Previously I collected my posts on direct reports, decentralized reporting, and reporting lines other than decentralized (See my post of May 29, 2009: direct reports to the general counsel with 12 references; Aug. 5, 2008: decentralized reporting with 7 references; and Jan. 12, 2009: reporting other than decentralized by lawyers, with 13 references.). The topic of reporting is not exhausted.
Two other reporting topics remain to be aggregated: dotted line reporting and matrix reporting. As to dotted line, a few posts refer to two specific departments (See my post of May 7, 2006: GE; and Sept. 19, 2009: Bombardier.). Other posts delve more broadly (See my post of March 1, 2006: functional and dotted line reporting; Sept. 10, 2005: paralegals; Nov. 19, 2007: global legal departments; and March 5, 2008: org charts can show dotted lines.).
A related term for multiple reporting lines, which are sometimes expressed as dotted line and solid line reporting, is matrix reporting (See my post of Aug. 27, 2005: “double solid line matrix”; Feb. 15, 2006: the bane of combining reports; June 24, 2007: Cadbury Schweppes; and May 21, 2006: business lawyers and legal specialists; and May 2, 2008: Siemens’ reporting lines.).
The larger the legal department, the more likely it has its own employees support at least some of its software and hardware. No data exists that I know of that tells us the tipping point, where departments typically hire their own technology talent. Most legal departments, and all smaller departments, rely on personnel from the corporate IT function for their support, training, and development needs (See my post of June 16, 2009: Information Technology staff group with 23 references and 1 metapost.).
There are advantages and disadvantages to each solution. If you have in your department’s headcount one or more information systems staff, it:
- Raises your fully-loaded cost per lawyer;
- Uses headcount;
- Consumes some budget, especially if there is no chargeback from internal IT;
- Might make it hard for that staff to draw on the expertise of corporate IT;
- Leaves you no back up for periods of illness or vacation;
- Exposes you to turnover and periods of no support;
- Burdens you with recruitment, evaluations and personnel headaches; and
- May limit you to employees with less background in technology.
The benefits of home-grown talent are also many. Your own staff:
- Get to know you and your colleagues far better when they are embedded;
- Follow the work priorities you set;
- Fill the profile of skills and personality you want;
- Serve as a liaison that is informed and committed with corporate systems staff;
- Bring up ideas learned from reading and other law departments;
- Think more creatively, unencumbered by broader corporate constraints; and
- Stay longer term, instead of rotating out.
Dealings between lawyers and the finance function within a company cover many topics (See my post of Dec. 7, 2005: interactions of Legal and Finance; Nov. 23, 2008: RACI roles for Finance; Sept. 14, 2005: lawyer-client privilege and information sent to accounting; March 12, 2005: law department paid for some software because it reduced reserves; March 18, 2007: six posts on reserves and two on accruals; and Nov. 5, 2006: accounting personnel handle law firm invoices.).
The rule-making authority of Finance manifests itself in several posts on this blog (See my post of April 17, 2006: when to create some matters; Nov. 10, 2007: three-way approvals of invoices, including Finance; April 13, 2009: invoice authorization levels; and Dec. 2, 2007: purchase orders,). Budgets from the legal team are the particular concern of Finance (See my post of Nov. 25, 2005: budget of legal department set by Finance; Jan. 25, 2006: CFOs demand budgets months in advance; and Nov. 13, 2007: Dell negotiates budget with Finance.).
Some companies compare the legal group and the finance group on benchmarks (See my post of April 9, 2005: finance, IT and HR benchmarks; Sept. 4, 2005: total spend as a percentage of revenue for staff groups; April 6, 2008: benchmark against Finance; and June 26, 2008: Finance contributes 10% of company’s value.).
Law department reporting lines, at least in Europe, sometimes go to the CFO (See my post of April 12, 2006: UK heads of legal sometimes report to Finance head; and July 25, 2005: AXA’s GC reports to head of Finance.).
I should also mention some related topics, notably the law department as a profit center and accounting terms (See my post of April 27, 2008: profit center with 18 references; March 18, 2007: accounting terms with 15 references; Aug. 12, 2008: options expensed; Sept. 5, 2007: compensation over $1 million; and Dec. 3, 2007: cash basis and reserves and P&L.).
Some 240 general counsel responded to a survey conducted by FTI Consulting, the results of which are in Corp. Bd. Mbr., Vol. 12, 2nd Quarter 2009 at 51. One question on the poll was “Should the general counsel be considered the chief ethics officer?’” Three-quarters of the respondents agreed; no data is given regarding whether the remaining quarter disagreed or had no view.
I am not sure what a chief ethics officer does, although this blog is replete with references to ethics (See my post of Oct. 7, 2008: ethics with 29 references.). My sense is that ethical considerations move in a different direction than compliance, the latter being adherence to laws and regulations, the former (ethics) being enforcement of fundamental moral principles such as fairness, honesty, and responsible dealings. The domain of “corporate social responsibility” seems to me to extend ethical behavior beyond the corporation, to the larger community around it.
Whatever the boundaries, to be a company’s ethics czar assumes a large and diffuse responsibility for a general counsel.
Bill Casazza, the general counsel of Aetna, “oversees the work of about 300 people. Seventy are lawyers,” according to Corp. Bd. Mbr., Vol. 12, 2nd Quarter 2009 at 47. Since the ratio of lawyers to non-lawyers in most US law departments stands typically around one to one, Aetna’s legal team probably includes compliance professionals, indeed possibly more of them than lawyers, paralegals and secretaries.
When lawyers amount to something like a quarter of a legal department it becomes more difficult to involve everyone equally in departmental off-sites, because it is harder to pick topics that have relevance to everyone. It is also harder to sustain a one-department culture when members have widely differing backgrounds and tasks. There is a further risk that some group will feel second class (See my post of March 26, 2005: compliance staff as second class citizens.).
Like other corporate staff groups, IT supports the legal group and is supported by them, such as with contracts issues (See my post of Nov. 23, 2008: IT licensing contracts; and May 22, 2009: adherence by legal to corporate IT standards.). They team on some responsibilities, such as e-discovery (See my post of Oct. 11, 2008: ESI assistance; Aug. 26, 2008: responsibility for data maps; and April 27, 2008: Kraft team included IT partners.).
Mostly, however, general counsel often bemoan the lack of support they get from corporate IT (See my post of March 26, 2006: law is a low priority for corporate IS; Jan. 21, 2008: why law departments get short shrift from corporate technology services; March 26, 2006: IT departments and ASP’s in terms of support; April 26, 2006: IT referees the decision regarding ASP; and Feb. 25, 2009 #2: ASP to SaaS.). Even with the griping, most software customization projects involve corporate IT (See my post of June 3, 2009: software written specifically for legal departments with 12 references; and July 18, 2006: the usual process of a requirements definition.).
No one can definitively resolve the debate about which support approach is better: support from the company’s IS group or support from members of the legal department (See my post of Dec. 7, 2005: IT supports law; and March 25, 2009: claim that the best law departments have their own IT staff.). The approach chosen is usually more due to the size of the law department and its technology ambitions than to any considered strategic analysis. Some benchmark data even exists regarding support levels (See my post of Aug. 27, 2005: one IT support person for every 24 people in the legal department; Dec. 23, 2005: less than one for every 35 people; and Aug. 14, 2005: spending of $4,000 per lawyer.).
A slim possibility is for the legal team to get some assistance from the law firms it retains (See my post of March 26, 2005: use law firm resources to supplement corporate IT support; and Oct. 22, 2005: meet with the technology staff of your outside counsel.).
Finally, the information technology function may be an internal benchmark comparator (See my post of April 9, 2005: law compared to other staff functions; April 6, 2008: benchmark internal staff groups based on staff or spend per 1,000 employees; Sept. 4, 2005: benchmark internally; and April 25, 2009: fundamental differences between legal and other staff groups.).
Jeff Kaplan: In many companies, the answer is either the general counsel or chief compliance officer. But a better answer – because it is more consistent with governmental expectations and best practices – is all of a company’s senior managers.
The key legal standards – meaning the Corporate Sentencing Guidelines, which are used (among other things) to determine whether to indict companies for the acts of their employees or agents – cast a broad net when it comes to managerial accountability for compliance. First, senior managers must ensure that their organization’s compliance program is effective. Second, they must be knowledgeable about the content and operation of the program. Third, they must exercise due diligence in the performance of their duties. Finally, they must “promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.”
Moreover, high-ranking enforcement officials – such as the head of the Department of Justice’s Fraud Section – have identified senior management support as one of the key factors that the government examines in assessing the effectiveness of a company’s compliance program. And, the experiences of companies with best-practice programs have long demonstrated the importance to program efficacy of all of a company’s senior managers truly being held responsible for compliance.
But how do general counsels and chief compliance officers in companies that are not yet at the best-practice stage promote such an approach? The first step is often to formalize senior management accountability in a compliance program governance document (which typically serves various other purposes as well).
After this, there are a number of ways to operationalize compliance responsibility for senior managers, such as:
o Adding specific compliance responsibilities to their job descriptions, business plans and performance evaluation criteria.
o Tracking their compliance “performance” - such as compliance training completion rates or responses to compliance-related questions on employee surveys - for their respective business units or functions.
o Having the general counsel or compliance officer periodically develop business unit/function compliance communication strategies with each senior manager.
Of course, there are other ways, too, and each company needs to find the approach that works best for it. But as a general matter, there is no question that the more all of a company’s senior managers accept responsibility for ensuring that its compliance program is effective the more likely that program is to actually prevent violations or law and - if ever assessed in the high-stakes setting of a criminal investigation – to be deemed effective by the government.
A staff function, sometimes pervasively involved with a general counsel for its services and often crucially dependent on legal support, is Human Resources (See my post Jan. 23, 2006: training HR staff about legal issues; and May 10, 2006: most legal departments support HR functions.).
For its part, HR personnel watch out for the legal department’s needs (See my post of ; Nov. 8, 2005: contributions of HR representatives assigned to legal departments; July 27, 2007: analysis of offers extended and accepted; Sept. 16, 2008: internal recruiters; May 3, 2007: resistance to search firms; Aug. 24, 2005: exit interviews; March 3, 2006: job positions at John Deere; Dec. 2, 2007: posted open positions at TimeWarnerCable; and April 26, 2006: Internal Labor Market analysis.).
As a sibling to, HR wields considerable clout within a company (See my post of March 26, 2006: powerful staff functions like HR; and Dec. 7, 2005: HR supports law and law supports HR.), even serving sometimes as an internal benchmark comparator (See my post of April 9, 2005: finance, IT and HR benchmarks; and April 6, 2008: benchmark staff functions against each other.). Every now and then, the top lawyer moves to the HR group (See my post of Sept. 27, 2008 #2: Sears GC becomes head of HR; and Jan. 25, 2007: UPS GC becomes head of HR.).
Several topics related to Human Resources are treated elsewhere, such as annual evaluations, headhunters and very talented employees (See my post of Sept. 21, 2008: annual reviews with 12 references; Sept. 16, 2008: search firms with 12 references; and July 29, 2007: high potentials with 10 references.).
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.).
In 2005, Ernst & Young obtained surveys from 95 companies, mostly from the Fortune 1000 and highly regulated industries. One question asked on the survey, as laid out in a report in November 2005 at 9, was “Does Compliance overlap with other groups?” Of the four groups listed as having a possible overlap -- Legal, Audit, Operational Risk and Business Units, the greatest “actual overlap” of Compliance was with Legal (67%)
About a third of the respondents said that as between Compliance and Legal, they had “Clearly differentiated roles and responsibilities” (31%). As mentioned, “Actual overlap” was chosen by two-thirds of the respondents (67%). Another choice – and, yes, the percentages total more than 100 – was “Perceived overlap” at 17%. Finally, “More clarification of roles and responsibilities needed” garnered 29%. I can’t figure out the percentages, but the fundamental message is clear: the legal and compliance functions have much in common (See my post of June 11, 2008: compliance with 33 references.).
