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First- and second-order consequences in management

If a company chooses as its new general counsel a lawyer from outside, so-called first-order consequences of that management decision might include morale changes in the law department, departures of the disappointed lawyers who were passed over, and whatever changes in policies and practices the new top lawyer institutes.

Second-order consequences take more time to appear and may be quite subtle. For example, if lawyers who are considering joining the department sense that general counsel do not get promoted from within, the department may have a harder time attracting superior lawyers. If clients sense that the law department doesn’t nurture strong leaders, clients may trust it less and seek outside counsel more. If law firms come to doubt that they can rely on longevity (See my post of July 21, 2006 on cost control and changes in companies.), they may be less willing to innovate. All management decisions in law departments have first- and second-order consequences (See my post of Aug. 28, 2005 on unintended consequences and trade-offs of decisions.).

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