“Information technology … is a misnomer” or seriously under-inclusive

“The biggest impact of technology is not on information management, it’s on people management, it’s on relationship management, it’s on process management, it’s on systems management” (emphasis in original).

The speaker is Michael Schrage, of the MIT Center for Digital Business, in an interview by MIT Sloan Mgt. Rev., Spring 2010 at 58. He passionately argues that software should be a tool to create value and as such it should reinforce all of the complementary “managements.”

His statement set me to thinking about the relationships and systems that general counsel need to nurture. If we view a legal department as a web of relationships, internal and external, we develop certain corollaries. For example, the frequency and quality of communications become more important. The strength and number of connections between people counts for much. Longevity and familiarity facilitate actions and decisions (See my post of Nov. 6, 2006: organizational network analysis; March 9, 2007 #3: organizational network analysis; Jan. 25, 2009: value of speaking to a person over querying a database; and Jan. 25, 2009: decision analysis and network analysis.).

Similarly, if we take a systems view of a legal department it is a wider perspective than a focus on processes (See my post of Sept. 22, 2005: system dynamics; Aug. 28, 2005: systems theory uses models; and May 19, 2006 #1: all law department activities viewed as information flows, processes, or systems.). Legal departments, and the information flows within them, exist in a context that is much broader, a system.

Economists would not believe a gap persists between fees paid law firms and value delivered

Classical economics holds that if law firms charge more than what in-house lawyers are willing to pay, those fees will decline. If demand is less than supply, prices fall.

Absent a monopoly, and no law firm in the United States has a monopoly on any legal service, and absent proprietary knowledge or processes, and no law firm has a patent on any legal service, supply (cost of law firm services) should reach equilibrium with demand (legal services valued enough to be paid for by companies).

If this axiomatic economic reasoning applies, then the grumbling about the high costs of law firms and a systemic gap between what is paid and what is gotten is sound and fury signifying nothing. Demand matches supply, ergo no value gap exists. QED

Spun off thoughts based on the large litigation group at Ford Motor

Corp. Counsel, March 2010 at 77-79, makes several points about the litigation group at Ford Motor.

(1) The group employs the most lawyers in the department. That should sadden everyone except those in the litigation group, because no company sees litigation as a core competency (except patent trolls) and litigation rarely adds value for society.

(2) For years Ford has had four teams in its litigation group – product litigation, general litigation, regulatory, and in-house discovery – and its lawyers specialized on one of the four teams. A company with the onslaught of litigation like Ford can and should focus lawyers on portions of that stream.

(3) Ford “has lowered its litigation spending since 2005 by 27 percent.” That drop excludes IP litigation, which is handled outside of the litigation group. This impressive feat, however, gives me pause. Does the drop reflect a drop in business (See my post of March 24, 2010: layoffs for business shrinkage or for terminations.). Was 2005 a high water mark (See my post of Feb. 7, 2006: regression to the mean.)? Does the litigation spending include settlements and judgments paid? Has the mix of lawsuits during the period changed materially, such as fewer class actions? In short, to what degree is the decline attributable to better management as compared to systemic shifts?

(4) “About 80 percent of its litigation caseload – which constitutes 70 percent of its outside counsel spending – is paid on a flat fee basis.” (See my post of July 7, 2009: estimates of 60 percent spent on litigation by US legal departments may be too high.). That ratio of flat fees impresses me. With Ford’s downpour of litigation over many years, such billing arrangements ought to be understood and reliable more so than for legal departments with a drop or two falling here and there.

(5) “When Ford doesn’t pay flat fees, nearly 95 percent of the partners trying its cases work for hourly rates of less than $300.” What an amazing low figure, which should make other general counsel green with (no green) envy (See my post of March 9, 2009: effective billing rates with 9 references.).

Puzzled over discounts that differ depending on the projected value of the legal services

Summarizing discussion points at a conference of the Iberian Lawyer’s In-House Club, the author wrote that general counsel “had been requesting a reduction in law firm rates for lower value work … but had not yet looked for deep discounts for the highest value work.” That quote, from Iberian Lawyer, Jan./Feb. 2010 at 13, puzzles me for several reasons.

First, rather than exact an extra pound of flesh for lower-value work, why don’t legal departments hire law firms that have lower cost structures?

Second, if in-house counsel can classify a matter early on as lower value and thus entitled to higher discounts, don’t they have the data, experience, and confidence to solicit fixed fee arrangements to such matters?

Third, isn’t the dichotomy arbitrary and crude? Even “highest value work” has swatches of tasks that are routine. If you treat an entire matter – a complex mix of high, medium, and low value work – as monolithically at one point on a value spectrum (let alone as the binary choice of high or low), you are missing opportunities to pay less for predominantly higher end work, and underpaying for some work at the lower end (See my post of May 23, 2007: fees paid vary by the complexity of a patent application; Nov. 25, 2005: clear-cut value difference between types of similar matters; Feb. 15, 2010: thoughts on software that ranks matters on value and complexity.).

Finally, why do general counsel persist in imagining that discounts materially and advantageously alter the financial arrangements they have with law firms?

Rees Morrison’s Morsels #135: posts longa, morsels breva

A web portal by Dell wins an award for innovation. The March 2010 issue of Law Tech. News explains that Dell’s patent team “created an external hosted web portal that not only provides Dell’s internal patent team with a system for setting up and conducting meetings and voting on necessary disclosures, but also links to outside counsel for assignments and data sharing” (See my post of and Aug. 16, 2006: portal technology; Jan. 25, 2007: boards of directors and portal software; June 4, 2009: a patent portal; Jan. 7, 2010: clients request legal services through an online portal and can see contracts; and June 27, 2006: portals with 4 references.)

Empirical analysis of contract terms. “The most extensive study is an analysis by Florencia Marotta-Wurgler of New York University School of Law. She and her team analyzed 647 End User License Agreements (EULAs) from 598 companies. The study analyzes ‘23 common and important standard terms that allocate rights and risks between buyers and sellers.’ The study shows a significant bias in favor of the seller as shown in a Bias Distribution chart.” This comes from Kingsley Martin’s blog (See my post of Jan. 21, 2010: survey lists 30 contract terms most frequently negotiated.).

Grammar Counsel. “Note that the plural of general counsel is general counsel, not general counsels.” The debate is closed (See my post of March 22, 2006: proper form has no “s” for the plural.).

Another believe-it-or-not fact about a GC. David Kulten was promoted to general counsel of Saudi Aramaco, the $233 billion behemoth of barrels. What is notable is that 37 years before he joined the legal department straight out of law school! (See my post of Aug. 4, 2009 #5: likewise for Sager of DuPont, Santona of McDonalds; and Lamboly of Shell.).

Five ways to safely learn about and mitigate serious blowups

An article about stability and change in an organization, and specifically about how those two concepts are a duality not a dualism, explains how “mindfulness” is one of three ways variability enables stability. Writing in the Acad. Mgt. Rev., April 2010 at 210, the author runs through a list of ways organizations can test new ideas without risking catastrophic failures. Legal departments have years to go before they embrace these ideas, but let’s at least publish them for posterity.

Progressive organizations “experiment cognitively and vicariously using offline mental processes, counterfactual thinking, contingency plans and drills, after-action reviews, and learning from others’ failures” (citations omitted).

The mind boggles: “offline mental processes” – presumably something more dynamic than daydreaming. Counterfactuals are usually thought of as historical “what ifs,” such as “what if Oswald had missed Kennedy?” For a law department, “What if we had incorporated that subsidiary in Texas?” Contingency plans could cover such possibilities as the heart attack of a veteran lawyer or the implosion of a key law firm. After-action reviews I have covered (See my post of April 27, 2010: post mortems with 7 references.) whereas opportunities to learn from others’ failures happens all the time in the law (aka court decisions).

Employee engagement is situational; drivers vary across and even within industries

When employers across different companies use comparable surveys of employee engagement, you would think that some drivers of engagement would surface as more common and compelling. Not true. According to talent mgt., March 2010 at 42, “the drivers of employee engagement across different organizations are consistently more different than they are similar – even among businesses that are in the same industry.”

Hence, if a group of law departments had their lawyers take the same instrument to assesses engagement, a large number of separate survey items would probably rank as a top five driver of employee engagement for at least one of the departments. All kinds of things affect the job commitment of in-house lawyers.

In retrospect, I have been highly engaged with blog posts on employee engagement (See my post of April 3, 2005: the engagement index of Stanton Marris; June 28, 2005: Gallup polls on disengagement; Nov. 19, 2005: satisfaction compared to “engagement”; Oct. 12, 2006: engagement measures; Nov. 25, 2006: pay, pride and pals are the essentials of enthusiastic employees; April 16, 2007: disengagement following another lawyer’s promotion; June 11, 2007: employee engagement; July 6, 2007: engagement keeps employees longer; Jan. 10, 2008: employee engagement and values; Jan. 10, 2008: “business”; May 29, 2008: employee engagement results from “business, boss, buddies and briefs”; June 6, 2008: ten Cs of employee engagement and corporate counsel correlates; July 13, 2008: “buddies”; July 13, 2008: “the energy, effort, and initiative employees bring to their jobs”; Aug. 26, 2009: more engaged, better performance; Jan. 7, 2010: if morale is low, consider an engagement survey; Feb. 23, 2010: five principles to increase employee engagement, and how well they apply to in-house attorneys; and Feb. 25, 2010: pulse surveys.).

How management practices vary as they diffuse from law department to law department

Hundreds of management practices thrive in the ecosystem that is legal departments. Some of them stay local, others take root everywhere. Academics refer to the spread of a management practice as “diffusion.” A thoughtful article in the Acad. Mgt. Rev., Jan. 2010 at 67-92, frames an understanding of diffusion.

Take one practice, to require budgets for all matters assigned to outside counsel. No one knows which general counsel first mandated that practice, and indeed it probably had multiple, simultaneous inventors. Thereafter, other general counsel heard about the new idea and sometimes adopted it to varying degrees.

As to the degrees of adoption, the authors explain the notions of fidelity and extensiveness. An adopting law department might faithfully reproduce the practices of the first (high fidelity) or might just incorporate the forms used (lower fidelity); it might apply such a budgeting regime across the entire portfolio of matters handled outside (extensiveness) or just in certain legal areas (lower extensiveness). Further on the degree of adoption, the authors posit that practices are adapted due to what they call technical fit, cultural fit and political fit.

The ideas may seem remote or bookish, but they help us understand and think about why some techniques of potential applicability to law departments catch fire, others smolder, and many burn out (See my post of Dec. 2, 2008: two views of evolution in the management practices of legal departments; Aug. 20, 2006: the evolution metaphor and gradual changes in law department practices; and March 23, 2009: pros and cons of various practices, with 13 references and two metaposts.).

One activity – litigation lessons learned – and the breadth of management values it calls into play

A large law department I know handles many lawsuits. Its lawyers who manage those suits prepare closing reports that state lessons learned. They aggregate the lessons periodically and study them for trends and conclusions, which goes beyond a one-shot post mortem on major matters (See my post of Oct. 11, 2008: three tips for better retrospective analyses; March 16, 2009: money saving technique; March 31, 2009: post mortem technique that asks for one suggestion from a client for how to improve; April 25, 2009: after-action reviews in ACC Value Challenge; April 29, 2009: ACC Value challenge; July 7, 2009: bake it into matter management system; firms; and Feb. 25, 2010: after a deal closes, have a post mortem competition.).

Reflect for a moment how many valuable traits of management that single activity feeds into. My survey of ideas would include the following:

  1. Continuous improvement, in that the whole purpose is to get better;

  2. Evidence-based management, in that the lessons derived are grounded in actual events and metrics that accumulate to guide future decisions;

  3. Knowledge management, in that the effort deliberately tries to collect tacit knowledge and make it available;

  4. Performance evaluations of law firms as well as inside counsel, in that poor decisions or uses of capabilities should surface;

  5. Process thinking, in terms of both reflection on how they handled litigation and the process of group deliberation;

  6. Productivity, in that some lessons go to how to reduce cycle time, move cases along, handle more cases at one time yet well, etc.;

  7. Training, in that those who take part are teaching each other and learning from each other; and

  8. Value delivered and risks handled, in that wise use of corporate resources informed by deliberate study translates into value and the reduction of settlements and judgments reduces or avoids risk.

Information equals how much you learn from unexpected events

Claude Shannon, the father of information theory, calculated “that the information content of any event was proportional to the logarithm of its inverse probability of occurrence.” On the off chance that quote leaves you with any doubt, the Economist, April 24, 2010 at 82, says that it means “an unexpected, infrequent event contains much more information than a more regular happening.” If a class action has a one in one thousand chance of being certified, the logarithm of that chance’s inverse (1,000 is the inverse of 1/1,000) is 3. A one in five hundred case has a log of 2.69 so the rarer event has 11 percent more informational value, as that term was defined by Shannon.

We notice deviations from patterns because the oddity contains more “information.” We can learn more from the unusual than from a continued series of normals. Three examples suggest the range of this axiomatic proposition.

Power-law formulas tell us much because they push us to consider unlikely outcomes and enable us to frame their likelihood (See my post of July 25, 2005: bell curve compared to power-law functions; Nov.13, 2005: power laws and the ratios of litigation costs; May. 27, 2007: Zipf’s law; Feb. 24, 2009: explanation of power-law distributions; Feb. 24, 2009: power laws in law department management; and Sept. 27, 2009: my article on the esoterica of power laws.).

Exception reporting brings to the attention of managers the unusual event, the informative event, the event that stands out and might require special attention. When we pay attention to something that breaks the mold, that spikes, we learn more than we do from the undulations of the commonplace (See my post of May 17, 2006: part of third-wave technology for matter management systems.).

Benchmarks and outliers. While means and medians are the common currency of benchmark studies, the extremes of any metric tell us the boundaries. The large law department that has very few administrative assistants, for example, may be more “informative” than all those with the usual support configuration because it pushes us to wonder how they accomplish the work.

All these are modest manifestations of information theory as it applies to legal departments (See my post of May 23, 2008 #4: information theory; March 6, 2009 #1: diminishment of information with each transmission; May 23, 2008: every relay doubles the noise and cuts the message in half; and July 17, 2009: applications of information theory.).