The General Counsel of Allstate, Michele Coleman Mayes, gave an interview to Metropolitan Corporate Counsel, Feb. 2012 at 1. Introducing herself, Mayes said “Our legal department is the fifth largest in the country, with approximately 500 lawyers representing our insureds and 130 attorneys dedicated to other matters.” She counts so-called staff counsel in her total.

Her claim about ranking fifth set me wondering so I consulted ALM’s In-House Law Departments at the Top 500 Companies (2012). Allstate was number 89 on Fortune’s list for 2011. After GE and my own data from this blog, I have listed below some of the largest law departments that have their number of lawyers stated in the ALM book (shown in parenthesis).

General Electric (See my post of May 23, 2007: General Electric and its 1,225 lawyers.). Citigroup (1,000) Liberty Mutual (776) State Farm (763) JP Morgan (594) Verizon (424) Chevron (380) MetLife (292) Wells Fargo (225) General Motors (202) ConocoPhillips (127)

Fortune 500 companies in the top bracket that have no ALM listing for number of lawyers include WalMart (if as a retailer it has 2 lawyers per billion it would have more than 800 lawyers (See my post of Sept. 22, 2005: rapid growth of the Wal-Mart legal staff.), Exxon Mobil (but Chevron, which had $50 billion less revenue, has 380 lawyers), and Bank of America (but see JP Morgan Chase at 594, which had $20 billion less revenue).

My data has holes, but Allstate’s department is surely one of the largest U.S. corporate legal departments. I offer this as a partial listing of the largest U.S. law departments.

An interview of Thomas Russo, general counsel of AIG since early 2010, appears in Corp. Counsel, Dec. 2011 at 18. It says that Russo has fifteen direct reports, which crowns him champion of that list in my book. That is a very large number of people to evaluate, respond to, meet with, mediate among, and rely on (See my post of May 29, 2009: direct reports to the general counsel with 12 references.).

In law departments of up to six or so attorneys, the general counsel may directly supervise all of the attorneys. They all are “direct reports.” As departments add lawyers, however, some of the more junior lawyers report to one of the direct reports. How many direct reports a general has varies widely as that number depends on a range of factors, primarily the total number of lawyers in the department.

Since the first compilation, cited above, I have written about direct reports eight more times (See my post of Oct. 27, 2009: determinants of the number; Jan. 7, 2010: management initiatives per direct report; Feb. 9, 2010: Clorox, with 30 lawyers, has four direct reports; March 9, 2010: assumption of four or five if department is sizeable enough; March 29, 2010: succession planning; May 26, 2010: heterogeneity may degrade direct reports’ performance; May 10, 2011: delegation of authority to direct reports; and July 6, 2011: when to create a third reporting level.).

An article in Compliance, Winter 2012 at 14, explains some of the amendments to the 2010 Organizational Guidelines by the U.S. Sentencing Commission. According to the authors, “compliance programs should include a reporting line between the corporate compliance officer and the board of directors or subcommittee, as well as reports from the compliance officer to the board or a board committee at least annually.” Publicly traded companies must publish their codes of conduct and the authors found that about 10 percent of the Fortune 500 companies say something about the reporting line of compliance.

The article left me with the impression that the authors favor compliance reporting to the general counsel. “To avoid the dreaded silo mentality and build from the legal department’s expertise and resources, some companies have adopted a structure in which the compliance officer reports to the general counsel and is part of the legal department.” They close by saying that regardless of reporting lines, the chief compliance officer should communicate directly with the board at least annually.

Writing in the ACC Docket, Nov. 2011 at 72, an author stresses the conflicts of interest a general counsel might have to face as she balances attorney-client privilege (in her lawyer role) against disclosure and full cooperation with government authorities (in her compliance role). She also argues that lawyers intimidate employees, usually unintentionally, and that discourages compliance reporting. Nor are attorneys throughout the company, visible and accessible, as seasoned compliance professionals circulate. Compliance is a “program” that needs management over a period of time, not what most lawyers want to be involved with or have the skills to carry out. For these reasons, the author argues for separate positions and against the chief compliance officer reporting to (or being) the chief legal officer.

Whether a general counsel can also function effectively as a company’s chief compliance officer has kept the heat on the contentious debate (See my post of Jan. 20, 2009: reporting lines of compliance function with 11 references; and July 23, 2010: compliance and ethics with 24 references and 2 metaposts.).

Since my last metapost, there have been more contributions to the debate (See my post of Jan. 12, 2011: Harrah’s GC combines the roles; Jan. 14, 2011: Ben Heineman view and rejoinder; Feb. 2, 2011: survey data on joint reporting lines; May 16, 2011: survey data on GCs as head of compliance; and Oct. 3, 2011: arguments for and against the dual report.).

Trenton, New Jersey, accepted $22 million in state aid because of the deep budgetary hole it was in. That lifeline from the state came with a number of restrictions. Bloomberg Businessweek, Dec. 5, 2011 at 38, mentions that one of the constraints is that the state’s Community Affairs Department now has the right to approve the “hiring of outside contractors such as lawyers.”

There must be a law department for a city the size of Trenton, and this degree of oversight and approval drastically restricts the managerial authority of its top lawyer and the other lawyers in the department. The article suggests that other states are imposing similar limitations on cash-strapped cities that tap state funds. I would imagine that if the state agency takes the responsibility for approval seriously, the process of Trenton retaining outside counsel will significantly slow and complicate.

In an article about how to integrate two law departments when their companies merge, there is a list of “Twenty-Five Key Areas of Focus for Legal Department Integration.” The list appears in the ACC Docket, Nov. 2011 at 62. The first eight areas highlight management of the operations of the merged department, three more areas cover a significant component of operations and administration, but the remaining 14 all concern substantive legal services that need to be addressed.

What I consider squarely in the realm of managing the law department would be these eight, as listed: “legal personnel, knowledge management, budget and forecast, technology support, invoice management, records retention, outside counsel management, and litigation management.” Three areas listed after them involve a fair amount of law department management. “Patents, trademarks and other intellectual property, forms and templates, and contract management” all straddle operational issues as well as the provision of legal services. The remaining checklist items, the majority on the list, go to a general diagnosis of the needs of the merged company for various legal services, not to how the merged department functions and is managed.

Aside from that, not on the list are some operations topics that a general counsel of a merged law department ought to consider: facilities, locations of lawyers, reporting structure, and software.

The most painful part of a consolidation would be layoffs (See my post of Jan. 16, 2009: layoffs after mergers with 9 references.). A couple of posts have shown up subsequently (See my post of April 18, 2009: lawyers in Bank of America’s merged law departments must reapply for jobs; and Aug. 11, 2011: ratio of spin-offs to mergers.).

Bob Santamaria is profiled in Asia-MENA Counsel, Vol. 9, Issue 7 at 40, Santamaria being the Group General Counsel of ANZ Bank, the third largest in Australia. He estimates that ANZ now has around forty-five lawyers across some thirty jurisdictions who work alongside the remainder of the team back home. Those outposts include Hong Kong Singapore, Vietnam, China, and Taiwan.

Let me soar far above this one instance of geographic distribution and offer a hypothesis. The smaller a country is by GDP, the higher the percentage of its major-company in-house lawyers are based outside the country. My reasoning is that companies that compete globally from a small starting country have to expand into bigger markets, and to help do so they post their lawyers in those remote locations. Thus, U.S. companies may be quite large but have only ten percent of their legal team overseas; a Belgian company that reaches billions of Euros in revenue probably has well more than half its lawyers elsewhere.

Back to Santamaria. He notes that organic growth of the bank’s legal infrastructure has been bolstered by opportunistic M&A. “For example, we picked up around fifteen lawyers with the acquisition of the Asian operations of the Royal Bank of Scotland.” Not a merger, true, but a significant corporate acquisition brought with it a large infusion of lawyers.

A profile in Asia-MENA Counsel, Vol. 9, Issue 7 at 40, describes the role of the Group General Counsel of ANZ Bank, the third largest in Australia. The role requires Bob Santamaria to report to and interact on a daily basis with three of the bank’s most senior stakeholders, the CFO, Chairman, and CEO. Yet although Santamaria has daily dealings with the CEO, the in-house function ultimately enjoys an autonomy that, in the words of the article, “some general counsel may only dream of.”

Santamaria explains that “I am appointed and can only be removed by the Board,” referring to the Board’s ability to ensure a sufficient level of independence from management. In other words, the CEO cannot unilaterally fire the general counsel. This reporting line and its protection for the general counsel is an unusual arrangement from my experience. In fact, if I were a general counsel at odds with my CEO, I would find little solace in the “protection” of the Board.

Each strata of a law department, from person to unit to the entire function, has its own regularities and concerns. A “lower level” won’t fully inform a “higher level.” Scientists have realized for years that an understanding of atomic interactions doesn’t encompass the larger sphere of molecules, nor does understanding molecular rules explain higher-level, complex organisms. Each rung of the hierarchy has its own properties, sometimes referred to as emergent characteristics, that depend on the former but are not defined by it nor fully elucidated by it. Components don’t explain the whole; the sum is greater than its parts.

So too, forces, incentives, and characteristics operate at the individual level in a law department, but when you “move up” to the practice group, new ones emerge. And then, multiple practice groups as part of a legal department introduce yet another set of considerations to be understood. Management concerns regarding a whole department are qualitatively different than those pertaining to a portion of it.

In the sciences this is called the problem of scale, as explained by Duncan J. Watts, Everything is Obvious: once you know the answer (Crown Business 2011) at 63. Moves up the scale present new problems and insights, emergent issues, with only partial overlap with other levels.

An article in Sloan Management Review, Fall 2011 at 21, reports 2004 data on the concentration levels of the four largest competitors in 50 industries. That is, in Aircraft the level almost reaches 100 percent, because four companies (Boeing, Airbus, Bombardier and Embrair?) dominate the market completely. Helicopters, smart cards, tobacco, music, and mobile phones all come in around 75 percent. Far less concentrated were steel, pharmaceuticals, insurance and IT services, each being in the 20 percent range.

What might this mean to the legal departments of the top four in any industry that has a concentration ratio above, say, 40 percent? That is the degree of concentration that the authors say results in interdependence in a domestic market and probably in the international market.

Anti-trust concerns lurk around every decision and every action. If your industry is very concentrated, competition law rears up everywhere.

Global sales and global placement of lawyers. It is likely that the law department has locations dispersed around the world.

Huge legal bills to outside counsel. First, the department is large. Second, if business is done in many countries, local counsel will be needed and they are often very expensive. Third, legal spend is high because the company’s profile is high and its antitrust issues arise right and left.

Virulent conflict of interest rules for outside counsel. It seems likely to me that the firms who represent the industry-dominators can’t represent more than one of them. Pepsi lawyers don’t represent Coca-Cola.

Experienced but highly competitive marketing. The legal department involves itself in marketing campaigns and material because of the heightened scrutiny (See my post of Oct. 16, 2011: review of ads.).

Employment issues of senior people or key employees going to competitors. When an industry has only a handful of big players, movement of staff from one to another is fraught with issues of non-competes and proprietary knowledge.

Difficulty, almost impossibility, of benchmarking. Once companies become skyscrapers, with huge revenue and a dominant position in an oligopolistic market, it becomes very hard to match up against any other company for purposes of metrics benchmarking.