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The disparaging term “cost center” is not deserved

Law departments cannot escape the slur: “You’re just a cost center.” Listen to John Lipsey, vice president, corporate counsel services, of LexisNexis: “Today’s GC has to work within the company’s economic environment and operate the law department as a cost center.” The first part of that sentence is trite, for the reason that everyone must work within the corporate constraints.

It’s the resignation to the fact that today’s GC must accept that her department is a lowly cost center that irritates me (See my posts of May 24, 2005 on the term “cost center”; Jan. 14, 2007 on savings by law departments from business profits; and March 17, 2006 on how HSBC’s decentralized team weakens the cost center complaint.)..

I don’t think that cost-center epithet is fair. If any major US company had no law department, the company would undoubtedly save a quarter percent of its revenue or so, which is the median cost of an internal law department. But I have no doubt that that company would pay much more for outside lawyers and it might in fact end up paying more in settlements and judgments. It takes contracts to make money, and it takes lawyers to complete and enforce contracts. It takes people to run companies, and lawyers to help hire and fire many of them. It takes lawyers to have companies make money, so why are they dunned as cost centers?

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