A prediction that HQ legal groups will shrink

The Economist, Nov. 15, 2008 at 78, speculates that with the current torrent of downsizing will come trimming of headquarters staff. It cites Nortel, which is “handing over activities such as marketing and R&D, which were previously run from the centre, to business units.” Although not mentioned, legal functions may follow suit. Sarbanes-Oxley supposedly pushed companies to report all lawyers to the general counsel; financial stress may push some of them to report legal groups back to business executives (See my post of March 11, 2005: SOX and reorganizations.).

No research that I have encountered suggests that companies with decentralized legal groups encounter more legal shortcomings than single-reporting-line departments, such as failures to spot issues, escalate them if appropriate, or prevent wrongdoing. Anecdote and subjective opinion do not prove that situation (See my post of Aug. 5, 2008: decentralized reporting with 7 references.).

Even to raise this reporting possibility ranks for me as apostasy, because I strongly advocate that all practicing lawyers in a company report (even if up a chain) to the top lawyer, who should report to the CEO. I believe that if the CEO holds the general counsel accountable for the legal affairs of a company, the general counsel should have managerial control over all inside and outside lawyers of a company. If there were a clean way, however, to divide the accountability, or to live comfortably with gaps in the accountability – the decisions of practicing lawyers who report to a business executive – then so be it. Many reputable companies have decentralized reporting of their lawyers.