The title of an article in the Atlantic, Vol. 303, June 2009 at 54, provocatively asks, “Do CEO’s matter?” A groundbreaking study published 47 years ago found that “Industry effects,” such as the amount of available capital and the industry’s stability accounted for almost 30 percent of the variance between companies in profits. “Company effects,” such as the firm’s history in the industry, explained about 23 percent. “CEO effects” explained a measly 14.5 percent. Many scholars since then have “likewise concluded that external forces influence corporate performance far more than CEOs do,” often less than the original study. Do general counsel make all that much difference?

Some of the modest CEO effect has to do with the number of employees of a company, and the difficulty of inspiring people beyond a relatively small team. Compared to a CEO, general counsel mostly lead small teams. The article cites findings that “performance problems increase exponentially as team size [ideally, about six people] increases.”

Other researchers have found that CEO leadership matters relatively less in constrained industries, such as electrical utility industries, than in hotly competitive, fast-changing industries. A similar conclusion probably applies to general counsel: legal/business calls and tougher and more frequent in roiling industries so the top lawyer has more opportunity to make a difference.

I am quite sure that if similar studies were carried out on general counsel, their effect on the company’s fortunes would almost always be negligible, but the effect on the law department would be major (See my post of June 5, 2006 about general counsel and their influence on share price.).

The article closes with a discouraging caveat. A large “CEO effect” need not imply a positive impact. We read all about heroic corporate heads, but more than a few dunderheads have led their company down the slippery slope. Likewise, I think general counsel make all the difference in the world to the legal department, but the difference can be heaven or hell.

Several posts here have mentioned United Technologies’ legal department (See my post of Dec. 8, 2005: lessons learned from alternative billing; Dec. 19, 2005: difficulty proving savings from discounts; Jan. 6, 2006: captive offshore facility; and Aug. 24, 2006: use of a balanced scorecard.). When I read in Legal Tech. News, May 2009 at 50, that the department has 250 attorneys located in 55 global offices, I marveled at the dispersion (See my post of Sept. 16, 2008: foreign locations of in-house counsel with 11 references.).

The profile of Kim Townsan, its long-serving senior manager of legal administration, also mentions that the department uses a package not mentioned heretofore, ComputerShare Governance Services Global Entity Management System (See my post of Dec. 12, 2007: corporate secretary with 13 references; and Aug. 12, 2008: corporate secretary with 21 references.).

Accustomed behaviors waste electricity; changed behaviors can save it. For three examples of what is easy to change, I commend Joe Howie’s article in Legal Tech. News, May 2009 at 40.

The first tool is the Smart Strip Power Strip, from Bits Ltd., which “turns off peripheral devices when the strip senses that a computer is turned off.” Thus, each individual office that has its own printer, speakers, second monitor, or external hard drive could power them down when the occupant turns off the computer. You do power down your computer when you go home, don’t you?

The second tool of Howie is solar battery chargers. He lists Solio Classic Universal Hybrid Chargers from Better Energy Systems, as well as the Solar ePower Battery Charger from Wagan Tech, both of which can charge cell phones and the latter of which can recharge AA and AAA batteries. General counsel should consider equipping their cell phone users with power sources from renewable energy.

Did you know that a coal plant will burn about 900 pounds of coal and release almost five tons of CO2 into the atmosphere to keep a single 100-watt light bulb burning all year, at an average cost to the consumer of $93.29 (See my post of March 11, 2009: conservation for law departments with 7 references.). You do turn off lights, don’t you?

I relish surveys and analyzing their methodology and findings (See my post of March 2, 2008: surveys of law departments with 72 references.). The most prolific survey for law department management data from this blogger’s perspective is certainly that of Serengeti Law, so I thought some public praise is well deserved.

As of today, I have cited the data accumulated by Serengeti, primarily through the hard work of Rob Thomas, at least two dozen times. During 2005-2007 I wrote about the surveys 11 times (See my post of April 5, 2005: lackluster responses to its survey; April 9, 2005: low participation rates in a survey; Aug. 5, 2005: estimates of savings from five cost-control methods; Nov. 6, 2005: budgets; Nov. 8, 2005: usefulness of requiring minimum years of experience for associates; Oct. 1, 2006: integration of service of process tracking; April 13, 2007: savings from matter management systems; May 9, 2007: response rates to legal department RFPs; May 11, 2007: minimum levels of associate experience demanded; Aug. 4, 2007: inside time spent managing outside counsel; and Oct. 25, 2007: prompt payment discounts.).

My pace of citations to Serengeti surveys picked up during the past two years (See my post of Feb. 17, 2008 #1: smaller companies spend more on legal as a percentage of revenue; Feb. 23, 2008: average annual increase in outside billing rates; April 8, 2008: reported savings from matter management; April 8, 2008: collaborative billing technologies; June 10, 2008: data on convergence; Aug. 15, 2008: compliance functions; Dec. 27, 2008: disappointment over convergence benefits; Jan. 22, 2009: top concerns of in-house counsel; March 5, 2009: “standard billing rates”; March 6, 2009: periodic written updates on matters; March 8, 2009: information about expenditures from accounts payable system; April 18, 2009: number of law firms typically used; and April 20, 2009: lower average hourly rates.).

From the 2008 ACC/Serengeti Managing Outside Counsel Survey, published in the ACC Docket, Vol. 27, May 2009 at 9, comes this finding: “[C]ounsel most frequently reduce bills for what they perceive as time not well spent for the following reasons (in decreasing order of priority): overstaffing at hearings/meetings, administrative work/filing/organization, time billed to the wrong matter, duplicate invoices and office conferences."

Two observations occurred to me from that sentence. First, a law department does not save money if time billed to the wrong matter is corrected to the right matter, although of course if the time billed were to some other client’s matter the reduction would be legitimate. Nor is there a saving from rejecting duplicate invoices, unless the law department commonly paid the same bills twice.

The second observation is that none of these reasons explicitly depend on an assessment that the value obtained by the client for work done was less than the amount billed by the firm. Over-staffing perhaps implies that one or more people at a hearing or meeting were superfluous, but the basis for the reduction feels more mathematical than substantive. “Office conferences” is too vague. Genuine reductions of bills ought to pivot on marking down legal work done poorly, inefficiently, or inappropriately.

No posts have defined this term but some posts have commented generally on those who report to the chief legal officer through no intermediate person (See my post of June 7, 2006: number of reports to general counsel; Dec. 9, 2005: direct reports in large law departments; Sept. 27, 2005: 180° evaluations of direct reports; June 24, 2007: attrition rates blamed in part on direct reports; Oct. 10, 2005: competition among direct reports; Feb. 1, 2009: “management team” means the CLO’s direct reports; and Feb. 19, 2008: a descriptive metric for direct reports and other reports.).

Some posts comment on the number of people reporting to specific general counsel (See my post of June 16, 2006: 15 direct reports to general counsel of Honeywell and the notion of 15% of lawyers as direct reports; Jan. 17, 2006: general counsel of McDonald’s and her 3 direct reports, plus marketing, compliance and international reporting to her; Nov. 4, 2007: 10+ reports to general counsel of Raytheon; May 2, 2008: Siemens’s reorganization and the new direct reports; and Feb. 13, 2009: Cadbury-Schweppes and 10+ direct reports.).

For your next competitive bid, ask the firms to submit two proposals. The second one should be blinded, the name of the firm and all information identifying the firm being concealed.

I hear you muttering, “You are crazy, Rees!” But think of the gross impressions and prejudices lawyers have of some firms.

Certainly some important information, such as lawyer bios and matters handled, cannot be redacted. But significant parts of a proposal could be submitted anonymously and the reviewers would be less likely to be improperly influenced by the aura of a particular firm. If the response reviewers don’t know whether the proposal comes from Cravath, Swaine & Moore or from Afew, Lawyers & Paralegals, they won’t fall prey to the affect heuristic whereby preconceived value judgments interfere with assessments (See my post of March 15 ,2009: seven cognitive biases; May 14, 2006: fundamental attribution error; July 10, 2007: fundamental attribution bias; and Nov. 21, 2008: value attribution distorts perceptions.).

The percentage of a department’s fees paid to its top law firms is one common way to describe law firm concentration. For example, 75 percent of a department’s fees went to 10 percent of its firms (See my post of May 3, 2006: at UPS, 25 core law firms represented more than 80 percent of its costs; Jan. 21, 2008: two firms paid the most; March 13, 2007: for 201 companies in 2005, the median number of law firms that were paid three-quarters of all outside counsel payments was 11 firms; and April 18, 2009: confusing data on concentration of spending.).

Convergence increases this clustering; clustering, however, can occur even with the opposite of convergence (See my post of Feb. 16, 2008: convergence with 26 references; and March 24, 2005: concerning concentration over convergence.).

An untested index of concentration compares the number of matters for which a firm was retained against its rank by number of matters (See my post of May 28, 2009: the h-index and concentration of matters.).

More prosaically, a third perspective on concentration looks at what percentage of the matters in an area of law a given firm handled (See my post of Oct. 22, 2006: the Gini coefficient of concentration.). You could adjust the number of matters handled by firm size, and see which firm gets relatively more of your work when firm size is held constant (See my post of March 9, 2009: fee concentration with firm size.).

A fourth view counts how many firms were paid a substantial amount – such as $100,000 or more during a year – as a percentage of all the firms paid or divided by billions of revenue to correct for company size. Bigger companies should set the threshold higher and some day there may be a standard for this descriptive metric such as a threshold of four times the median payment (See my post July 16, 2005: $100,000+ firms.).

Concentration of law firms and spending on them show up in other posts (See my post of Aug. 21, 2005: law firm usage map; and Dec. 7, 2007: counterpart of law firms concentrating their focus on a relatively small number of clients.).

The Rotman Mag., Winter 2009 is devoted to “wicked problems.” One article (at 19) sets out six characteristics of wicked problems, all of which together suggest that for managers of sizeable internal legal functions wicked problems abound.

“You don't understand the problem until you have developed a solution. Every solution that is offered exposes new aspects of the problem, requiring further adjustments to the potential solutions. There is no definitive statement of ‘the problem’; these problems are ill structured and feature an evolving set of interlocking issues and constraints.” Just think of the challenge of “reducing legal expenses.”

“There is no stopping rule. Since there is no definitive ‘the problem,’ the results are no definitive ‘the solution.’ The problem-solving process ends when you run out of resources such as time, money or energy, not an optimal solution emerges.” Figuring out best practices comes to mind as an example (See my post of March 20, 2009: seven reasons why I question best practices.).

“Solutions are not right or wrong. They are simply ‘better/worse’ or ‘good enough/not good enough.’ The determination of solution quality is not objective and cannot be derived from following a formula.” Most general counsel can hope for little more than “satisficing,” a term cognitive scientists use to describe the tradeoffs we make when we think (See my post of Sept. 9, 2008: intractable problem of clients’ appropriate use of in-house lawyers; and June 24, 2007: intractable of career paths.).

“Each is essentially unique and novel. No two wicked problems are alike, and the solutions to them will always be custom designed and fitted. Over time we can acquire wisdom and experience about the approach to wicked problems, but one is always a beginner in the specifics of the new wicked problem.” No two law departments are alike, so their challenges are not alike and all solutions are hand-crafted.

Every solution is a ‘one-shot operation.’ This is the ‘Catch-22’ of wicked problems: you can't learn about the problem without trying solutions, but every solution is expensive and has lasting consequences that may spawn new wicked problems.” Managing lawyers can never anticipate all the ripples from an operational decision (See my post of Aug. 1, 2006: second-order consequences; Aug. 28, 2005: unintended consequences; Dec. 17, 2006: all practices have pros and cons; Aug. 22, 2006: the economics of error; July 10, 2007: well-intentioned actions that bring punishment and eight examples; July 28, 2008: decision map helps person think about possible consequences; Aug. 29, 2008: unanticipated effects if general counsel improve their management skills; and Sept. 9, 2008: opportunity costs, an economist’s way to describe tradeoffs.).

There is no given alternative solution. “A host of potential solutions may be devised, but another host are never even thought of. Thus it is a matter of creativity to devise potential solutions, and a matter of judgement to determine which should be pursued and implemented.”

Wired, June 2009 at 110, describes Google’s auction method, one which could apply to legal departments when they put work out to bid for a fixed fee. The winner of a competitive bid would be selected to do the work for one thousand dollars more (or some other pre-determined increment) than the bid of the firm with the next-lowest offer. So if firm A proposes to handle all your immigration work for two years for $300,000 and firm B proposes to handle it for $320,000, you pick firm A and award the work at $301,000. This method reduces the winner’s curse (See my post of Jan. 14, 2007: winner’s curse.) and is more likely to reach a fair price. This technique is often referred to as a “second-price auction.”

I have criticized auctions for legal work, yet I strongly back competitive bidding processes and the second-price variant. To reconcile my positions, I have to make clear that what I do not like are electronic, online, real-time auctions for legal services of any complexity (See my post of May 21, 2007: auctions with 7 references.). I favor market discipline and information for fixed fee arrangements.

Other kinds of auctions exist, such as Vickrey-Clark-Groves (See my post of Feb. 20, 2007 #1: expressive bidding algorithms for bundles of services; Feb. 1, 2006: “double auctions” that match seller and buyer rankings as well as “unique bid” auctions; and May 23, 2008 #1: combinatorial algorithm auctions.).

Since that metapost in mid-2007, this blog has dropped the gavel on several more auction items (See my post of Jan. 14, 2008: competitive bids and market cost; Feb. 16, 2008: few references to auctions proves their unpopularity; May 2, 2008: Esq.-harmony to match law firms and law departments; Dec. 9, 2008 #4: online auction by Intel for patents in 2006;and April 9, 2009: eLaw Forum and a massive competitive bid.).