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Discover Financial: Let's Give Credit Where Credit Is Due
To show how much the compact legal department at Discover Financial Services can do, general counsel Kelly McNamara Corley tells a story.
It was 2007, and the credit card issuer had just been spun off as an independent company. Her two-person government affairs staff in Washington, D.C., needed to move into new quarters. So Corley's very first hire at Discover, assistant general counsel Ray Messina, his administrative assistant, and a friend rented a truck and moved everything for about $200.
"In a small law department, you look for people who can flourish putting on and taking off hats in any given day," Corley said.
The legal department at Discover — the country's sixth-largest credit card company, headquartered in the Chicago suburb of Riverwoods — has only 34 lawyers. How do they do it? Corley, who's been GC at Discover and its predecessor business unit since 1999, said it's a combination of being creative about problem-solving and leveraging people into new roles. "If you only have limited resources, you quickly recognize that you have to do it faster, smarter, and better than somebody that has five times the resources," she explained. "You get very clever with your time."
One example: Its tiny litigation team — with just one full-time attorney and two part-time lawyers — handled over 1,000 legal matters in 2009, while resolving 11 of 14 pending class action suits. Working with outside counsel, the team, led by David Oppenheim, brought Discover a big payday last year. The company collected $2.75 billion from an antitrust suit it won in 2008 against Visa Inc. and Mastercard Incorporated. It was the third-largest antitrust victory in history, Oppenheim said. To help make their case, he and Corley persuaded former Discover executives — who normally shun the courtrooms — to describe under oath how the bigger companies had improperly stifled competition.
Oppenheim described his role as "embedding" himself with outside counsel in Chicago, New York, and Washington, D.C., in order to supervise and coordinate the work. For the suit, he and Corley chose some litigators from a big firm, Kirkland & Ellis, and paired them with more from a boutique firm, Constantine Cannon. According to Corley, Constantine's lawyers were the think-tank, Kirkland provided the litigation engine, "and David was the conductor."
The agreement with Visa and Mastercard wasn't the end of the issue, however. "We hadn't even signed the settlement agreement yet," Oppenheim recalled, when Morgan Stanley Group Inc. — which owned Discover from 1997 to 2007 — filed suit, seeking a $1.5 billion chunk of the award. He called it "incredibly awkward" to be in litigation with his former friends and colleagues at Morgan Stanley.
But Oppenheim's team went to work, finally settling the matter this past February. Morgan Stanley accepted a $775 million payout, meaning that Discover's lawyers helped the company preserve the remaining $1.9 billion.
That money came in handy. In March federal regulators approved Discover's plan to pay back $1.2 billion in bailout funds it needed during the 2008 market meltdown and credit crunch. The entire loan process placed immense demands on the legal department, but the five lawyers in the corporate, banking, and securitization unit were affected the most.
In order to be eligible for a bailout, Discover had to become a bank holding company. The five attorneys had to meet hundreds of requests from the company's new banking regulators, examine Discover's corporate governance structure, create a risk office with new policies, adopt new accounting rules, and more — all under tight deadlines. Kim Loies, a senior counsel in the group, said that almost all of the work was done in-house, requiring long hours in an uncertain climate. "But they knew they had to do it to weather the storm," she recalled. "It was a great learning experience, and we definitely came out of it stronger."
Discover's roots go back to 1986, when Dean Witter Financial Services Group Inc. (then a subsidiary of Chicago-based Sears, Roebuck and Co.) launched the Discover card. In 1993 Sears spun off Dean Witter, Discover & Co. as an independent business. In 1997 that company merged with Morgan Stanley, which a decade later spun off Discover Financial Services (just in time for the global credit crunch).
Corley started her career in 1982 in Sears's D.C. government affairs office, first as a summer intern and then as an administrative assistant. She worked alongside another staff member named Christine Edwards, who would later become GC of Morgan Stanley, but who was going to law school at the time. Inspired by Edwards' example, Corley decided to go to law school herself — at night. During the day, she and Edwards focused on legislation affecting Sears' banking services.
Over the years, the two women have climbed the corporate ladder together. Edwards took the helm at the D.C. government affairs office after Dean Witter was spun off from Sears. When Dean Witter promoted Edwards to a job in its main office in Chicago, Corley assumed command of the D.C. office. Edwards then became general counsel at Morgan Stanley after it bought Dean Witter and kept offices in Chicago. She eventually convinced Corley to join her in the Windy City as general counsel of Morgan Stanley's Discover division in 1999. Corley remained with Discover as GC after it became an independent public company in 2007.
Did Corley consider staying with Morgan Stanley, which would have meant leaving Chicago? "I wouldn't have changed if my life depended on it," she said. "I love Discover, and I want to be in Chicago."
Edwards, who left Morgan Stanley in 1999, is now a corporate partner at Winston & Strawn, where she's working again with Corley, but as outside counsel. Edwards said Corley has always been "an incredibly creative" lawyer, whether in coming up with innovative fee arrangements or with ideas for joint training. "Kelly searches for the elegant solution rather than the luxurious," Edwards said. "By that, I mean she takes the resources she has and does a heckuva lot more with them than any other lawyer I know."
Corley's lawyers at Discover follow her lead in seeking elegant solutions. For example, Carol Sulkes, assistant GC for infrastructure and employment law, came up with a contract model that helped her department execute 700 business technology agreements and about 100 facilities agreements last year. "And none went outside," Sulkes boasted. Under the model, nonlawyer contract specialists in the finance department collect a deal's requirements from the business unit, prepare a first draft, manage the review process, and highlight any issues for the legal department. "When I get a contract," Sulkes said, "all the legwork is done."
Another unit in Discover's law department has since adopted the model. Nancy Brooks, assistant general counsel of the credit card networks unit, explained that her group wanted to decrease the amount that it was paying outside counsel to work on thousands of merchant contracts. So she hired a contract specialist to handle the initial paperwork and write first drafts of contracts. Her lawyers handle any legal issues and sign off on the final version. In 18 months, Brooks said, "we decreased our outside counsel spend by $1 million. It's a very efficient model."
Sulkes and Brooks are evidence of how Corley has given broad operational and legal management responsibilities to the women lawyers on her staff. The GC's senior leadership team is 42 percent female. She's also created several flexible work schedules to allow employees to better balance their work and family life.
Corley isn't all business — she has an easygoing sense of humor with her staff. She laughs as Messina tells his own favorite story, about how one of Corley's very first jobs was as a ride operator at Disneyland. His punch line: "Kelly started her career telling people where to get off, and she still does."
DISCOVER FINANCIAL SERVICES
2009 NET INCOME $1.3 BILLION
GENERAL COUNSEL KELLY McNAMARA CORLEY
NUMBER OF IN-HOUSE COUNSEL 34
MAIN OUTSIDE COUNSEL ALSTON & BIRD; DLA PIPER; KIRKLAND & ELLIS; SIDLEY AUSTIN; WINSTON & STRAWN
WE LIKE DOING SO MUCH WITH SO LITTLE
COULD DO BETTER NO FORMAL PRO BONO PROGRAM
Sue Reisinger can be contacted at email@example.com.