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IN-HOUSE COUNSEL: Grace J. Bergen, Tower Records, Sacramento, Calif. TITLE: General counsel AGE: 51 THE COMPANY: Based in Sacramento, Calif., privately held Tower Records has blossomed since its founding in 1960 from a few retail music stores planted in California to an international record, video and book chain employing some 7,700 people worldwide. Tower operates 189 wholly owned stores, of which 116 are in North America; has 61 stores operating as franchise locations; and had 1999 sales of $1.1 billion. ROUTE TO THE TOP: Law is arguably a third career path for Bergen. Being musically inclined, she had ambitions to be a professional jazz musician. A union typesetter for The San Francisco Chronicle at 18, Bergen was a free spirit. She ventured into college at 26 to study music, then English, before graduating in 1981 from the University of California at Berkeley. She earned her law degree in 1984 — when she was 34 — from the University of San Francisco, then spent three years as a research attorney in the Alameda County Superior Court, where she drafted rules for complex asbestos cases. After she put in stints doing insurance defense and construction litigation, the 1989 San Francisco earthquake changed her life. Literally shaken, she moved her family inland to Sacramento, where she reconnected with an old friend, Michael Solomon, Tower’s general counsel. A chance to do Tower’s outside legal work allowed her to go solo in 1991. Solomon brought her in-house in 1993. In 1998, when Solomon was named president and CEO, Bergen became general counsel. LEGAL DEPARTMENT: Under Bergen, Tower’s legal department has expanded to three attorneys and an administrative secretary/paralegal. With mostly contract work to contend with, labor is divided three ways. Elizabeth Smith handles Internet contracts and licensing agreements; new hire Nick Thacker focuses on vendor contracts and real estate matters; and Bergen works on contracts and leases and oversees trademark work and all employee labor issues. ALL THOSE CONTRACTS: Bergen, who reads every contract that passes through her department, estimates that she averages about 40 contract reviews per month. Many of them concern Tower Direct, the Internet side of the company. From March to May, her department helped negotiate 23 contracts, with another 21 initiated during that period. Two years ago, she helped Tower establish an agreement with American Express for a then-experimental concept: electronic gift cards. On the streaming media side, which brings the music to the site, she helped Tower and Liquid Audio link up. Bergen’s job, as she sees it, is to “enable the contract” and help the “business guys understand what they are agreeing to.” Most often she has to make sure they include language about renewals, limitations of liability, and intellectual property, which is a huge asset for the company. Sometimes she’ll see a contract without any IP license language. “A lot of times, they don’t realize allowing a partner to have a hyperlink and their name on a site is trademarked,” she says. ‘ORDER OUT OF CHAOS’: Much of what Bergen does is education and risk management, bringing the business people up to speed on what they need to nail down legally to close a deal. She sees her job as “creating some order out of chaos.” Key to her strategy is getting out of her office and talking to employees. Otherwise, she fears her department will become an invisible entity that no one ever seeks, or for that matter, trusts. Her most successful implementation has been the Contract Review Form, which has to be filled out before anyone can get legal review of a contract. In addition to being an educational tool for the business side, the form also provides a quick reference. If someone wants to know about a pending deal, Bergen can pull the form and briefly summarize the deal. OUTSIDE COUNSEL: For California matters, she relies on the Sacramento office of Irvine, Calif.’s Carlton, DiSante & Freudenberger; Sacramento’s Downey, Brand, Seymour & Rohwer; the San Francisco office of Jackson Lewis Schnitzler & Krupman; San Francisco’s Pillsbury Madison & Sutro; and Walnut Creek, Calif.’s Miller, Starr & Regalia. WATCHING OUTSIDE COUNSEL FEES: To counter an attitude that legal is “an annoyance,” Bergen tries to show that scrutiny saves money. She has compared in-house hours with hourly costs at a regularly used firm, specifically for trademark and lease work. “It was a shocking difference,” she says. She estimated that it cost Tower $22,000 to $30,000 for an outside firm billing 140 hours to negotiate, draft and complete each real estate lease. The cost in-house can be $10,000, she says. Still, because leases can be so complicated, Bergen often farms them out. Bergen says she believes it is the same ratio for trademark matters, for which some firms charge anywhere from $505 per hour for a seasoned attorney to $195 for greener associates and $50 for paralegal time. Much of the trademark work can be done by paralegals; Bergen’s in-house paralegals are paid only $20 an hour. “My opinion is that companies stand to gain a lot by hiring more in-house attorneys, rather than outsourcing legal work, particularly now when the rates charged by major firms skyrocketed in the last few years,” Bergen says. PET PEEVE: Not surprising, her biggest gripe is that many outside firms are charging too much. “I think that partners who wish to keep their clients happy should review their bills and their associates’ hours, and cut out the excessive billing for conferencing and research that is overdone by associates trying to bill long hours” because they have to justify their new, large salaries. “The bills should be reasonably related to the value of the case. Fortunately, Tower does not find itself in much litigation, but it bothers me when I see these very high billing rates.” LITIGATION: Cost became a factor briefly in her recent search for a firm to handle a major price-fixing class action aimed against the major record labels and retailers, including Tower. Now that the multidistrict panel has chosen Portland, Maine, price won’t likely be as much of an issue. But when New York was an option, Bergen got $550-per-hour quotes. “I have a hard time with any human being that thinks they’re worth $550 an hour,” she says. It hits “especially when I’m sitting there on the phone educating them about the whole history of the music business” and getting charged for the time. Bergen already practices “creative billing” through fixed fees on position statements. If the firm is successful in getting the matter dismissed, the lawyers get a bonus. Since Bergen became general counsel, Tower has been involved in only one jury trial — a 1998 same-sex harassment case in Honolulu, in which Tower prevailed when jurors determined that it hadn’t created a hostile work environment by having a gay manager supervise a male security guard. Bergen says that she was in Hawaii preparing and strategizing with outside counsel as they tried the case. FAMILY: Bergen is married to photographer Ken Rabiroff. Their son Nate, 16, worked last summer in Tower’s Web design department. LAST BOOK READ: “A Man in Full” by Tom Wolfe.

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