Articles Posted in Showing Value

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A respectable view holds that in-house lawyers should draft and interpret contracts, possibly negotiate them, but not administer them. The term “contract management” means different things to different people, but is roughly coterminous with “contract administration.” Exari tried in a recent survey to gather some data about practices in this area. Their white paper, Corporate Counsel Contracts Survey Report, Dec. 2011 at 13, includes two pie charts. One, covering the sell side of contracting, shows that the legal department “owns contract management” in 66% of the approximately 100 respondents, with sales “owning” it in 17% and “other” in 17%. As might be expected, when companies buy goods and services, the percentage of legal department ownership slips, to 59%, the share owned by procurement reaches 28%, and “other” has 13%.

The distinction between sell side, which generates revenue for the company and may require legal review of the buyer’s contract form, and the buy side, where a company has more leverage and a procurement department to deploy it, makes sense. With both sides, the Exari survey suggests the law department has oversight responsibility more than half the time.

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Surprisingly, of the law departments that completed the ALM benchmarking inquiry about recording lawyer time, 9 of them said they track it and 41 said they did not. However, if we assume that the 32 non-replies were also denials of time tracking, then overall about one out of nine law departments track time (9 out of 82). This ratio is in line with, or a bit higher than, estimates typically seen. It is not my impression that time tracking is resurgent.

To learn more about the Law Department Metrics Benchmark Survey of ALM Legal Intelligence, click here for ALM’s website.

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Very commonly general counsel and business executives complain vociferously about “regulatory overload.” Spewing out every year hundreds or thousands of new laws, regulations agency practices hobble business. The burden rises – but you know about every cloud. Four silver linings balance the picture a bit.

Were it not for governmental regulations and their enforcement, many in-house lawyers would not have their current jobs. If specialists in environmental issues, utilities, power transmission, food additives, transportation systems, or insurance products, to name but a few domains of ubiquitous regulations, were able to abolish their agencies and output, their jobs would diminish or disappear. Regulations protect the careers of regulatory lawyers.

Regulations clarify or set rules, so that businesses can plan, can design their products and offerings, and can rely on competitors honoring them at least partly. No executives thrive on chaotic unknowns; all of them like some anchor points because there still remain multifarious opportunities for innovation and improvement. As appellate decisions resolve legal tangles, regulations resolve business-practice tangles.

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The reason there are so many awards handed out to law departments is that vendors and service providers pay handsomely for the publicity. If you are a software vendor, for example, you rejoice when one of the law departments that has installed your software bags an award (See my post of Feb. 9, 2012: litigation hold vendor’s client honored.). Not only do you rejoice, you take out an ad in the publication that gives the award. Or, if you are a law firm’s marketing department, you love having a client identify you as their partner in an award-winning activity, plus you plump down a bundle as the “sponsor” of the the black-tie ceremony. Even law departments swell up and feel good about themselves to be recognized as the Best Something – and they too pony up for a table at the gala bestowal ceremony.

The award givers make money from content, ads and tables and sponsorships. The awardees feel good about themselves and the marketing hype rises and rises all around.

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Something is amiss if the distinguished Legal Tech. News of ALM proclaims that the year’s most innovative law department, from the standpoint of technology, achieved that distinction because it selected a litigation hold system. The February 2012 write-up, at page 15, unquestionably describes something new and unheard of: the “extensive 430-point rating system to assess various vendor offerings” that Deere concocted. The vendors invited to participate, and there are a slew of them vying for playing time, must have gnashed their teeth at the bloated set of questions. A Request for Profusion shouldn’t win the blue ribbon.

The explanation for that unimaginably lengthy RFP, which spewed huge replies almost impossible to assess by Deere even if the vendors answered honestly and completely, was “because the system needed to work in the company’s current technology environment, integrate with existing technology, and be highly configurable.” That is what all law departments want of their software. Nothing innovative there nor in the function itself – litigation hold software. Ultimately, Deere selected Fusion Legal Hold from Exterro.

Unless there was a paucity of submissions, why does licensing a commercial package to handle litigation holds merit such recognition?

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An interview of Thomas Russo, who became the general counsel of AIG in early 2010, appears in Corp. Counsel, Dec. 2011 at 18. In addition to being a senior executive of the company he views his role as having another component: “administering a department that has approximately 1,400 people in it, about 500 lawyers, and has outside legal fees of slightly south of $500 million (not including claims).” Russo’s choice of the term “administering” interests me, but I may be indulging in semantic hair-splitting.

The term “managing a law department” appears much more commonly than “administering” a department. Russo conception and terminology takes a very high-level view: “Administrative means looking at all the different legal, regulatory, and compliance functions. Making sure that the right people are there.” To administer is to be concerned with the highest-level of structure and function, and that the right lieutenants are in charge. “Managing” means dirtier hands, to some degree shoveling at the coal face. And “leading” evokes inspiration, charisma, crisis and vision (See my post of Dec. 29, 2008 #1: compares business plan to strategic plan like management to leadership.). These definitional niceties may be over-wrought or they may touch on meaningful distinctions between three views of the top lawyer’s managerial role.

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One of my blog posts drew on data from Portugal, USA, UK, and Belgium to estimate very roughly legal departments per billion dollars of GDP at 0.6, 0.7, 0.5, and 1.2 (See my post of May 10, 2010: four countries and GDP.). If we take as the lodestar the low end of 0.5, that says for every two billion dollars of Gross Domestic Product we might expect one law department. That touchstone seems very low, in that in several developed countries, figures like one internal lawyer for every $250 to $400 million (2-4 lawyers per billion of revenue) is typical, but GDP doesn’t arise only from corporations. In fact, about two out of every three GDP dollars comes from consumers (See my post of July 19, 2011: article on legal industry.).

Anyway, in Joseph Mazur, What’s Luck Got to Do with It? – The history, mathematics, and psychology of the gambler’s illusion (Princeton 2010) at 70, Mazur write that “the estimated value of the GDP of the whole world in 2008 was $54.3 trillion.” If we take 55 thousand billions as an updated estimate, and apply half a law department per billion, that suggests 25,000 law departments worldwide. It is quite certain there are two or three times more, so this string of conjectures has run out.

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For a typical U.S. company, the percentage of patents held outside the country might approximate its percentage of international revenue. Stated differently and with an illustration, if a third of its patents are ex-U.S., then its revenue from overseas might also be expected to be around a third. Companies pay to protect their patents in countries where they sell or manufacture their goods.

If my hunch is correct, international patent holdings could serve as a proxy for global trade. It would not only create a benchmark metric to be compared but would also give some insight into globalization and its effects on law department operations. Additionally, patent-related costs, ranging from lawsuits to headcount to disbursements for annuity fees account for a significant element of law department budgets. Patents also intrude on structure (chief patent officer) and leverage and technology.

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This opening sentence from a column in the NY Times, Dec. 24, 2011 at B1, irritated me: “Count the T-Mobile lawyers who negotiated a multibillion dollar breakup fee – [two Wachtell, Lipton lawyers] – and got AT&T to agree to it as among those who will actually deserve their year-end bonuses.” Does the columnist know that T-Mobile has a large and highly qualified legal department? Does he know that their senior corporate lawyer in charge of the negotiations – sorry, I doubt that Wachtell made the business calls – did not dream up and maneuver through the massive breakup rights?

It may be that the Wachtell lawyers had the creativity and audacity to propose asking for the $3 billion in cash and valuable wireless spectrum and had the skills to push it through to the final agreement. But someone on the T-Mobile side, and likely a lawyer, at the least had to agree and back them up.

I do not know what happened late at night in stuffy conference rooms littered with take-out and negotiators under pressure, but praise for this coup may be deserved by the in-house legal team, rather than based on the implicit assumption that outside counsel are more daring, smart and wily.

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The quote comes from a NY Times article on Dec. 18, 2011 at BU 1. Prof. Andrew Morriss of the University of Alabama School of Law then adds that there aren’t enough lawyers who will handle personal matters for individuals, like divorces and bankruptcy filings, at “reasonable rates.”

The article blame law schools as too expensive, with the consequence that heavily indebted graduates must earn princely sums to pay off their debts and therefore their firms must charge a king’s ransom to compete on salaries.

An economist could respond that corporate buyers, by and large, are the ones that support $300 an hour lawyers, and indeed many lawyers who are much more expensive. No one forces them to retain outside counsel nor sets minimum hourly rates they must pay. It appears, I grant, that the ABA and state legislators have restricted “the practice of law” and thereby raised the cost of legal advice. Still, companies are not without choices. Nor does any law or government regulation or guild-like agreement restrict lawyers from charging individuals “reasonable rates.” No, it is economics.