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I advocate budgets for “major matters” handled by outside counsel. “Major” turns on the amount likely to be spent in some period of time. It doesn’t make sense to require all practice areas in a law department to comply with the same threshold requirement for matter budgets (See my post of Nov. 11, 2007: criticizes one-size-fits-all solutions.). If you do, some groups will do too many and some not enough.

For litigation, lawsuits might trigger budgets if the expected spend is more than $250,000 a year whereas for the environmental group perhaps $50,000 in expected spending elevates a matter to “major.”

My basic suggestion is to set thresholds for practice groups that recognize their different spending patterns. Probably not more than 10 percent of all matters should be budgeted but those matters should account for something close to 75 percent of the spending by the group (See my post of March 4, 2008: examples of thresholds; and Sept. 13, 2010: budget variance will vary by total cost of the matter.). Not that you can easily or always tell in the early stages whether a matter will balloon into a major matter, but you can develop some tests and guidelines.

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I read about a company’s use of “life-like chatbots” that are “emotionally intelligent and engaging.” According to an ad from eGain Communications in KMWorld, May 2011 at Profiles 7, “The bot chats with customers, providing answers and processing data, and escalates to live agents when needed.”

A law department might build a legal chatbot (R2D2, Esq.), or entrepreneurs such as specialist law firms might train and license them, that would give guidance, smoothly answer frequently asked questions, point clients to forms and checklists, and call in the cavalry as needed. Voice recognition and natural language processing have come a long way, but the early chatbots for law-related advice might be email based.

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The Corporate Grapevine of the ACC Docket, May 2011 at 142, mentions that Joia Johnson, the chief legal officer of Hanesbrands, has been elected to the Board of Directors of Crawford & Co., an insurance services firm (See my post of March 25, 2009: GC of McDonald’s on board of Aon Corporation.). I continue to be perplexed when general counsel serve on the Board of another company.

Who gets the director’s fees? What about recusals and conflicts of time demands (not to mention possible conflicts of interest if the two companies do business together). Unless a significant business link exists between the general counsel’s company and the Board company, what’s the benefit? Even then, or especially if the two companies compete or might compete, aren’t the potential conflicts entangling for the general counsel?

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Budget accuracy drops exponentially I suspect; if you double the time period of the budget – maybe from six months to a year – the accuracy plummets to one-fourth as good. For that reason, require budgets only for a quarter or two ahead (See my post of April 27, 2005: budget no farther than your headlights; Oct. 22, 2008: budget for flexibility rather than strive for prediction; July 9, 2009: budget scenarios instead of single figures; Aug. 4, 2009: use a funnel metaphor for budgets; Aug. 25, 2009: accuracy degrades dramatically as the time extends; and Nov. 3, 2009: twists and turns when you test the accuracy of law firm budgets.).

Perhaps a better budget interval ignores the arbitrariness of the calendar and looks to stages and milestones. Historians have long recognized that decades or centuries have nothing to do with ongoing events, yet periodization appeals to many people. A time period like six months may be illogical but it is easier to adhere to than “through filing of the motion for summary judgment” or “first sit-down negotiation session.”

A second way to handle budgets that is not locked into the passage of time would be to set an expenditure amount and require a budget as your firm draws near to that amount. By this method a law department might request a budget every $100,000, and based on the burn rate – or the law firm’s projection of when it will exceed the $100,000 figure it is working under – it creates an obligation to prepare in a new budget.

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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.

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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.

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With trepidation I cite an actual case, but the broader point about management of outside counsel encourages me, a lawyer manqué. You can read more in the 2011 supplement to Bob Haig’s Successful Partnering Between Inside and Outside Counsel, Section 9 at 96, about McQueen, Rains & Tresch, LLP v. Citgo Petroleum Corp., 2008 OK 66, 195 P.3d 35 (Okla.2008). “The Oklahoma Supreme Court recently held that liquidated damages provisions in fixed-fee, fixed-term agreements between lawyers and a sophisticated corporate client are enforceable under Oklahoma law.

It would be a bold law firm these days that requests a liquidated damages provision in a set-fee deal with a company, but perhaps that provision enables the law department to obtain better financial terms. I also wonder whether by definition a company with an internal law department would for this court’s purposes be deemed “sophisticated.”

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The official bestowal on a general counsel of corporate powers is known in the United States as a “delegation of authority.” The Board of Directors, in theory and often in practice, assigns to the CEO a broad set of powers, and the CEO in turn sub-delegates a portion of those to the top legal officer. That officer parcels out to the direct reports a restricted version of that authority to do certain things, and so on. A common example is the authority to sign off on invoices of outside counsel up to set amounts.

By this formal cascade of rights, for instance, the law department has delegated authority to retain outside counsel and no other person, possibly, has that important privilege. Another common delegation of authority to the legal department requires it to approve a settlement of litigation. There may be other delegations, such as required involvement in corporate combinations like joint ventures or M&A transactions. Good corporate governance makes clear such parameters of authority and obligation.

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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.