Law Department Management

The Pandora's Box of billing business units for inside lawyer time

To charge back or not to charge back time, that is a question for inside lawyers. Those law department managers who advocate a time chargeback system do so in part because it makes clear that legal services are not a free good. A chargeback encourages clients to use lawyers when they are most valuable. If you bill for your time, your company benefits because clients take more care of your singular resource: time.

A thoughtful article, even though five years old, disagrees. "[E]xperience seems to hold that companies that adopt this approach end up devoting enormous amounts of time, energy, and resources to the billing process, often to the point of having business units hire their own lawyers to manage and negotiate bills," ACCA Docket, Vol. 18, May 2000 at 4 (Stephen J. Friedman and C. Evan Stewart). I have never heard of that latter wasteful step of in-house lawyers hired to war over charge-backs! The authors also believe that "such internal billing procedures may well inhibit corporate clients seeking important legal advice in a timely fashion." That worry has more bite, as units that struggle to make their numbers may be tempted to shave legal costs.

Friedman and Stewart recommend that the general counsel negotiate with the chief executive a workable aggregate budget paid from general revenues. Only in exceptional situations, such as a major acquisition or lawsuit, should a business unit incur the legal costs.

Fear of change and a neural explanation for some of its morale issues

"Human brains have evolved a particularly strong capacity to detect what neuroscientists call ‘errors': perceived differences between expectation and actuality." David Rock and Jeffrey Schwartz, "The Neuroscience of Leadership," Strategy + Business, Summer 2006 at 73-4 (See my post of Jan. 3, 2006 on our inborn sensitivity to fairness.).

When a person detects a difference between what the person expected and what was delivered, one portion of the brain is particularly stimulated: the orbital frontal cortex. That location is closely connected to the brain's fear circuitry, which resides in an organ called the amygdala (See my post of Feb. 12, 2006 on the amygdala hijack.). When those two brain areas react in tandem, they dampen the functioning of the prefrontal (controlled and rational) region and push people to become emotional and act more impulsively.

Change triggers this dual reaction; change in law departments causes emotional upset and impulsive responses arising to some degree out of fear. The brain needs communication and trust.

People make or break management initiatives

After a discussion of the knowledge management efforts at Buckman Labs, Willie Pieterson, Reinventing Strategy: Using Strategic Learning to Create & Sustain Breakthrough Performance (John Wiley 2002) at 183, summarizes an important point: “Knowledge sharing is 90% sociology, and only 10% technology.” Computers can enable the exchange, but people share knowledge.

Likewise, despite all the tools that are available to control outside counsel costs, the preeminent resource is committed people. To the same point, no matter what the processes, forms, and training, what makes a talent management initiatives succeed are the people who carry it out. Law departments privilege software and processes (See my post of April 19, 2006 that compare their use to personal contact.), but the key to success in any initiative are motivated and trained people.

Knowledge of statistics is 94.3% important for in-house counsel

Greg Listokin’s post on Prawfs Blawg, May 22, 2006, proposes to make a statistics course mandatory for law students notes that “there are entire fields of law that are nearly impossible to fully grasp without a basic knowledge of statistics. To name a few, I would put employment discrimination, products liability, and much of torts and evidence in this category. In addition, statistical evidence or thinking plays (or at least should play) some role in almost every area of law.” One can also add M&A work where anti-trust analyses enter in and any spending analysis.

To the same point, corporate practitioners should understand the powers and limitations of statistics (See my post of Dec. 26, 2005 on one form of statistical analysis, Bayesian.). If you don’t have a facility with the ways to describe the dispersion of data (average, median), data’s central tendencies (mode, standard deviation), and correlation (least squares equation), your innumeracy will limit you.

All management expresses values

"All of business is about values, all of the time." These are the philosophical words of Matthew Stuart, writing in Atlantic Monthly, May 2006 at 87. Running a law department is about values, all the time.

Benchmark figures, for example, are not just descriptions of some aspect of law department reality but rather are prescriptions – how many resources should be devoted in a corporation to legal issues. Surveys of employee morale and programs to increase teamwork and collegiality are not simply factual -- how can we best develop our talent? They are moral, as in how much of a worker's sense of identity and well-being does a law department have a right to harness for its purposes?

Our belief systems – our values – drive us as managers (See my post of May 30, 2006 on culture and one of its components, values.). Values have to do with power. A manager is vested with authority to tell someone else what to do, and even to fire the employee. Values inevitably come to light wherever some person can exercise power. For this reason, managers express values, explicitly or implicitly, as they exercise their power and decide on courses of action. General counsel and others who manage in-house counsel ought to try to understand and test their value sets (See my posts of Feb. 7, 2006 about values and Cox Communications; Dec. 19, 2005 about active inertia; and Nov. 16, 2005 on culture

The difference between a strategy, emergent or formal, and a plan

Henry Mintzberg, a Canadian professor who studies management, has concluded that only 10 percent of most companies' actions arise out of their formal strategic planning. Fully 90 percent of the results projected in most formal strategic planning processes never come to fruition. As explained by Willie Pieterson, Reinventing Strategy: Using Strategic Learning to Create & Sustain Breakthrough Performance (John Wiley 2002) at 46, the largest portion of activity comes from "emergent strategy." This organic, evolutionary progress results from a series of ad-hoc initiatives, reactions, trial and error, and choices that managers make in response to daily pressures, without guidance from any overarching strategic concept. So-called strategy is Topsy, it just grows.

General counsel, and those who report to that position, create large doses of emergent strategy, in part because their range of strategic initiatives are so limited (See my post of Dec. 15, 2005 that doubts law department strategic planning; and Dec. 19, 2005 on active inertia.) .

In Pieterson’s opinion, good strategy begins with divergent thinking, which questions basic premises. Good planning, by contrast, is above all an exercise in convergent thinking, which picks among the given choices the most effective one (id at 46). Both depend on execution (See my post of Oct. 10, 2005 where executive weaknesses undermine strategic decisions.).

The sigmoid curve of management initiatives

Management researchers often observe a pattern when a unit, such as a law department, tries something new. Initial excitement and improvement gives way to declining effectiveness as reality and resistance intrude. As the department works out the kinks – say with a new matter management system or a new form of evaluation – the new management initiative gains strength and improves even above the first flush of success. Eventually the rate of improvement shrinks and stops, before rigidity, atrophy and decline set in.

A sigmoid curve – an S-shaped curve laid on its side like a roller coaster – illustrates from the left the small peak at the start, the sag, the higher gradual peak, and ultimate degradation. Many practices pass through the sigmoid phases.

Telecommuters work hard to protect this dirty little secret

Working from home has much appeal in the war for talent, and law departments succumb at times (See my posts of Oct. 19, 2005 on obstacles to telecommuting; Sept. 25, 2005 and Oct. 18, 2005 on survey data; Dec. 4, 2005 on ways to bend the work rules; and Dec. 10, 2005 on cost and productivity savings.). Law departments would come up short, and general counsel would ban work from home if this quote, from the NY Times, May 27, 2006, at C5, came to their attention (and were true): “When office employees say they are working at home for a day, 25 percent actually work less than one hour.”

The Times drew this quote from Health magazine and called it “troubling.” Drolly, the Times added a second thought: the other magazine “did not ask how long those people actually worked when they went to the office.”

A general counsel’s budget should include settlements and awards (Friedman and Stewart)

On one side of the aisle sit those who believe that general counsel should be responsible for only two components of corporate legal costs: the overhead costs of inside attorneys and outside counsel fees. On the other side sit those who would add to responsibility for the total amount of settlements and money damage awards. A thoughtful article by two former general counsel, Stephen J. Friedman from E.F. Hutton and Equitable. and C. Evan Stewart from Nikko Securities, sides with the latter: "a general counsel should be judged by the ability to manage the overall cost of all three components," ACCA Docket, Vol. 18, May 2000 at 2.

Responsibility for total legal costs fits with Friedman's and Stewart's view that to the corporation all legal costs from whatever pocket are fungible (a dollar spent is a dollar spent), and that “a company should be indifferent to which component of legal costs an expenditure represents, as long as the overall cost of a project is as low as is practical."

The prickle is that business unit heads are held accountable for their budgets, so that if settlements and awards come from their purse, they do not want to cede complete authority to the lawyers to decide the timing and amount.

Neuroscience and law departments – working memory and the challenge of change

"Working memory" is the term for where perceptions and ideas are first handled by the brain. When working memory is in use, such as when a law firm partner tells you next quarter’s budget, the brain shows neural activity in the pre-frontal cortex. The basal ganglia, by comparison, are invoked by routine, familiar activity, like typing or minimizing Free Cell when the Deputy GC walks in. In the basal ganglia, located near the core of the brain, the brain forms and stores the neural circuits of habits.

A provocative article by David Rock and Jeffrey Schwartz, "The Neuroscience of Leadership," Strategy + Business, Summer 2006 at 71, explains that "the basal ganglia can function exceedingly well without conscious thought in any routine activity. In contrast, working memory fatigues easily and can hold only a limited amount of information at the ready.”

Much of what we are accustomed to doing is handled unconsciously by the basal ganglia; to reroute these deep grooves of familiarity and habit requires deliberate attention, which is difficult and irritating, as it puts stress on attention and working memory. So neuroscience helps explain why we avoid change.

For more on neuroscience and lawyers, see my post of March 18, 2005 on intuition and decisions; and in 2006 of Feb. 12 on the amygdala hijack; March 23 on pharmacology; April 19 on our hardwired attraction to systems over personal interaction; and April 27 on CLE and brain longevity.