Articles Posted in Showing Value

Most lawyers start their careers being trained to miss nothing, look at everything, and be very wide-ranging. They wallow in complexity, for that rack up lots of billable hours, and become quite enamored with creating and dealing with complications.

Once lawyers reach management levels, however, they need a very different orientation: they need to simplify. A good manager clears away the clutter of detail and focuses, over the longer range and on the most crucial decisions. To illustrate, a general counsel who redlines, researches the law and drafts may be stuck in complexity. They micromanage. A better general counsel concentrates on the actions or ideas that have the most leverage; they simplify to the big-picture considerations.

Here are some of my candidates, in alphabetical order. I welcome other nominations of general counsel of this stature who deserve extraordinary recognition for their managerial contributions.

Bob Banks, one-time GC of Xerox and a founding father of what is now the ACC

Mark Chandler, Cisco’s outspoken and innovative GC, in part for his rousing speech at Northwestern a few years back

One of the questions on the Third Annual Law Department Operations Survey asked respondents to “rank the top three challenges of managing law department operations.” Where three points went to a first place choice, two points to second, and one to third, “Driving/Implementing change” led the pack. It collected 95 points, whereas the next most acute challenge, “Identify opportunities for business improvement & cost savings,” lagged far behind at 56 points. The third-ranked choice, “Document ROI of the position to the corporation,” at 47 also has to do with change. For these respondents, their hardest task has to do with pushing colleagues to improve.

By the way, the total points allocated to the 10 choices was 448. Since each respondent could assign 6 points and perhaps a couple did not allocate all of their points, that suggests 75 respondents,

All ten choices, except “Other” that only got 5 points, were upbeat, success-oriented and high-level activities. Ordering supplies, planning meetings, preparing PowerPoints for the General Counsel, finding replacements for ill secretaries and other, more mundane demands did not make the challenges list. They also take time and attention but making the trains run on time is not a challenge.

Federal regulations “already fill 150,000 pages of fine-print text and cost Americans $1.7 trillion a year.” This claim, controversial at the least regarding the cost, appears in Met. Corp. Counsel, March 2011 at 5, from Thomas Donohue, President and CEO of the U.S. Chamber of Commerce. If someone can come up with such a figure for the federal government, someone can also probably estimate a counterpart figure for the States.

If the cost of regulations were as quantifiable as the quote suggests, in-house counsel who advise clients on how to interpret and comply with them would have more raw material with which to quantify the value those counsel deliver (See my post of Jan. 28, 2011: regulations assessed as “economically significant” or not in terms of costs and benefits.). For example, if in-house lawyers spend time on regulations roughly in proportion to the economic cost of the regulations to their company, that would be a performance and value indicator.

More directly, if a particular company spends less on compliance with regulations but still has a good track record on investigations, fines, or negative publicity, the lawyers for that company could boast of their relative effectiveness and be able to prove it (See my post of Feb. 3, 2011: high praise for GE’s lawyers on tax compliance.).

One way to establish the relative importance of legislation quantifies its impact either in costs imposed or benefits obtained. Researchers at Georgetown University, under Susan Dudley, Director of its Regulatory Studies Center, deem an “economically significant” consequence of a regulatory rule to mean that either the rule’s costs, or its benefits, exceed $100 million a year. (Yes, I could agree that is significant.).

By their reckoning, in the first two years of President Obama, the federal government issued 132 economically significant rules. This fascinating quantification of legal impact, and therefore I submit often a proxy for legal complexity, comes from the Economist, Jan. 22, 2011, at 35.

A law department might rank the statutes that generated those significant rules in terms of their applicability to their company’s business. The picture that results could be a way to show value delivered, since the law department helps the company navigate those requirements. Contrariwise, if the law department hasn’t focused as much on the major rules, it might reassess its priorities.

“The fundamental goal for legal departments today is to validate the legal budget as a business enabler driving greater profits.” That pugnacious start of a recent article contains more theater than reality. I strongly disagree with its premise.

General counsel spend their budgets to try to manage legal risks wisely while at the same time to enable profitable business activities. You can’t split the baby on those twin goals. Put more sharply, should there be a clear conflict between legality and profitability, the responsibility of the general counsel must be to uphold the law.

A previous post defined construct validity (See my post of Dec. 15, 2010: Meyers Briggs claimed to lack construct validity.). Initially, we would need a consensual construct for effective law departments. “A construct is research-based and its meaning is agreed upon by a consensus of professionals qualified in the appropriate field of study.”

Next, to have construct validity, there would need to be a shared agreement on how to quantify “effective” for legal departments. Experienced professionals would have to agree, in the main, that the instrument or data that purports to measure effectiveness actually reflects that real-world phenomenon.

It’s easy to toss off a definition of an effective law department but it is devilishly hard to measure what that means or to compare two departments objectively. We are not near a common definition of effective law departments let alone measurements that prove the situation (See my post of Sept. 10, 2005: an index of law department effectiveness; Oct. 1, 2005: efficient and effective as models; and Feb. 22, 2010: larger departments gain effectiveness.).

Very little, I believe. Others disagree with me.

In her discussion of offshore legal outsourcing, Cassandra Burke Robertson, A Collaborative Model of Offshore Legal Outsourcing, Case Western School of Law Working Paper 2010-35 (Nov. 2010) at 14, discusses the lack of publicity by law departments surrounding offshoring. http://ssrn.com/abstract=1705505 Robertson writes that “Corporations choosing to send work offshore will rarely publicly announce that they are doing so.” One of the two reasons given is that “there is a risk that competitors will follow suit, thus diminishing any competitive advantage gained from outsourcing.”

It has not been my impression that general counsel conceal their management efforts and experiences from each other because of a concern for proprietary value or a competitive edge. When general counsel talk among themselves in trade groups or at other gatherings, they seem willing to share openly and completely. They may decline to speak on public panels, but that reluctance probably has more to do with tight schedules and low perceived value to them than with recalcitrance about disclosure.

The Economist, Dec. 18, 2010 at 134, contrasts the transaction-cost view of the business world with the resource-based view. Management theorists who champion the resource-based view “argue that activities are conducted within firms not only because markets fail, but also because firms succeed: they can marshal a wide range of resources – particularly nebulous ones such as ‘corporate culture’ and ‘collective knowledge’ – that markets cannot access” (See my post of July 20, 2010: resource dependence theory.).

In other words, difficulties and costs of contracts with providers, which are shortcomings of the market solved by companies that employ the providers, are not the only reason for a company or a legal team. The costs of transactions with law firms are not the only reason why companies establish in-house legal groups (See my post of March 24, 2010: alternative fees and transaction costs; Nov. 19, 2009: Coasian analysis with 6 references.).

The cumulative benefits of resources meshing together, such as collegiality, loyalty, and backup support along with the two mentioned above – culture and institutional knowledge, find justification in the resource-based theory of collective advantage. Transaction costs look mostly outside for their advantages; resource dependency takes a more internal perspective.

Ladbrokes, the UK gaming company with four lawyers on its inside legal team, tied with TI Automotive for the smallest department to make this year’s the Financial Times list of innovative law departments. Surprisingly, David has embarked on a software development and marketing initiative in a Goliath market.

As summarized in the online description, the legal team “developed a bespoke contract management system with a procurement software provider, and is planning to sell it to other in-house teams and law firms.” Perhaps the software company will take on all the selling, installation, support and development. Perhaps Ladbrokes acted as the beta site. Perhaps the actual arrangement has been garbled by the press.

I have inveighed against customized software written by law departments, even more against small law departments taking on that cost and obligation to support, and most certainly in a field already crowded with major competitors (See my post of June 3, 2009: bespoke, customized software written for legal departments with 12 references.).