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A general counsel’s budget should include settlements and awards (Friedman and Stewart)

On one side of the aisle sit those who believe that general counsel should be responsible for only two components of corporate legal costs: the overhead costs of inside attorneys and outside counsel fees. On the other side sit those who would add to responsibility for the total amount of settlements and money damage awards. A thoughtful article by two former general counsel, Stephen J. Friedman from E.F. Hutton and Equitable. and C. Evan Stewart from Nikko Securities, sides with the latter: “a general counsel should be judged by the ability to manage the overall cost of all three components,” ACCA Docket, Vol. 18, May 2000 at 2.

Responsibility for total legal costs fits with Friedman’s and Stewart’s view that to the corporation all legal costs from whatever pocket are fungible (a dollar spent is a dollar spent), and that “a company should be indifferent to which component of legal costs an expenditure represents, as long as the overall cost of a project is as low as is practical.”

The prickle is that business unit heads are held accountable for their budgets, so that if settlements and awards come from their purse, they do not want to cede complete authority to the lawyers to decide the timing and amount.