The year 2010 is shaping up to be a “best of times, worst of times” year for general counsel. On the one hand, GCs — and the senior lawyers and professionals who help them lead their law departments — are under extraordinary pressure to reduce costs. Of course, there is nothing new in the expectation that in-house lawyers should “do more with less.” It has been expressed repeatedly over the past two decades, especially in times of economic distress. What is new is the extent to which law departments have been forced to reduce total legal costs and to find new ways to operate more efficiently.
Still, the need for an effective in-house legal function has never been greater. Organizations face growing risk and increasing pressure from many different directions — shareholders, customers, employees, politicians, regulators, the media (in all of its forms) and the general public. Legal, compliance and risk management failures have been escalating, despite significant investment in these functions over the past decade. Most alarming, chief legal officers and other senior inside lawyers have been directly associated with these failings in an unprecedented and unfavorable manner. This threatens to undermine the long-standing reputation of in-house lawyers as “the conscience of the organization.”
In this environment, it may be time to take stock of your law department and how effectively it is performing its core mission and functions. This is especially important for those organizations that have undergone a severe reduction (more than 10 percent) in its internal legal resources and capabilities. What strategic priorities should law department leaders be considering? This article identifies four areas of focus that have broad applicability to law departments, regardless of industry, location or even size.
The first task for the chief legal officer is to define or update the mission, role, goals and initiatives of the legal function. The identity, role and responsibilities of the in-house legal function must be clearly defined and communicated both within the law department and to clients.
Second, the formal and informal law department structure and service delivery model should maximize lawyer alignment and partnering with clients throughout the organization. These clients include top management, business units, and other staff functions in the corporate office.
Third, the law department should develop and communicate strategic and business plans to accomplish its mission.
Finally, the law department should formalize its approach to legal risk management, and ensure that it is well integrated with enterprise-wide governance, risk and compliance functions.
Of course, there are other important priorities for law department managers, such as legal talent development, operational efficiency, and outside counsel management. But these are more tactical than strategic and will be addressed in subsequent articles.
ESTABLISH THE MISSION
Establishing a strong and clear identity for the in-house legal function has never been more important. The role and responsibilities of the law department should be clear not only to the lawyers and law department staff, but to the board, top management and all employees.
The legal function and in-house lawyers play an essential role in many companies. For example, a value added role for the law department is to “connect the dots” and serve as an “early warning system” for corporate management. As a top executive stated regarding one of our law department clients, “Legal is like the glue – our lawyers should know everything that’s going on.” In eras of downsizing and layoffs, the legal function is often a key repository of essential institutional knowledge. Almost uniquely within companies, in-house lawyers are in a position to adopt a global, company-wide perspective that goes beyond local jurisdictions and immediate business client interests.
Defining the identity of the legal function should be a serious-minded process, in which internal staff, top management and client views are solicited. Many law departments have established a mission statement or similar document under the rubric of total quality management. Often stated in broad if not platitudinous terms (“cost-effective, value-added legal services”), in some cases these statements are viewed with a degree of cynicism and carry little weight.
In other cases, law departments have developed meaningful identity statements, but they have been made less relevant by external or internal developments. It is not unusual to see legal functions experience change in their scope of responsibilities. This is often tied to broader company-wide reorganization or redefinition of approaches to governance, compliance, risk management and controls. Periodically updating the definition of the role and responsibilities of the legal function is important, especially in times of change and stress.
The methods by which law departments establish their identity vary. Most commonly, law departments publish a mission statement, using a carefully considered approach. These statements are more useful when they include a more detailed expression of core values and statement of operating principles to guide the behavior of the legal staff. A clear statement of support for the legal function by the CEO is essential.
The chief legal officer and legal leadership team play an essential role in defining, communicating and reinforcing these fundamental operating principles, both internally with legal function staff and externally with top management, clients and outside counsel. They reinforce the identity and role of the legal function through a variety of means, including strategic, business and/or operating planning for the legal function; individual lawyer performance planning and evaluation; and various forms of communication such as regular meetings, conference calls, retreats and offsite meetings, and inclusion on the law department’s internal and client-facing intranet sites. Some GCs promote the use of sales and marketing concepts within the legal function. In today’s competitive environment, inside lawyers must understand that they are competing with law firms in terms of service delivery, quality and price of legal services. All inside lawyers should be sensitive to the need to convey the value of their work, communicate tangible results and attempt to measure results in quantitative terms. Lawyers need to communicate in the language and methods employed by their clients, recognizing the substantive and stylistic differences that exist among financial, engineering, marketing, operational, creative and other disciplines.
Some of the methods by which law departments convey the value of their services include:
• Communicate tangible results as they occur;
• Report and communicate to management in terms and methods that they understand;
• Embrace enterprise-wide management programs and methodologies and seek to adapt them to the unique characteristics of a legal function;
• Measure results in quantitative terms;
• Use the corporate intranet to extend information about the legal function and its services to clients; and
• Produce an annual report to top management and/or the board about the legal function, including comparative benchmarking data and results achieved.
In short, leading law departments understand that they not only need to provide top-quality, business-oriented legal services; they also need to inform and remind clients of this fact.
Recognizing their role as legal service providers inside the organization — and the existence of outside law firms who are ready to compete for that role — many law departments have increased their focus on defining and achieving high service standards with their clients.
Achieving strong lawyer-client integration or alignment –– and thereby helping ensure early, proactive legal involvement throughout the business — has been recognized as the sine qua non of in-house legal practice for many years. Building on this core principle, many law departments have explored a wide range of mechanisms to develop strong client relationships, effective communication and high standards of service delivery, including the following:
• Assigning senior relationship lawyers to significant clients;
• Integrating lawyers with business leadership and management teams;
• Hiring and assigning lawyers with strong interest and aptitude for the business as well as legal dimensions;
• Providing business-oriented legal advice, in which the inside lawyer acts as facilitator for the business;
• Conducting joint planning, resource allocation and review sessions between the inside lawyer and client management team;
• Implementing client-facing technologies to extend the reach of the legal function.
Last year we worked with a general counsel who was concerned about the “service delivery model” that had evolved among the dozen attorneys in his law department. He described his lawyers as top-notch, in both their professional legal and service delivery skills. But he sensed that his group was not fully anticipating and meeting the needs of the organization.
With the active participation of the lawyers and input from key clients, a new model was defined and articulated that involved the designation of a senior lawyer as the “legal relationship manager” for each key client, responsible for creating a more proactive approach to providing legal advice and services.
DEVELOP PERFORMANCE METRICS
Law departments should conduct annual operational and multi-year strategic and business planning that is aligned with corporate and business unit planning. These plans should drive performance planning, measurement and reporting at all levels within the law department.
A growing number of law departments are developing strategic, business and/or operating plans. These plans take many different forms, not just in their title, but in overall orientation. Some adopt a truly strategic, longer-term view and seek to identify external and internal trends, issues and challenges that the legal function will need to be prepared to address. Others are tied closely to the budget process and focus on defining specific goals and programs over the next one to three years. Still, others take the form of operational plans over a shorter time horizon with greater emphasis on tactical improvement projects.
These planning processes and documents can serve different purposes. First, they help force the legal function to periodically shift perspective to a proactive and anticipatory look into the future rather than allow workloads to restrict it to a reactive position. Second, they provide a reason and mechanism to involve and communicate with members of the legal function about major topics of importance within the organization or legal function. Third, they increase the opportunity for communication and collaboration across a scattered legal function. Finally, they provide a roadmap for legal function initiatives and activities.
FORMALIZE RISK MANAGEMENT
In-house lawyers perform legal risk analysis and mitigation as an integral part of their daily jobs. However, surprisingly few law departments have established formal methodology for conducting legal risk management, despite the fact that many organizations have developed enterprise-wide risk management programs, often led by the CFO.
As noted above, organization-wide strategy and objectives should drive the law department’s agenda, services, resources and activities. Similarly, legal strategy and risk management approaches should be aligned with organization-wide strategy and risk management. The relationship between enterprise and legal function priorities and programs should be clear — as a matter of process and procedure (planning, budgeting) as well as documentation.
Beyond legal risk management, the chief legal officer plays a special role in ensuring that the organization has established the proper structure, policies, procedures and environment for corporate governance, risk management, compliance and ethics — regardless of where these functions are placed within the organization. The CLO occupies a key role in promoting governance, risk protection, compliance and ethics with top management.
Numerous highly visible corporate scandals marked the beginning of the last decade and yielded the Sarbanes-Oxley Act and corresponding legislation outside the United States. They also stimulated a major corporate focus on governance, compliance and ethics. If anything, the current consensus among general counsel is to expect more of the same: an increasingly complex legal and regulatory environment, nationally and globally.
Many companies have struggled to find the right structure and arrangement of responsibilities. Over the past decade, we have observed many examples of organizations where the roles, responsibilities and relationships between the legal, risk, internal control, and compliance functions were not clear, leading inevitably to both duplication of effort and gaps in critical areas. At best, this produces confusion, frustration and inefficiency. At worst, it helps to explain some of the failings noted at the outset of this article.
Addressing each of these four priority areas during 2010 would be a valuable investment for chief legal officers and the larger organizations that they serve.
This article originally appeared in The Legal Intelligencer, a GC Mid-Atlantic affiliate based in Philadelphia.
Jonathan P. Bellis leads the law department consulting group at Hildebrandt Baker Robbins. He has more than 25 years of experience help-ing law departments identify and implement relevant management concepts, meth-ods and programs, and effec-tive systems and technologies. He can be reached at sulting.comjbellis@hbrcon.