The downside of hiring specialists to supplant outside counsel are several. When you add a lawyer skilled in an area of law you risk (1) that the specialist work might dry up, (2) the compensation paid will upset internal equity, and (3) turnover when the economy strengthens. Law firms are more attracted to specialists than corporate generalists. You also incur more administrative time because of another staff member and you increase your employee costs, which are fixed, as compared to your outside counsel costs, which are variable.
Advantages of a specialist hire, however, are evident. You should be able to reduce the amount spent on outside counsel in that area of law. The lawyer under your roof is also both more subject to your direction and oversight and better positioned to get to know the business and industry.
According to Hewitt Associates, “under-recognition of high potentials is one of the single biggest issues companies face.” This claim, an overstatement by a firm that consults on talent management, nevertheless makes a good point.
talent mgt., June 2009 at 17, adds that when executives treat specially their very best talent, many "worry about alienating or disengaging others in the organization. Or conversely, they over-reward average performance in a misplaced effort to acknowledge everyone's contributions. These both send wrong messages." (See my post of July 29, 2007: high potentials with 10 references.). General counsel should pay heed.
I do not know if the problem I describe hereafter exists, but the risk of a perception of impropriety exists.
A senior lawyer in a department directs substantial sums to a law firm in the year before the lawyer retires or leaves the department and joins that firm. That coincidence may be benign, or it may be suggest improper decisions. Whichever, might a cautious company add a prohibition in the terms of employment of any lawyers who selects or approves bills of a firm? Any lawyer who did so may not join that firm within one year of leaving the department (See my post of March 8, 2006: do soon-to-leave general counsel favor certain firms.).
Think for a moment. If you were general counsel and you opened a budget account for each of your lawyers with $20,000 and you told them they could pay an administrative assistant $30 an hour. Assuming three lawyers for every admin, each fully-used admin would make $50-60,000. Or, if some lawyers chose to use an admin for less time they can pocket any amount they spent less than $20,000.
Such an internal market, a shared service where clients can choose to use the service or not for a fee, would quickly demonstrate which admins work well and productively and which lawyers want or need admin services.
Right, problems pop up – all the difficulties that spring to mind. But the kernel of this proposition holds: use-based payments, meritocracy, and a free market based on real money.
As described on the website of Hogan Assessments, “The Hogan Personality Inventory (HPI) is a measure of normal personality and is used to predict job performance. The HPI was the first inventory of normal personality based on the Five-Factor Model and developed specifically for the business community. The HPI is a high-quality psychometric evaluation of personality characteristics that identifies the fundamental factors that distinguish personalities and determine career success.”
The HPI scales all make sense for in-house counsel:
“Service Orientation: being attentive, pleasant, and courteous to customers
Stress Tolerance: being able to handle stress, even-tempered, and calm under fire
Reliability: honesty, integrity, and positive organizational citizenship
Clerical Potential: ability to follow directions, pay attention to detail, and communicate clearly
Sales Potential: energy, social skills, and the ability to solve problems for customers
Managerial Potential: leadership ability, planning, and decision-making skills.”
Has any legal department tried out the HPI?
One argument for having a demographically diverse slate of members on a team is that diversity produces innovation and creativity. A chapter in a recent book, however, by a strong proponent of diversity, not only doesn’t support the argument with research findings, but admits doubt. The following quote comes from Laura Empson, ed., Managing The Modern Law Firm: New Challenges New Perspectives (Oxford Univ. Press 2007) at 51 (by David Wilkins).
Wilkins cites a 2001 article that found the empirical research on whether and how diversity is actually related to work group function is limited “and the evidence is mixed.” Wilkins believes that other research has found that diversity’s boost to productivity “depends on the attitude and orientation that group members bring to their work.” Prejudice not only blocks the hoped-for benefits of diversity but can even hinder team performance if the team has to “negotiate the kinds of conflict and communication issues that often beset diverse groups.”
Bob Unterberger sent me this item.
As part of a discussion among members of Linkedin's Legal Process Outsourcing Group, Pangea3 co-ceo Sanjay Kamlani observes:
"Several years ago, Forrester Research had predicted about 35,000 lawyer jobs shifting offshore by 2010 and about 79,000 by 2015.
I haven’t seen an updated forecast or confirmation from Forrester, but others such as Nasscom and ValueNotes have pegged the current number of lawyer jobs outsourced to India as substantially below that number without counting lawyer jobs outsourced among corporate captive units. When you take into account all the lawyers working in Indian and Filipino LPOs today as well as those working at Fortune 500 captive legal outsourcing centers in those countries, it is conceivable that anywhere from 15,000 to 20,000 of Forrester’s 35,000 projection has been achieved.
If you take a conservative average of the LPO bill rate, say $30 per hour (I’d say the range is $20 to $100), and assume an average LPO lawyer bills 1,700 hours per year, then 15,000 LPO lawyers would generate approximately US$765 million and 20,000 LPO lawyers would generate approximately $1 billion. With the current momentum in the industry, it is also not unreasonable to assume a 100% increase from where we are today to 2010 such that the LPO industry meets the Forrester research projection.
I have certainly heard of comments in the industry of some efforts or exploration of LPO in Australia, South Africa, and China. Other than the Philippines, I don't believe that there is much substance to these efforts--and the Philippines itslef is largely unscalable with a total registered lawyer population of only 50,000."
I am grateful to Sanjay for his refreshing data contribution, thoughtful anaylsis and, significantly, plain old willingness to share. The LPO industry could use more of this.
A profile of Bristol-Myers Squibb’s former general counsel, John McGoldrick, makes two points that deserve comment. They are in Corp. Bd. Mbr., Vol. 12, 2nd Quarter 2009 at 44.
“Great general counsel come in a variety of flavors. Some are expert at helping their companies influence and adapt to the shifting trends of public policy.” Others litigate skillfully or bring a strong business sense, the piece adds, but I underline the part about policy influence. By training and experience, few general counsel would be expected to weigh in expertly on public policy. Perhaps I misunderstand the term and its nexus with the law.
The second notable point is that while McGoldrick was general counsel (and “taking lead responsibility for global policy, government affairs, and philanthropy”) he simultaneously became president of the medical-devices group, “which gave him operational authority over one of the company’s three main lines of business.” That was an awesome, but problematic, responsibility. How could he remain objective in terms of his obligations to the company as a lawyer?
An article in Corp. Bd. Mbr., Vol. 12, 2nd Quarter 2009 at 38, suggests that Boards of Directors should assess the legal talent of the general counsel and replace that top lawyer if that is necessary. A partner at a large law firm, quoted in the article, recommends that board members “pay attention to your management team’s skills too, including those of your chief legal officer.” If they are not equipped to handle the issues ahead, “you may need to find a new team.”
It is not my understanding that a Board, on its own, can unseat a general counsel (See my post of Dec. 12, 2007: Boards with 18 references.). The CEO should hire, and if necessary fire, the top legal officer. No doubt the views of key Board members shape the CEO’s decision, but they don’t supersede it (See my post of March 1, 2007: a view that the Board should select and pay the chief legal officer.).
Law Department Management Blog is pleased to welcome a new guest author. Robert M. Unterberger, a litigator for more than 20 years, has more recently been CEO, Head of Legal Solutions and Consultant to U.S., U.K., Canadian and Indian-based start-up, boutique and large LPOs. An adjunct law professor, Bob has been profiled in publications including Entrepreneur, New York Law Journal, Lawyers Weekly, and Law Technology News. He may reached at 302-562-2535 or unterlaw@yahoo.com.
A consistent objection to LPO is the potential exposure of client confidences and data to third parties. Add to that the concern that national security might be compromised by offshoring, particularly at a time when government resources are trying to defend against cyber attacks, and a reasonable person might just say: “Why bother with LPO?” But I offer a concept that has been the buzz of conversation among my LPO peers: Offshoring to U.S. commonwealths and territories.
Think about it, LPO performed “by Americans, in America” – but by Americans who will take the job for less, possibly much less.
What’s not to like? Offshore LPO performed “on shore”. Our shore, though conveniently not one of the 50 states. This LPO model is particularly compelling where patent searching, support and drafting involve highly regulated industries subject to export control (think aerospace and other defense industries).
As someone who has operated in domestic and foreign outsourcing for two decades, I completely understand this – for want of a better term – “offshore but our shore” model. But it should apply on a case-by-case, one size doesn’t fit all basis. My fear, and that of my LPO provider peers, is that this model feeds into the antipathy, fear and defensiveness toward LPO that good men and women have been working to erase.
