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As general counsel of Cisco Systems Inc., Mark Chandler is required to run the company’s legal department precisely how other corporate groups there are run. Despite the unique demands on in-house lawyers created by the burdens of corporate compliance, increased regulation and uncertainties of litigation, the department is driven by metrics the same way that Cisco’s manufacturing, human resources and sales groups are. Indeed, Chandler has earned a reputation within the in-house community for meeting these mounting demands on legal departments while also coping effectively with ever-increasing pressures to contain costs. At Cisco, which sells computer networking products and routing and switching systems, total legal spending now amounts to just a little over one-third of one percent of company revenue, with nonlitigation expenses running at about .16 percent. Translated into dollars, Chandler’s 170-lawyer department is spending some $38 million internally and $80 million a year on outside counsel. The $32.8 billion company has 51,000 employees working in 80 countries. “As Cisco gets bigger, the share of revenue devoted to legal expense needs to get smaller,” says Chandler, adding that operating expenses are currently at 35 percent of revenue and falling. “The performance-cost ratio increases every year. We must get more and pay less, becoming more efficient every year.” A recent survey of in-house counsel from the Association of Corporate Counsel found that budgets for corporate law departments, excluding litigation costs, have increased by more than 20 percent over the past two years. Smaller departments � those with six or fewer attorneys � showed an average budget increase of more than 30 percent, according to ACC’s 2006 Census of In-House Counsel, which includes responses from nearly 3,500 in-house lawyers. While Cisco’s legal department is not exactly a revenue producer, these days it is much less of a cost center than the average in-house legal department. Chandler, who has served as Cisco’s general counsel since 2001, deserves much of the credit for that because of his championing of innovations in alternative billing and legal technology. “Mark’s approach is entrepreneurial and gutsy,” says Jami Wintz McKeon, a litigator at Morgan, Lewis & Bockius and a close Cisco adviser. Before stepping into the company’s top legal job, Chandler, who received his law degree from Stanford, was a Paris-based managing attorney who handled Cisco’s legal affairs for Europe, the Middle East and Africa. He previously worked as general counsel at StrataCom Inc., which Cisco acquired in 1996, and at Maxtor Corp., a large manufacturer of computer data storage devices. According to the ACC survey, in-house counsel rely heavily on outside law firms in key legal areas such as litigation (69 percent), intellectual property (45 percent) and employment (45 percent). And as salaries for junior law firm associates continue to spiral upward, along with hourly billing rates for associates and partners alike, general counsel must cope with rising legal fees. Chandler, however, has negotiated fixed-fee arrangements with both Morgan, Lewis, which handles litigation matters for Cisco, and Fenwick & West, which the company uses for securities and M&A matters. “Mark has pronounced the death of the billable hour model,” says Gordon Davidson, Fenwick’s chairman and a veteran outside lawyer for Cisco who has worked with Chandler for several years on acquisition and other matters. “His legal bills are more predictable, and we approach tasks cost-effectively.” Davidson has encountered other GCs who seek simple discounted rates from their outside firms and have been less willing to embrace the fixed-fee model preferred by Chandler. “They don’t want the law firm to cut corners. Instead they micromanage � monitoring by the week, dictating staffing, employing more people in-house,” says Davidson. “Cisco tells us, ‘Do it however you want � here’s the fee.’” To be sure, adds Davidson, the fixed-free arrangement with Cisco is regularly reviewed “when assumptions change, usually around once a year.” He also says Chandler has been “flexible and fair” when it comes to reviewing the firm’s fees. For Chandler’s part, fixed-fee arrangements with outside firms are not zero-sum games. “It’s not ‘I make more so you make less.’ It’s about driving efficiency so we both make more money,” he says. “Not one of the CIOs at law firms expects to get a letter from Cisco explaining how much more our products will cost next year. I don’t care what law firm billing rates are. I care about productivity and outputs.” Law firms, in Chandler’s view, focus too much on “a one-to-one relationship with a lawyer who bills by the hour. As a client, what I want to buy is access to information, strategy and negotiation and, in the case of litigation, to courtroom skills.” As a buyer of outside legal services, Chandler, of course, is acutely aware that factors such as spiraling salaries paid to law firm associates can add to law firm bills. But “increased salaries do not necessarily affect the amount that we will pay for services in fixed-fee arrangements,” he says. One firm used by Cisco has been using contract lawyers rather than associates for relatively routine legal work, which is just fine with Chandler. “It is up to the firms to find ways to drive greater efficiency and productivity, and we haven’t seen escalating salaries as adding to either of those,” he says. In an effort to ensure smooth relationships between Cisco and its outside firms, Chandler regularly asks lawyers at those firms what he can do to be a better client and how he can best utilize the firms’ resources. For example, at Chandler’s request, Fenwick informed him that the lowest value-added work being performed by the firm’s attorneys was churning out stock option agreements for companies that Cisco has been acquiring. In response, Chandler has turned over that work to in-house lawyers. “We were asking the wrong people to do the work,” he says. “It was like asking Picasso to paint your bathroom. It was a misuse of resources.” At Morgan, Lewis, litigators recommended that Chandler meet with them every 60 days to review pending matters and that the company should invest in pre-litigation “dispute counseling,” which he describes as “bringing litigation thinking to bear in addressing business disputes so that they can be resolved early without litigation.” Chandler readily agreed to the firm’s recommendations. McKeon gives Chandler credit for having “found a path out of the comfort zone of billable hours.” And while other companies are following suit, “many still fear the unknown even though they dislike the billable-hour system. Not everyone is ready to try something revolutionary,” says McKeon. A 2007 survey of chief legal officers conducted by consulting firm Altman Weil Inc. and LexisNexis found that GCs ranked reduced fees, improved billing practices and budgeting � all of which were lumped together � second when asked what steps outside counsel have taken to improve working relationships with corporate law departments. (The top response was improved communication.) As a measure of his own success with fixed-fee contracts with Fenwick and Morgan, Lewis, Chandler points out that Cisco “has no issues with its stock options, minimal comments on our 10-Ks and only one piece of litigation listed in the last 10-Q, and that one has subsequently been resolved.” Befitting his company’s cutting-edge reputation in high technology, Chandler, as general counsel, also has long insisted on applying technological innovation to Cisco’s legal operations and its work with outside counsel. The ongoing objective, he says, is to use technology, wherever possible, to increase efficiency. These days, says Fenwick’s Davidson, Cisco’s legal department is “virtually paperless” and boasts a robust internal system for sharing information. To spearhead the effort, Chandler designated Van Dang, Cisco’s deputy GC, as the leader of the company’s legal technology solutions group, which includes its own intellectual property support staff. Cisco engineers, for example, have been developing technologies specifically for the company’s legal department. Two years ago, the group launched what it calls NDA Central, an automated system for executing nondisclosure agreements. The system, which is available online throughout the company, provides the ability to click-accept and electronically sign nondisclosure documents. To date, more than 8,000 NDAs have been executed with this system. “Nobody in legal has to touch it. We empower our clients to do the work,” says Dang. “Other GCs just throw more bodies at the work. But technology works 24/7.” The Altman Weil-LexisNexis survey found that 40 percent of GCs plan to hire additional in-house lawyers in the next year, up from 36 percent last year. But corporate legal chiefs are also relying heavily on technology to mitigate the need to hire more lawyers. More than a third of the companies responding to the survey are using electronic document management systems, with an additional 24 percent planning to implement these systems in the next three years. Chandler makes it very clear that adding lawyers to his department will only come in response to meeting the company’s business needs. “We will hire more attorneys,” he says, “but the purpose will be to focus on activities that allow us to differentiate ourselves competitively � activities that affect how we design, build and sell our products. I don’t intend to add significant in-house attorney resources on activities that are ancillary to those goals.” Chandler has taken technology a step further than many other GCs. For example, he has created an online system for deal approvals. “We have thousands of resellers of our products around the world and we had to do those renewals by hand, triggered by their pending expiration,” says Chandler. “Now the system simply generates a form renewal to the distributor that can be signed online. It’s completely automated. We never want to be a business-prevention department.” Graham Allan, an in-house Cisco lawyer who manages legal support for the company’s sale force, describes Chandler as a “productivity enabler” because of his efforts to automate other routine agreements such as manufacturers’ authorization forms and systems integration contracts. “Even though the sales force needs the document, the lawyers are not adding value by working on it,” says Allan. “We found a way to automate and make it self-service. It’s an end-to-end way of managing contracts, covering creation, negotiation, approval, renewal and amendment. It saves paper being pushed around, and electronic comments along the way keep a nice trail about why we did the deal.” Other technologies developed for lawyers include Cisco Patent Online, which encourages engineers to file patent applications to protect intellectual property, and a wiki-like internal platform that allows attorneys to collaborate and communicate on legal issues. “We can capture the knowledge of lawyers with unique expertise in 20 countries and reuse that knowledge,” says Dang. “If you don’t know what a wiki is,” Chandler advised his audience during a recent speech he gave on the state of law-related technology, “I suggest you learn very quickly.” There are, of course, more old-fashioned ways to keep legal costs down. Curbing lawyer turnover is one of them. To keep Cisco attorneys on board, Chandler offers a rotation system, which allows attorneys to remain knowledgeable across several legal disciplines and, he hopes, inspired about their work. On the matter of compensation, he says, “You can’t save money by paying people less. You need to pay them more because critical items for the company must have absolutely the best support you can have.” Chandler also has been sending in-house lawyers, on a rotating basis, to the Woodrow Wilson International Center for Scholars in Washington, D.C., for up to three months. They are spending time there delving into various public policy issues that pertain to Cisco. “He’s committed to people and he’s very generous. He believes in developing people so they realize their best potential,” says Dang. “I have had opportunities to become the general counsel elsewhere. But I’ve stayed with Mark because he’s a great person to work for. He’s definitely a visionary. And he’s the smartest person I know.” Leslie A. Gordon is a freelance legal journalist in San Francisco who contributes regularly to GC California Magazine.

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