Concentration in global industries and what that might mean for their law departments

An article in Sloan Management Review, Fall 2011 at 21, reports 2004 data on the concentration levels of the four largest competitors in 50 industries. That is, in Aircraft the level almost reaches 100 percent, because four companies (Boeing, Airbus, Bombardier and Embrair?) dominate the market completely. Helicopters, smart cards, tobacco, music, and mobile phones all come in around 75 percent. Far less concentrated were steel, pharmaceuticals, insurance and IT services, each being in the 20 percent range.

What might this mean to the legal departments of the top four in any industry that has a concentration ratio above, say, 40 percent? That is the degree of concentration that the authors say results in interdependence in a domestic market and probably in the international market.

Anti-trust concerns lurk around every decision and every action. If your industry is very concentrated, competition law rears up everywhere.

Global sales and global placement of lawyers. It is likely that the law department has locations dispersed around the world.

Huge legal bills to outside counsel. First, the department is large. Second, if business is done in many countries, local counsel will be needed and they are often very expensive. Third, legal spend is high because the company’s profile is high and its antitrust issues arise right and left.

Virulent conflict of interest rules for outside counsel. It seems likely to me that the firms who represent the industry-dominators can’t represent more than one of them. Pepsi lawyers don’t represent Coca-Cola.

Experienced but highly competitive marketing. The legal department involves itself in marketing campaigns and material because of the heightened scrutiny (See my post of Oct. 16, 2011: review of ads.).

Employment issues of senior people or key employees going to competitors. When an industry has only a handful of big players, movement of staff from one to another is fraught with issues of non-competes and proprietary knowledge.

Difficulty, almost impossibility, of benchmarking. Once companies become skyscrapers, with huge revenue and a dominant position in an oligopolistic market, it becomes very hard to match up against any other company for purposes of metrics benchmarking.