Kudos for full allocation at JPMorgan Chase of legal expenses to business units that incurred them

Jamie Dimon, the CEO of JPMorgan Chase, “insists on full allocation of overhead – everything from legal to marketing expenses – to the parts of the business that use them.” I favor that discipline: the legal department should allocate its internal (and external) costs to the general ledger account of some staff or business function. Allocation introduces some market-like discipline to legal spending.

The quote from the Harv. Bus. Rev., Nov. 2010 at 98, goes no further on this point and I do not wish to be naïve about the formidable accounting and managerial difficulties it could set in train. Neither do I advocate time tracking by inside lawyers. What I do advocate are mechanisms to link legal costs to business operations.

Some costs, such as for legacy litigation, as orphans without business owners may only have a corporate account and some executive at least nominally responsible for the spend. Allocation should increase the accuracy of legal cost data. More importantly, as the article says, it should “motivate managers to become actively involved in discussions about the value of corporate services provided.” Not all general counsel look forward to that prospect and the intervention it encourages but it furthers sound corporate behavior.

We welcome comments

Your email address will not be published. Required fields are marked *