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An upcoming conference on Social Media Law charges widely different amounts for different classes of attendees. In-house counsel pay $695 for the one-day conference. Law firms attendees pay much more, $1,295, but not as much as the wretched of the earth (“Consultants/Vendors”) who must cough up $2,095.

The conference’s topic has as much or more appeal to law firms yet they have to pay 83 percent more than their in-house client? And commercial types pay three times more?

The image that came to mind was “Girls Get in Free” at clubs, while boys pony up a cover charge and photographers face a huge admission cost. The in-house lawyers – desireable BUYERS – pay much less while others, SELLERS, pay much more. Those who don’t contribute as much legal practice knowledge even face the stiffest fee (vendors and consultants).

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For large collections of documents, law departments can improve on indices and search tools. If the documents have meta-tags, which capture their higher-level attributes, it is easier to find related documents, manage them such as under retention policies, connect them to other information such as comments, and link them to processes.

All desirable, but to get busy employees to add meta-tags manually becomes very hard, according to KMWorld, April 2011 at S13. Software developers, not surprisingly, offer tools that automate the creation and maintenance of meta-tags.

Metatags can’t be just any old attributes not can terms wander all over. A taxonomy helps assure that information is classified consistently. One person’s “class action” can’t be another person’s “law suit” and a third person’s “litigation.” Matter management systems create taxonomies through fields and drop down selections.

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Power and knowledge accumulate together and feed each other. The more a lawyer knows about the law and the company the lawyer represents, the more influence that lawyer wields. The deeper the experience of a law firm partner, the more power that partner has to charge healthy fees. Information, as Michel Foucault famously formulated it, leads to knowledge, which fuels power in a variety of forms. This deep inter-connection coalesced for me from Joel Mokyr, The Enlightened Economy: An Economic History of Britain 1700-1850 (Yale Univ. 2009) at 35.

The nexus of power – the ability to decide and make something happen – and knowledge shows up everywhere for law departments. Favored law firms have earned that respect, generally speaking, because they know how to solve legal problems and accomplish legal work. Their effectiveness imbues them with power. High potential lawyers enjoy preferential treatment because their abilities outshine their peers’. Their extraordinary competence gives them a form of power. Executives in a company manifest power in many ways, such that lawyers who serve them treat them differently than they treat less powerful clients. That is the way life works: rank has its privileges.

A law department’s clout corresponds to how effectively it solves problems and accomplishes legal services. Power = knowledge.

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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?

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“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?

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Most lawyers start their careers being trained to miss nothing, look at everything, and be very wide-ranging. They wallow in complexity, for that rack up lots of billable hours, and become quite enamored with creating and dealing with complications.

Once lawyers reach management levels, however, they need a very different orientation: they need to simplify. A good manager clears away the clutter of detail and focuses, over the longer range and on the most crucial decisions. To illustrate, a general counsel who redlines, researches the law and drafts may be stuck in complexity. They micromanage. A better general counsel concentrates on the actions or ideas that have the most leverage; they simplify to the big-picture considerations.

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The Third Annual Law Department Operations Survey asked its respondents to check off to whom do they report. The report that resulted, at 14, states that 44.1 percent report directly to the general counsel as compared to 37 percent in 2009. The writer touts the improvement in the “chain of command.” But two years before the percentage had been much higher (See my post of Dec. 21, 2008: three out of four of the 50 respondents report to the general counsel.).

Another 27.1 percent in the latest survey report to a deputy/associate or assistant general counsel.

What surprised me is that “10 percent report directly to the CEO.” How can that be? I asked Brad Blickstein, one of the coordinators of the survey, who would be pleased to send you the report if you email him. He explained: “Regarding the six CEO responses, we ask people to fill out this survey if they are the person in their law department most responsible for operations. In a few cases, that’s the GC himself or herself.”

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A piece entitled Ten ’In-house Secrets For Reducing Your Company’s Legal Costs” appeared on Jan. 8, 2010 on the WikiCFO site. The author is, I believe, a lawyer with the Phillips Law Group.

I don’t think much of the article, but one of its ten secrets pushed me to write. Under the heading ”Calculate Your Company’s legal costs” it says, “This requires adding up all of your legal bills for the previous year AND estimating the cost of productive executive time lost due to involvement in, concern about, or management of legal issues.” Note the second cost estimate, after the AND.

No law department has come to my attention that attempts to estimate the costs of executives, let alone other employees, in depositions, discovery steps, strategy meetings, expert testimony or other legal-related costs. The numbers might be quite significant but their estimation would be quite subjective. Without them, for sure, Total Legal Costs fall short of Total.

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A recent report entitled Litigation Cost Survey of Major Companies, presented at the Searle Center on Law, Regulation, and Economic Growth (Northwestern Univ. School of Law, May 10-11, 2010), presents time series data on litigation costs for 37 Fortune 200 US companies. The authors found that “companies spent, on average, 16 to 24 cents on US litigation for each dollar of profit earned in 2008.” I find that 20 percent of profits hard to accept.

At the median, US law departments spend about one-third of a percent of their revenue on outside counsel, two-thirds of that being for litigation. That is, they spend roughly two tenths of a cent of every $1 of revenue on litigation fees and disbursements.

If typical corporate profit rates run at something like ten percent of revenue, then multiply the two tenths of a percent by ten and that leaves about two cents for every $1 of profit. The Searle report found litigation expenses to be approximately ten times higher!

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An extreme value distribution is a curve that does for abnormal values what the normal, Gaussian bell curve does for run-of-the-mill values. A theory to predict extreme events first appeared in 1928, gained its first real traction 20 years later, and Extreme Value Theory (EVT) has recently become more and more mainstream for insurance companies, financial services companies, and governments that have to decide how much to invest to protect against a calamity. EVT came to my attention in Robert Matthews, 25 Big Ideas: The Science That’s Changing Our World (MJF Books 2005) at 103.

The theory draws on data from the past. For a law department, or a group of them in the same industry, EVT might look back at the number and frequency of law suits that cost more than $3 million in a year, in present dollars, to defend. It appears to be a sophisticated mathematics that could project the likelihood of such a budget-crusher in the future.