It’s tough to accept the general counsel position from outside the company. Consider imported CEOs. An article in strategy + business, Summer 2008 at 80, looks at the performance of companies that promoted an insider CEO compared to those that hired a CEO from outside the company. For the 10 year period studied, "companies headed by North American outsider CEOs underperformed regional market returns by 1.0 percent on average.”

A similar, relative under-performance by a law department might follow when a company brings in a general counsel from outside. Consider the range of reasons why a newcomer to the company confronts more obstacles to success than does an insider (See my posts of March 26, 2005: choice between new blood and incumbents; and May 1, 2005: outside white knights have more problems.).

1. Passed-over internal candidates may lose effectiveness or leave (See my post of April 16, 2007: when an internal candidate is promoted.).

2. Morale may decline as direct reports re-shuffle their standings and the general counsel replaces some of them (See my post of June 11, 2008: new general counsel often cleans house.).

3. Turnover may increase in the law department, which results in a loss of institutional knowledge (See my post of June 15, 2005: costs of turnover.).

4. The new lawyer has to get to know the lawyers in the department and learn which ones to trust and rely on. That learning curve can sap engagement (See my posts of Jan. 10, 2008: employee engagement; and June 20, 2007: references on employee satisfaction, morale, and engagement
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5. The culture of the company may be strong, pervasive, and alien to the style of the newcomer (See my post of Nov. 20, 2007: 14 references cited on culture in law departments.).

6. Because of unfamiliarity, the nouveau GC may misstep with key clients or not hear of important developments promptly (See my post of June 28, 2006: create profiles for key client groups.).

7. The new company may fire-hose the new lawyer with information, especially if that lawyer has not worked in the industry before (See my post of July 16, 2005: business acumen counts for more.).

8. It may take longer to recruit a general counsel from outside than to promote from inside, and during that interregnum the law department may tread water or even sink under the waves (See my post of March 20, 2008: interim general counsel.).

If the lawyer comes from a law firm, these challenges magnify because the new general counsel may not have had much experience managing a large group of people.

Had we enough data, we might be able to compare a few key benchmarks over the two or three years after a number of general counsel arrive and quantify whether it makes a difference to promote internally or draw from outside.

Every time you hear about “the problem of career paths” for corporate counsel, you hear that the discontent wells up in part because “there is only one GC position.” The implication is that everyone below that level aspires to topple the king or queen and seize the throne. That regicide is untrue; not even close to true, I believe.

Most senior lawyers in legal departments feel good about their achievements and their balance of home and office. That they would like to earn more money is likely, but that to do so they would shoulder increased pressure, longer hours, loneliness at the top, harsher politics, and tethered on call is unlikely. They have come to terms with their abilities, aspirations, and affluence and would decline promotion to the general counsel position (See my post of July 28, 2008: plateaus and lawyers.).

A pejorative air hangs around the term “plateaued,” as in “Sometimes veteran lawyers plateau.” The term leaves the unsavory impression that those lawyers no longer have any fire in the belly to be promoted or to take on new responsibilities.

Some lawyers reach their cognitive limits or their energy constraints or blockage in their willingness to change. None of that is bad so long as they have ample work to do, commensurate with their compensation, and can do it competently. Much legal work is not brain surgery (See my post of Oct. 18, 2005: much work doesn’t need a rocket scientist.).

Steady, good performers may not be peak performers, but they are a blessing, not a cursed plateau (See my posts of March 16, 2006: A-players; Sept. 10, 2005: B-players; Dec. 23, 2005: racehorses only are not good for a law department; and July 28, 2008: not every in-house lawyer years to be a general counsel.).

Spot bonuses of cash may be a wishful gleam in the eye for most, but some law departments have programs to reward members with an immediate check effort above and beyond the norm (See my post of Nov. 8, 2007: on-the-spot awards.). Such seemingly beneficent programs bump into many nettles.

One risk is that the bonuses go too often to lawyers who work on high-visibility projects, a distortion that treats unfairly those who steadily do yeomen’s duty on less glamorous needs. Another is that awards go disproportionately to senior people, since it is harder to identify when a person at a lower level has significantly outperformed his or her peers. A third complexity arises when the company – above the level of the legal department – doles out rewards for multi-disciplinary teams of employees who made a major contribution, such as a merger team, and a lawyer was on that team. Warning bells ought to go off, furthermore, if one senior lawyer tends to hog the spot awards for that lawyer’s reports. At a deeper level, every time you favor someone, someone else probably feels slighted.

To recognize exemplary contributions with cash – or vacation days or dining out certificates, for that matter – earns you a rose, but issues of complexity, equity, consistency and consequences may prick you.

If you are in in-house litigator and you sit down to hammer out a settlement with your opponents over a meal, be sure to serve plenty of tryptophan.

It turns out that levels of serotonin, a brain chemical that seems to control our reactions to unfairness, depends on tryptophan levels, and together they influence how we view offers. According to Scientific Am., Aug. 2008 at 36, neurophysiology researchers found that subjects low in tryptophan, an ingredient the body needs to manufacture serotonin, were more likely to reject offers in an ultimatum game. In that game, one subject proposes how to divide a sum of money and the other subject either accepts or rejects. A rejection means that no one gets anything. Serotonin-deprived subjects were much more likely to reject offers than were normal subjects, full of tryptophan.

Year after year, InsideCounsel reports that law firms give themselves A grades for the services they deliver much more frequently than law departments give those law firms A grades. Specifically, in the latest survey from Inside Counsel, July 2008 at 47, 17 percent of the law departments gave their firms an A while 43 percent of the law firm respondents thought they deserve an A.

One reason that gap will persist forever is that law departments see the delivered work product and can't know very well what blood sweat and tears went into its creation. As a management consultant to law departments, the reports I deliver may look straightforward and logical and to be expected, but like sausage and legislation, no one should see what went into their complicated production. Similarly, partners know well the effort they went through and that the job they did was quite good under the circumstances; they believe they deserve an A. The lawyer in the legal department who hears the advice, analyzes the final memorandum, or reviews the pleading can all too easily take for granted the work that was done, ignore the toil behind it, and go beyond it in their expectations. This leads to giving the firm a B grade. End products look easy and inevitable.

The same imbalance applies to clients of the law department. They are ignorant of the energy and skills that went into the advice and outcome they see, so they can easily criticize it and wish for more. The bestowal of A’s and the B’s are inevitably asymmetrical.

Puzzling over the data from a survey where law departments rated the performance of their law firms, it occurred to me to make a point of methodology (See my post of July 21, 2008: survey methodology and 48 references cited.). The article, from Inside Counsel, July 2008 at 47, explains that 548 in-house counsel responded to the survey. What it does not say he is how many of those respondents answered specific questions.

I have no reason to doubt that the question that shows that in-house counsel have given fewer A grades each year since 2006 elicited responses from significantly fewer of those 548 respondents, but it is possible. For that reason, the best survey methodology for reporting data is to indicate the so-called "N" – number of answers to the question – for each question.

An article in strategy + business, Summer 2008 at 42, mentions that many Human Resources organizations track the number of job offers made by the law department and accepted. Such a metric might be insightful for large law departments that with some regularity bring aboard new lawyers.

It would be hard to say, however, in which direction you would like the metric to trend. If you are seeking the best applicants possible, you might end up with a relatively low acceptance rate. If you set your standards at a lesser level, you could boost the acceptance rate.

A key driver of client service. “A recent study found that perceptions of the importance of one’s job and its place in the organization’s endeavours had a bigger impact on loyalty and customer service than all other employee factors combined,” Edward Russell-Walling, 50 Management ideas you really need to know (Quercus 2007) at 74 (See my posts of Jan. 10, 2008: employee engagement.). How many general counsel regularly pump up for their staff the importance of what they do for the company?

Losses sustained when a desired lawyer leaves. Turnover, unwanted departures of productive lawyers, incurs costs in recruiting, hiring, and training replacements. These costs, according to MIT Sloan Mgt. Rev., Vol. 49, Summer 2008 at 29, “have been estimated to be 100% to 150% of the salary of a high-performing employee with unique skills” (See my posts of May 25, 2008: relocation costs and 7 references cited; May 14, 2005: estimates by me of over $100,000; and June 15, 2005 regarding the costs of turnover.).

Numbers of secondees expected from panel law firms. Corp. Counsel, June 2008, writes that British “banks have increasingly begun insisting on set numbers of secondees as part of outside law firm panel agreements, with HSBC Holdings plc, for example, estimating that it took on around 50 lawyers for free from its panel firms last year.” For free? And 50 of them?? (See my posts of July 17, 2008: secondees and 12 references cited; and Jan. 23, 2008.).

Here are ten more embedded metaposts with links (See my post of July 20, 2008: Part X.) along with the number of posts cited within them.

1. Benefits perquisites entitlements (See my post of July 26, 2008 – 12 posts.)

2. Contract lawyers (See my post of July 17, 2008 – 12 posts.)

3. E-discovery (See my post of July 26, 2008 – 24 posts.)

4. Multiple-choice questions (See my post of July 20, 2008 – 15 posts.)

5. Relationship partners (See my post of July 26, 2008 – 8 posts.)

6. Secondment secondee (See my posts of July 17, 2008 – 12 posts; and Jan. 23, 2008.)

7. Selection bias (See my post of July 21, 2008 – 8 posts.)

8. Strategic plan (See my post of June 25, 2008 – 10 posts.)

9. Survey methodology (See my post of July 21, 2008 – 40 posts and 25 internal references)

10. Titles (See my post of June 26, 2008 – 15 posts.)