If the respected partner leaves for another firm, the partner’s performance is likely to suffer

If you follow the star partner, the sun may set. Most in-house counsel will be inclined to follow a well-respected partner who leaves one firm to join another. Few law firms fight that choice, I believe, because the leaders of the firm understand the underlying loyalty to a particular lawyer and that lawyer’s privileged position earned with the client.

The spoke in this wheel is research that finds that the performance of star professionals often declines sharply when they leave firms in which they flourished. This conclusion, from a book review in strategy+business, Winter 2010 at 94, makes the point that expert professionals – law firm partners being good examples, I submit – over-estimate their individual contributions to their success and under-estimate the support of the firm where they practice. They exaggerate their personal skills and devalue the team they are part of and that helped make them good (See my post of June 12, 2005: firms that hire partners expect the book of business to follow; July 14, 2005: being a top performer is situational; Feb. 1, 2007: peripatetic partners; Feb. 17, 2008: ill effects of churn among partners; Dec. 14, 2008: some “firings” of firms are “followings” of departing partners; and April 29, 2009: hire the firm or the partner.).

Five key provisions in contracts that deserve legal review if altered by the other side

The International Association of Contract and Commercial Management 2010 Top Terms in Negotiation reported no change from the year before in the top five contract terms most frequently negotiated: (1) limitations of liability, (2) indemnification, (3) “price/charge/price changes,” (4) intellectual property, and (5) confidential information/data protection. Of the 30 contract terms covered, these five did not even change their relative position (See my post of Jan. 21, 2010: IACCM and empirical research on commonly negotiated terms.).

On pages 9 and 10 of the report you can see how the importance of the five terms varies by geographic region, pages 11 and 12 analyze their importance under eight legal systems (UCC, English, French, and German included), and pages 13 and 14 break them down by ten industries. If your legal department wanted to set a policy for when contract changes must be reviewed by a lawyer, this set of five would be a good place to start. The additional granularity of region, jurisprudence and business sector would help even more. Additionally, they give a framework for what to teach clients.

Nine most important limits on your ability to change what is negotiated in a contract

I write blithely about contracts and the associated role of internal legal departments. Negotiation of contracts has seemed to me a fairly straightforward matter of knowledge of the business, recognition of leverage and ultimately allocation of risks. How naïve!

My underestimation of the complications involved became apparent as I read the IACCM (International Association of Contract and Commercial Management) 2010 Top Terms in Negotiation. A chart on page 4 shows “Factors that are most significant in limiting your ability to change what is negotiated.” Here are the nine in descending order of significance. “Resistance by the other side” (65%), “Internal/stakeholder resistance” (44%), “Internal rules/power reserved” (44%), “Market practices” (32%), “Market pressures” (31%), “Government” (23%), “Regulatory” (22%), “Knowledge” (21%), and “Insurance” (7%).

It is a curious mix of limits. Non-lawyer contract negotiators may have their hands tied more than lawyers, but I offer these findings to help clarify the challenges faced by commercial lawyers.

Base-rate neglect and demotion of historical data that might tell a different story

It probably happens all the time. Someone asks a lawyer for an estimate and the lawyer recalls a few instances but doesn’t look at any metrics. Say a client asks a lawyer to estimate the amount of damages or settlement the client might end up paying for a breach or some other legally aggressive action. The lawyer remembers the results of one or two high profile dispositions that resulted and gives an answer, but never looks at a broader set of data from a matter management system or another source of (See my post of March 13, 2006: verdict and settlement database; and April 23, 2006: metrics on claims that result in litigation.).

Decision researchers call this “base-rate neglect,” the tendency to slight statistical information from a large set of instances and to give excessive weight to memorable, case-specific information in making predictions. Statistical generalizations take time and effort to develop, but they avoid this fallacy of decision making based on selective information.

Project management skills of law firms might be fodder for RFP questions

On the shores of legal management the latest wave of enthusiasm has many project management surfers. The skills required to estimate time to complete tasks, the best order of those tasks, the right people and tools in the right spots, all these are aspects of project management as I understand it. Books are appearing everywhere as well as courses and articles pitched at lawyers. Perhaps that cluster of tools and approaches is the Next Big Thing.

Meanwhile, despite my misgivings when law departments load RFPs with questions that end up making no difference, it seems useful to ask law firms about their investment in project management. More, ask them to give a real example from the past six months. If those responses help choose the better firm, logic suggests that in-house counsel also should learn more about the discipline.

Some manufacturers earn so much of their revenue from services, what industry are they for benchmark purposes?

Two pieces in the most recent Economist made me aware of how much revenue many manufacturers bring in from their maintenance and support of their products. One article mentioned the leading elevator (lift) manufacturers: UTC’s Pratt & Whitney, Kone, a ThyssenKrupp division, and Schindler. They make elevators but they also keep them running and program them, which have become important and profitable services. Another article covered the famed Mittelstand of Germany. “Many of them get the bulk of their revenues from service rather than from products. Hako, which makes cleaning equipment, generates only 20% of its revenue from sales of its machines.”

The largest industry by far in my General Counsel Metrics global benchmark survey is manufacturing, with 116 participants. If there were data for many of them on the split between earnings from product as compared to services, we would understand legal staffing and spending more insightfully (See my post of March 2, 2010: industry benchmarks with 8 references.). Meanwhile the “industry” feels slippery.

To increase the reliability of metrics – to reduce gaming — consider these five methods

If a metric is tracked and paid attention to, such as the number of cases closed during a quarter, you can be sure the litigation lawyers will figure out how to put themselves in the best light. Metrics are not Platonic essences, unchangeable, absolute, pristine. No, numbers are always spun or, worse, manipulated to the advantage of someone.

As a general counsel aware of number gaming, you might try these anti-gaming moves. Start with a clear definition of the thing to be counted: “a trademark clearance means X, Y and Z.”

Complementing definitions, request that the person who submits the number explain the methodology they used to arrive at them: “We looked at each bill of the XYZ firm paid during 2009 and added up the disbursements charged.”

Third, calculate some ratios that test the plausibility of the metric: “20 UDRP investigations per paralegal sounds about right.”

Having collected some numbers, study the trend of the data over time and check whether the latest submission appears reasonable.

Finally, every now and then have a knowledgeable and objective person look at the numbers metrics on a blind basis, without knowing who submitted them: “Paralegal training hours per region look about right.” For more about games people play with numbers, refer to my previous posts (See my post of March 11, 2009: gaming and manipulating with 12 references.).

Ways a general counsel can cut down on direct retentions by clients of outside lawyers

Many companies officially adhere to a policy that “Only the law department may retain external counsel.” The rule generally honored, infractions still pop up here and there. What can a GC do?

Make sure there is a clearly-worded corporate policy easily obtained by everyone in the company.

Continually repeat and explain the policy to clients at all levels (See my post of Oct. 31, 2010: repeat key messages over and over and then again.).

Encourage law department staff to report situations of non-compliance.

Tell every law firm you retain that it may only deal with and through the law department. State that obligation in your outside counsel guidelines.

Ask law firms to let you know about firms that break the rule, if they uncover instances. It is in their interest to advise you of infractions.

Inform accounts payable to draw checks only to law firms authorized by the law department.

CARL – Compliance, Audit, Risk Management and Law: the four-legged stool of risks and reputation

Sometimes referred to as the risk professions, this quartet has overlapping but distinctive roles. I recently heard these broad definitions and added my own for audit.

Law interprets statutory and judicial rules and makes sure internal constituencies understand them. Compliance applies the rules to day-to-day conduct and monitors the level of observance. Risk supervises and manages risks, including those associated with inadequate compliance. Audit checks on specific instances of compliance or not, especially financial controls.

One view is that compliance and audit serve as police functions, looking back at behavior. From that vantage, law and risk look forward and try to prevent problems.

This huge topic pours over the puny dikes of a blog post. I have written about these control functions, all being areas closely tied to the reputation of the company. Today, however, let me defer to another day a longer review (See my post of Oct. 21, 2005: a combined Compliance, Ethics and Investigation (CEI) unit; Dec. 10, 2005: at Egg, all the risk functions of the company – legal, audit, risk and compliance – report through the Chief Risk Officer to the board; Nov. 22, 2008: discussion of the broad scope of the term “control functions”; Nov. 30, 2008: “general compliance” vs. “regulatory compliance,” run by legal; Aug. 13, 2009: risk management differs from compliance and internal audit – but from legal?; Jan. 2, 2009: don’t charge legal with responsibility for risk management; and Feb. 9, 2010: at Clorox, general counsel oversees business ethics, corporate governance, “risk management, internal audit, compliance, corporate communications, crisis management, and business continuity planning”.).

The handwriting is on the wall; end of cursive for lawyers? Not write away

A handwritten, two-page note arrived by mail a week ago and I was enchanted. It is so rare that anyone, let alone a general counsel, takes the time to write someone by resolutely non-digital pen. Charmed and uplifted by the personal touch, my mind wandered.

Nowadays, most in-house counsel hand draft very little of their work product. Keyboards rule. This despite the prevalent view that you write better prose if you take the time to handwrite it. A typing whizz, I doubt that old saw, for I can pause as long as I want to formulate a phrase or search for a word, and then bid my fingers fly on. (Please, no snide comments about how my output puts paid to my claim.)

I recollected apocryphal stories, one hopes, about general counsel who have all their emails printed. They then handwrite replies, which a secretary dutifully transcribes in the reply email. Beyond quaint. But, Rees, not everyone can touch type comfortably and quickly

The notoriously difficult handwriting, crabbed and sloppy, idiosyncratic and abbreviated, that many busy people degenerate to still suffices to get the point across. It works for them and their executive assistants cope.

As a consultant who mostly takes notes on my laptop but sometimes scribbles them out, I still relish the ease and design creativity of written note-taking.

My final reverie brought back the hoary belief that penmanship tells something about the penner. Right up there with phrenology.