All Systems Go

Jill Nawrocki

Corporate Counsel

05-01-2007

Company: General Electric Company

2006 revenue: $163.4 billion

General counsel: Brackett Denniston

Number of in-house lawyers: 1,225

When a lawsuit comes to the attention of General Electric Company's litigation group, the Early Case Assessment (ECA) process springs into action. The matter gets logged into the legal department's tracking system. Within 60�90 days, lawyers assigned to the case identify and interview witnesses; collect, review, and report on relevant documents; and assess the risks. The attorneys can also tap into a system designed by the legal department's technology team and pull up any legislation or case law that could affect the dispute. Ultimately, the litigation team can decide, early on, whether it's best to settle or take the case to trial.

The ECA is quintessential GE Legal, combining legal know-how with state-of-the art tech (and a geeky name) to make the lawyers' jobs more efficient. It's also part of a core philosophy at the Fairfield, Connecticut�based company�a belief in the power of preventive law. Early case assessment, tracking cases' cycle time (how quickly they are resolved), and using alternative dispute resolution methods (such as arbitration and mediation) have resulted in a dramatic drop in litigation and fees over the last four years. GE says its litigation costs fell from $120.5 million in 2002 to $69.3 in 2005. "We spend a lot of money right up front [analyzing cases], but I can't imagine an instance where knowledge of a case doesn't pay for itself," says Alexander Dimitrief, vice president and senior counsel�litigation and legal policy.

We're giving GE Corporate Counsel's Best Legal Department award for 2007 for this singular ability to be both a visionary and an implementer. Its lawyers excelled in a few key areas: a top-notch litigation practice that identifies risk early on, deft management of outside legal counsel, and homegrown technology that's the envy of law departments nationwide. It doesn't mean the department is perfect. Other semifinalists for Best Legal Department had more impressive pro bono records and demonstrated a surer hand in bringing more of their litigation in-house.

But GE's strengths outshine these weaknesses. The law department's success is the product of years of hard work, under two general counsel. First, under the leadership of the now legendary Benjamin Heineman, Jr., who left the GC job in January 2004 to become senior vice president of law and public affairs (and retired from the company in 2005), GE Legal took on the feel of an elite law firm. Heineman lured skilled lawyers from top-drawer firms�alumni include Pfizer Inc CEO Jeffrey Kindler and The Home Depot, Inc., CEO Frank Blake�and paid them Am Law 100 partner wages.

With the aid of in-house consultants and technologists, the department also set up systems to routinize everyday legal tasks to free lawyers for more important work. The processes were a necessity; the 1,225-attorney department serves six different business groups across the globe with a budget hovering around $1 billion. They support a company that spans the world and reported more than $163 billion in sales for 2006. With 316,000 employees, GE sells everything from appliances to aircraft engines to power plants.

Heineman (a Corporate Counsel contributing writer) was a hard act to follow, but his successor, the quiet and unassuming Brackett Denniston, has built on his achievements. Since taking the general counsel reins in 2004, Denniston has given the department a more global reach by, for example, rejiggering the lineup of outside counsel and putting a greater emphasis on international law firms. To better integrate GE's sprawling legal department, he's also put more resources into information-sharing technology.When we held our first Best Legal Department competition last year, we realized that there are many law departments that do one or two things really well, but few that put it all together. This year, we looked hard for multitalented departments [see "Come Together," for our methodology]. And that's what led us to choose GE. It's not just the department's unparalleled achievements in litigation or technology; it's how the legal department integrates everything it does into a total system that yields stellar results.

One of the legacies of former General Electric CEO Jack Welch is a love of systems, with an eye to rooting out inefficiency at every turn. From a strict excellence-or-out employee review system (poor performers must leave), to the embrace of Six Sigma's fat-reducing philosophy for management systems, GE has been a pioneer. The legal department is no exception. It follows a methodical, self-critical, and wonky approach to almost everything it does. What distinguishes the department is how it has taken initiatives such as Six Sigma�conceived as a tool for streamlining industrial processes�and applied it to intellectual work, like managing outside counsel.

When Denniston took over as GC of GE Legal three years ago, the outside counsel roster was a bloated list of 450 firms. Relationships were hard to manage because in-house lawyers never had the chance to become familiar with their outside counsel, which weren't called upon consistently enough to become experts in GE products or expectations. "We needed a more systematic process," says Denniston. "We had to focus on people and quality."

Instead of a ragged Rolodex, Denniston wanted to rely on a tight-knit club of loyal preferred providers, like the one touted by E.I. du Pont de Nemours and Company. Denniston knew that he could offer the winning firms big bucks (even after the fee discounts he requested), unique opportunities, and interesting work. So he and senior counsel Suzanne Hawkins put them through the ringer. Only 200 firms were asked to complete a 20-page request for proposal. All were also asked to participate in an online auction for certain types of work, a legal version of American Idol. When the smoke cleared in 2005, only 152 firms made what the department calls the "Gen One" cut. Arduous or not, the process paid off. GE's bill for outside counsel, which consistently hovers around the $500 million mark, was down 12 percent from the period 2003�05.

Those original two-year contracts expired in 2006, and like almost everything else at GE, the department saw room for improvement. For "Gen Two," managing counsel Janine Dascenzo teamed up last spring with Hawkins, who now works for the Huron Consulting Group, Inc., to simplify the hiring process. They slashed the lengthy paper RFP to four online-only pages and dropped the infamous (and much detested) online auction component. And they used information collected from the company's e-billing system, and from net provider scores�an in-house tool that ranks GE attorneys' satisfaction with outside counsel interactions�to figure out which firms to invite back.

Eighty-five percent of the original firms were invited to compete in Gen Two last year [see "The Unkindest Cut"]. And Dascenzo and her team ultimately slashed 44 firms from the Gen One list and added 12 new firms, which resulted in a final roster of 108 firms. To solidify the relationship and reward those who had met Denniston's challenge, contracts were upped from two to four years. "We wanted our law firms to know us," Dascenzo says. "Lawyers who know GE have a stake in our success."

Technology is all too often an afterthought in many corporate legal departments, but it's central to GE's success. For one thing, it can shrink a global department; GE, for example, has 119 lawyers in China and India, as well as 258 spread across Europe. At the conglomerate, they don't just buy computers and software off the shelf and leave it at that. Technology has to serve specific needs.

The legal department has its own dedicated IT team, which includes ten full-time staff and one attorney. They custom-tailor systems to meet the company's legal needs, such as virtual deal rooms, work-flow tools, and tracking systems. The group spends $2 million a year developing and supporting those systems�but they estimate the up-front costs save millions in lawyer productivity each year. "I'd love to buy more [software] off the shelf," says John Brudz, senior counsel of legal tech, "but we get more added value [developing it ourselves] because off the shelf just doesn't work for our size."

At the most basic level, GE lawyers use a work-flow tool created in-house called GE Folders. It's shared across all of GE Legal to help manage day-to-day business matters. The Web-based system provides a central space (in massive computer servers) for all documents in a specific practice, from big litigations to acquisitions. Attorneys can access the data, including templates and work forms, from anywhere in the world.

Lawyers can also create online "communities" through another GE�created application called Support Central, which debuted in 2000. Like GE Folders, the application houses templated forms for specific assignments. Health care unit employees, for example, use the system to exchange medical intake forms and nondisclosure agreements with GE lawyers. (Outside counsel can also have access.) For GE's M&A team, the application operates like a virtual deal room, supplying the necessary transactional tools, including contracts, instructions, and due diligence checklists.

Those aren't the only places where GE out-techs the competition. IT has developed an online tool called PowerSuite for GE's environmental health and safety group (EHS). This digital "dashboard" offers such quick-hit information as links for due diligence and training manuals.

With PowerSuite, GE lawyers can manage EHS regulatory issues like employee training, site management, and safety as they arise. And communications don't get lost in e-mail in-boxes; instead, attorneys receive immediate notification of pressing matters via a pop-up box. Brudz estimates that GE's EHS unit saves upward of $75 million a year on productivity because of PowerSuite alone.

Naturally, litigation, too, has been turned into a streamlined process at GE. Preventive law�resolving disputes early and in an efficient, cost-effective way�is a bedrock principle. "The main thing is to avoid surprises," says litigation chief Dimitrief.

We were particularly impressed by the company's ECA system, which tackles a case's potential problems at the onset. It's Denniston's brainchild, which he introduced as senior counsel of litigation in 2003. It requires attorneys to determine the risks, direction, and strategy of a case from the start. With its requirements for early identification of witnesses and data collection, GE says, ECA has helped contribute to the dramatic drop in litigation and fees (43 percent) from 2002 to 2005. Case cycle time, too, has been reduced in that period from an average of 19 months to only 9.2 months. "There's no doubt in my mind that being very good about assessment has saved us money," says Denniston. "You only fight what you need to fight."

Another surprise-avoidance tool is GE's Early Warning System. Litigators in each of the six business units (infrastructure, industrial, health care, NBC Universal, commercial finance, and GE Money) are charged with regularly reviewing the most recent case law, legislation, regulations, and policies for developments relative to their work. They outline the information and condense it, and then e-mail it to business leaders to keep them informed. The critiques become part of the case data bank.

Even more routine matters are handled systematically. Hundreds of small cases, for example, typically stemming from customer complaints, are resolved by "low-dollar dispute teams." These groups of paralegals and temporary attorneys have the authority to settle disputes up to $5,000. (A final settlement is reviewed by a senior in-house attorney.)

GE's lawyers don't hesitate to litigate, though. Last year two in-house lawyers, Buckmaster de Wolf, senior counsel for litigation, and Patrick Murphy, senior litigation counsel for GE Healthcare, teamed up with a group from Paul, Hastings, Janofsky & Walker. They brought a case filed by a bankrupt bodyscan company, Santa Barbara�based Vitascan, Llc, to California state court. (The in-house lawyers led the internal investigation, conducted witness interviews and discovery, and helped with trial strategy.)

Vitascan had defaulted on the loans it received from the GE Healthcare Finance unit after going bankrupt in 2004. The company made fraud and deceptive trade claims against GE. But the GE team refused to settle and brought the case to trial in the hopes that a win would deter other bodyscan companies�that had received GE loans�from pursuing claims against the conglomerate. A jury in Santa Barbara reached a unanimous verdict in favor of GE in just three hours. (Vitascan has not filed an appeal and could not be reached for comment.) Other similar claims against GE have been dropped. "We could have won this through summary judgment, but we wanted to go to trial with a test case because we knew other companies were watching," says Dascenzo.

Even with these successes, there's room for improvement at GE. While its department exceeded our expectations in most areas, its pro bono efforts underwhelmed us. In our review of other Best Legal Department applicants, and in our coverage of other Fortune 500 companies' efforts throughout the year, we know that many businesses with legal teams a fraction of GE's size have done significantly more work in this area.

Take one of our runners-up, J.C. Penney Corporation, Inc. The Plano, Texas�based department store chain has 44 lawyers, but its pro bono program has made significant contributions with just 3.5 percent of GE's manpower. Company lawyers staff Legal Aid of NorthWest Texas's walk-in clinics every month�even general counsel Joanne Bober has participated. McDonald's Corporation, a semifinalist, has won countless awards for extensive pro bono work with just 139 in-house lawyers (about 11 percent of GE's total). McDonald's lawyers work with such projects as the Chicago-based Center for Disability and Elder Law and the Chicago-based Coordinated Advice and Referral Program for Legal Services, which provides legal aid for low-income Illinois residents.

By comparison, GE lists just a handful of localized pro bono achievements. In Cincinnati, attorneys represent students facing expulsion, and in-house lawyers in Hong Kong are working with the Salvation Army. But with 1,225 lawyers, we expected to see a much greater array of programs and a broader participation rate. "It's something we're trying to improve," concedes Denniston. To that end, he is leading the charge, working on a death row case with an attorney from Weil, Gotshal & Manges, one of GE's preferred provider firms.

If his department's success in other areas is any indication, the team has a good chance of not only reaching but exceeding this goal. "I'm proud of this organization," Denniston adds. "It's a different world than it was five years ago." We certainly agree.