Articles Posted in Showing Value

CEO’s know that “A great CFO is his best secret weapon.” Aside from the sexism, that’s a shot at CLOs. Or maybe GCs are not so secret? The article in Fortune, July 25, 2011 at 27, rubs in the comparison: “A great CFO needs to be part numbers whiz, part general manager, and part consiglieri.” Consiglieri? Isn’t that the forte of the general counsel, the wisdom behind the throne.

What threw me further was the rave about the CFO of Mittal Steel who “fought off a poison pill and a Russian rival in the hostile $38 billion takeover of European rival Arcelor.” Smacks of unauthorized practice of law, not that there were any M&A issues a good bean counter couldn’t handily take care of. Who needs a lawyer when you have a CFO?

An article’s author writes that “Whereas there were about 3,000 multinational corporations in 1914, the figure rose to 63,000 in the year 2000.” If that latter figure is correct, and the J-shaped growth curve has continued for whatever they mean by “multinational corporations,” one could imagine 70,000 now, a decade later. The quote comes from Historically Speaking, June 2011 at 32, refers to Globalinc: An Atlas of the Multinational Corporation, published in 2003.

If a company has prospered to the point where it operates, or at least sells, in multiple countries, it probably has at least one in-house lawyer (See my post of Oct. 14, 2010: cites to 70,000 “transnational” companies but no source.). That 70,000 figure would not include “national” companies that have an internal legal function.

From various sources I have estimated, very roughly, 30,000 legal departments in the United States and Canada, 10,000 or more in Europe; and I would not be surprised to find 10-20,000 in Asia; 5,000 in Latin and Central America; and thousands more for the rest of the world (EMEA) (See my post of Dec. 31, 2010: estimates of total number of worldwide law departments with 9 references from 2010.). The total worldwide could easily exceed 100,000 law departments.

In a recent article, Scott Giordano of Mitratech credited Ben Heineman (General Electric’s former general counsel) with an observation he and others must believe to be profound. “The greatest challenge for the GC is to reconcile the dual and sometimes contradictory role of being a partner to the business and a guardian of its reputation and integrity.” This appears in Met. Corp. Counsel, June 2011 at 9. My question is, Why single out the top lawyer as a guardian of reputation and integrity, as if that lawyer has more of a moral guardian role than do other top executives?

Later, Giordano cites the cop on the beat obligation. He writes “There is a conflict, for example, when the GC’s compensation package is tied to company profitability and stock options. It raises questions of impartiality when there is a personal incentive to disregard playing the corporate cop and maximize payouts that might be a result of manipulated financial numbers.” The top lawyer not only cleanses moral turpitude and preserves the good name of the company, but walks the beat and swings the billy club. Why the heightened ethical burden on lawyers (See my post of Dec. 22, 2005: ethics with 5 references; Oct. 7, 2008: ethics with 29 references; March 11, 2010: ethical behavior and in-house lawyers with 15 references.)?

It must be flattering to view oneself as the bulwark against lapses: the purer-than-thou lawyer calling ethical balls and strikes. But that could be myth-making and self-aggrandizement. Everyone in a company ought to be concerned about the public perception of that company – its brand and reputation – and everyone in a company ought to act honorably – show integrity.

A piece in Met. Corp. Counsel, June 2011 at 12, concerns Enterprise Risk Management (ERM). Aimed at a company level, I tried to bring it down to the legal department level and apply one of its teachings. The authors write that “Linking your risks to strategic objectives is the most powerful tool for prioritization [of risks].”

Let’s reflect on that seemingly innocent bit of advice. Your law department knows your corporation’s strategic objectives. If they are “organic growth,” “new product development,” and “targeted acquisitions,” let’s say, just how useful is it for the department to identify the major legal risks that lurk around each goal? “Organic growth” – hmmm, that could stretch to involve a class action suit over wages and hours? “New product development” – you could fail to patent a good idea or allow an unsubstantiated claim in an ad? “Targeted acquisitions” could lead to a shareholder derivative suit or breach of a lockup provision? None of these legal risks seem either probable or very threatening.

My point is that lawyers can tag any corporate goal with some conceivable legal risks, even potentially major ones, but that exercise hardly seems useful. What comes from a nice chart with colored bubbles that links legal pitfalls with high-level company objectives?

Without attorney-client privilege, law departments can’t compete equally with outside counsel. Retrograde jurisdictions fail to provide that powerful shield (See my post of April 25, 2011 #1: narrow rejection of privilege in Europe.).

By law, salaried lawyers of an Indian company are barred from representing their client in court. That would be a minor wound. But here is the killer: “It has been suggested in some cases that communications or legal advice generated by ‘qualified legal professionals’ (in other words, someone with a current practicing certificate) from the internal law department of a company should be protected under Indian Evidence Law.” Does that mean obiter dictum “suggests” the privilege holds? This equivocal summary of the privilege, from Amarchand & Mangaldas in Practical Law Global, Spring 2011 at 52, ends clearly on a note of absolute uncertainty: “That said, the position concerning communications of in-house lawyers is still unclear.”

In Japan, by contrast (Herbert Smith at 55), in-house lawyers enjoy the same privileges as external counsel so long as they are a Bengoshi or a Gaikokuho Jimu Bengoshi. The commentary notes intriguingly that “In Japan, there are many legal department in Japanese companies with in-house lawyers who are not qualified lawyers.”

The bread-and-butter of many in-house attorneys consists of commercial contracts, those contracts either to buy or to sell goods or services, and the legal work attendant on them (See my post of Dec. 22, 2009: primary role of many inside lawyers; Dec. 23, 2009: one-third of litigation involves contract disputes; June 7, 2010: most common kind of litigation is a contract dispute; Aug. 25, 2010: at Johnson Controls, commercial contracts, corporate work, and antitrust are core; Sept. 4, 2010: three priority levels for contracts handled by law departments; and Dec. 15, 2010: article cited that wonders about contracts being key work of law departments;).

Many people collaborate with the lawyers on contracts, or help get them done and tracked (See my post of Sept. 21, 2009: offshore staff to curate contracts; Nov. 6, 2009: global contracting staff outnumber legal staff by two to one at CSC; Aug. 10, 2010: contract specialists at Discover Financial Services; Nov. 18, 2010: sales force may be greater challenge than contract negotiation; Nov. 29, 2010: clients and negotiations; Dec. 19, 2010: outside counsel and fixed fee of Bell Canada for contracts; and May 31, 2011: eBay and procurement’s involvement.).

A recent survey’s report on law department value ends with a strange twist. “In summary, the more the legal department can free up attorney time to focus on revenue-generating activities, the better it will serve the client and the better the business will perform.” If “revenue generating” comes down to completing sales contracts, that leaves little justification for lawyers who specialize in litigation management, environmental law, or real estate. They don’t bring in money, or not nearly as directly as commercial transaction lawyers.

In limbo too would be HR lawyers – arguably you have to have employees to generate revenue – and export/import lawyers – if you source or ship internationally they become important. Even if some legal work goes on far removed from cash registers jingling, my bottom line is that all lawyers in-house are equally instrumental to the success of the company.

A recent survey of 176 law departments found that at least half of them say they demonstrate value to their companies by “implementing knowledge management systems.” That finding troubles me, for three reasons.

Demonstrating value cannot mean listing all the things you do in your department. Not all activities create value. Second, unless the survey defines “knowledge management system,” the responses have little value. One respondent thinks that a shared drive meets it; another has Google Desktop to search; a third keeps hard-copies of briefs; and so on. It’s like asking, “Do you work hard,” and announcing that half or more of the respondents say they do.

Lastly, implementation is one thing; effective use where it should be used throughout the legal department is a completely different thing. To install software, to devise a process, to set up a Center of Excellence, or to implement a knowledge management system, does not lead to a self-executing success.

An article says that Applied Discovery defines value as “partnering with clients to achieve their objectives, with thorough cost assessments and efficient project management as methods for aligning cost with value at the very onset: in the bidding stage.”

Stated differently, value is working closely and efficiently with clients. Admirable as that goal may be, it is not value as properly define as output mostly, not input. This is all input, and every provider of services to law departments could (and should) strive to team with the department as efficiently as possible. With no emphasis on what results from that lean teaming, it remains in the realm of “try real hard,” not of deliver something appropriately useful and worthwhile.

Deeper, if the client’s involvement is viewed as so integral to the value delivered by a service provider, the burden lessens on the provider. By that I mean, if two must tango tightly, the provider bears less responsibility for the value of what is delivered, since the client was right there making decisions, pitching in, shaping the result. If your value depends so intimately on the client’s actions and decisions, how can you claim you independently have delivered it? Value, in this light, goes beyond performance excellence to specifications set by others, but also to independence, judgment, and risk taking.

As I noticed the drumbeat of downloads of my recent article on the value delivered by in-house counsel, I wondered why that theme grabbed so many readers. The straightforward answer would be that many managers of law departments want to understand better how to describe the value their team brings, increase that value, and be appreciated for that value. In short: “the topic matters to me.”

Perhaps “nine” titillates people; how could someone proliferate so many thoughts on a topic that perhaps is taken for granted? In short: “the topic couldn’t possibly justify such profusion.”

A dark and troubling explanation also came to mind. Perhaps the topic taps into a deep and broad vein of in-house insecurity. Would secure people, confident in their contribution and certain of their respected value even bother to look? In short, “the topic scares me.”