areas of focus in-house in terms of five ‘pillars,’ including transactions support, dispute resolution, compliance, vendor support, people and talent, and legal department management.” The quote can be found in an interview on Law360, May 4th, of Jerry Okarma, General Counsel of Johnson Controls.

The balance connoted by the five pillars enthuses me: three are substantive legal services, one is legal compliance, and one is none other than what is nearest and dearest to me professionally, running the legal department effectively.

Since Sarbanes-Oxley was enacted in 2002, “costs [of being publicly traded] have proven to be much higher, while the number of companies going public has dropped sharply.” The Wilson Quarterly, Spring 2010 at 47, mentions this, which made me think of legal departments (surprise, surprise).

If the number of companies going public has dropped sharply over the past eight years, then to that degree the workload of both in-house and outside corporate lawyers has changed. Less reporting under the Securities Acts, less complexity with incentive stock options, fewer decisions about 8Ks and releases, different kinds of acquisitions than with equities.

Second, if the number of new publicly traded companies is significantly lower, diminished further by some that have disappeared for other reasons and a few that have gone private, benchmark data from before Sarbanes might be less comparable to now. My sense is that the total legal spending of companies is lower when they are privately held, if only because the costs of shareholder derivatives suits shrink.

I have advocated allocating points as an evaluation method that serves better than a simple ranking of 1, 2, 3 (See my post of Aug. 14, 2005: better to ask respondents to allocate points; July 4, 2006: sophisticated technique; July 3, 2007: most sophisticated method; July 20, 2008: a downside is that respondents must think more; and Jan. 11, 2009: decisions by teams and weighted preferences.).

To illustrate, if ten law firms have submitted proposals, I thought it was better to have the reviewers of their proposals distribute 100 points among the ten. That way, they could put 50 points on the firm that they thought was by far the best, for example. To merely give that firm 10 points and the next best firm 9 points and so on down does not sufficiently differentiate them.

Quite pleased with myself, I was rocked when someone pointed out that three firms might be equally very good, so the reviewer would have to allocate them 33 points each. If you then total all points allocated by all reviewers to all the firms, those firms won’t fare as well. Hmmmm…..

These ideas come from Henry Mintzberg, Managing (FT Prentice Hall 2009). Prof. Henry Mintzberg, a thoughtful and prolific iconoclast about management, set out the four ideas that I have adopted below and applied to legal departments.

Communication and keeping up to date. Managers thrive on talking and listening, and on emails, as their primary method of gathering real-time information. Mintzberg does not believe they rely on management information systems, such as a matter management system. Databases, he believes, are too slow, rigid, and one-way. His point is valid. General counsel use matter management systems to compile data for reports, not to guide their reports in what to do.

Clients first. Most in-house counsel spend much the largest portion of their time with clients, not with colleagues. Mintzberg made this observation generally, but I suspect he would agree with my reformulation for legal departments. Sharing information with legal colleagues has its stature, but by far the most important and time-intensive relationships are with internal customers.

A web portal by Dell wins an award for innovation. The March 2010 issue of Law Tech. News explains that Dell’s patent team “created an external hosted web portal that not only provides Dell’s internal patent team with a system for setting up and conducting meetings and voting on necessary disclosures, but also links to outside counsel for assignments and data sharing” (See my post of and Aug. 16, 2006: portal technology; Jan. 25, 2007: boards of directors and portal software; June 4, 2009: a patent portal; Jan. 7, 2010: clients request legal services through an online portal and can see contracts; and June 27, 2006: portals with 4 references.)

Empirical analysis of contract terms. “The most extensive study is an analysis by Florencia Marotta-Wurgler of New York University School of Law. She and her team analyzed 647 End User License Agreements (EULAs) from 598 companies. The study analyzes ‘23 common and important standard terms that allocate rights and risks between buyers and sellers.’ The study shows a significant bias in favor of the seller as shown in a Bias Distribution chart.” This comes from Kingsley Martin’s blog (See my post of Jan. 21, 2010: survey lists 30 contract terms most frequently negotiated.).

Grammar Counsel. “Note that the plural of general counsel is general counsel, not general counsels.” The debate is closed (See my post of March 22, 2006: proper form has no “s” for the plural.).

Two more handfuls of embedded metaposts and their back references (See my post of March 11, 2010: Part XLV), plus their back references.

1. Agency theory (See my post of April 21, 2010: agency theory with 7 references and 1 meta.).

2. Associations of law firms (See my post of April 14, 2010: networks or associations with 7 references.).

Fear of being seen as a “sales person” inhibits general counsel from portraying the value of their department (Feb. 1, 2010)

General counsel need to publicize the work and accomplishments of their team.

Pushing past the standby of lawyers per billion of revenue (Feb. 4 2010)

The Smarter Legal Model (Practical Law 2010) by Trevor Faure, General Counsel of Ernst and Young Global, has just been published. The marketing blurb touts the book as “a practical “toolbox” of complementary methodologies which have been applied on a multi-million dollar scale and proven to: increase legal coverage by maximising individual potential, reduce legal costs, improve both compliance and client satisfaction at the same time, and replace the traditional law firm-client tension with a mutually-profitable partnership.”

Enticingly, at least to this blogger, The Smarter Legal Model applies … principles such as six sigma, return on invested capital, zero-sum game theory and neuro-linguistic programming to the practice of law for the first time with tangible results.” Not so sure about the “first time” claim but the compilation of techniques has allure.

The author, Trevor Faure, is “The Lawyer” magazine’s In-House Counsel of the Year 2008, the BSN Lawyer of the Year 2007 and was ranked as one of the world’s top 25 Corporate Counsel on the “Legal Business” Global Power List 2007.

Four-time general counsel. Corp. Counsel, March 2010 at 37, notes that when Tracy Rich recently became the general counsel of Guardian Life Insurance Company, it was his fourth general counselship in a 30-year career (See my post of Nov. 16, 2008 #3: four-time general counsel.).

The legal surcharge for being publicly traded. A publicly traded company with only $25 million in revenue, EDD Helms Group, spent roughly $250,000 in additional expenses because of the costs of complying with SEC rules and Sarbanes-Oxley, according to an article in Corp. Counsel, March 2010 at 40. Not all of that amount went to legal counsel, perhaps not even a large portion, but some did. I have long wondered about the additional legal costs of having publicly traded stocks or bonds (See my post of Jan. 19, 2008: unknown metrics about non-publicly traded companies.).

If up-or-out disappears, recruitment will be harder for law departments. At times I reflect on how changes in law firms might ripple through to legal departments. At the Georgetown Law Conference on Law Firm Evolution, however, one of the predictions was that we will soon see the end of law firms operating on the basis of up or out. If that comes about, if good lawyers stay at firms even if not promoted to partner, if the pressure to be promoted lessens, then legal departments will have a harder time recruiting experienced associates (See my post of Sept. 22, 2009: ways to find lawyers for openings other than search firms with 17 references and 1 metapost.).