Michael Dillon, Adobe
Michael Dillon, Adobe ()

Michael Dillon likes data-driven decisions, and so does Adobe Systems Inc., which sells Photoshop and other creativity software and had 2014 revenues topping $4 billion. Dillon, who oversees about 110 lawyers in the department, spoke with The Recorder about what he’s looking for when he chooses a firm and how he decides which work stays in-house and what goes outside.

What do you appreciate in outside counsel and, separately, what don’t you like? What simply doesn’t work for Adobe and your legal department? That’s such a tough one. Because legal work has gotten more portable, because we can more fluidly be serviced around the world—including with lower-cost providers—and because of the growth of in-house legal departments, it’s really hard being in a law firm anymore. I have a lot of empathy for my colleagues in firms sitting on the other side of the table. When they come in, I can almost anticipate what they’re going to say. In fact, I joke about having drinking games. Every time a firm comes in that says the word “responsive,” everybody drinks a shot. The fact of the matter is, most of the firms that we consider are going to be really great firms. They’re going to be high quality, they’re going to be responsive, they’re going to have the skill sets to do the work we need.

So what separates them?

For me, two things.

The first is, I want to work with firms who run their firm as a business. … Every year, I’m asked to stay flat or take down my budget. Law firms, in general, always have the outlet of raising their hourly rates, and so that creates a mismatch. I don’t want to engage with them as often, and my legal department doesn’t, because their costs are going up. When you meet with firms where they’re thinking about their business as a business, it really shows.

Can you give an example of this? One of the firms that we looked at this year, they came in and one of the people that presented to us was an attorney who had been out about 25 years, and for 15 or so of those years she had been their, I would call it, firm legal operational manager. She knew everything. She could answer every question I would ask about the cost structure of the firm. How much it costs to recruit an associate, how long it takes to get them up to speed until there’s an ROI, what the turnover was in their department, what work they made more money on and what were the loss leaders and steps that they were going to undertake to do the latter more efficiently. What tools they were using or considering using and how they thought that would change their cost structure. Of eight firms, there was only one person who was like that.

On the other hand, any number of firms, when I asked them a question I always tend to [ask] in those settings, “OK, you’re a great litigation firm, tell me how much it costs to get to a Markman hearing in the Eastern District of Texas?” And most of them will say “Oh, it costs about X,” and I will say “OK, well how do you know that?”

“I’ve just done this enough.”

“Yeah, do you have any hard metrics? Do you track that?”

And the answer is “No, no, we’re not really set up that way.”

Well, guess what, I have to be set up that way, and so I want my business partners to be set up that way, too.

You mentioned two things that separate law firms for you. What was the second? The second piece is a little bit amorphous, but, communication style. One of the things I do very consciously as a general counsel here is I get to know my business partners. I think of how they like to receive information. Our CEO, for example, likes to use the telephone or talk in person. We had a CTO here who really just loved communicating by text. Another business partner is very deliberative and really wants long, written communications that he can take, print off and deliberate over before he comes back with more questions.

Too often, law firms, I find, don’t think about that. What they do is, you ask for this issue, here’s the legal analysis, here’s the four-page memo. That can be incredibly frustrating, because what they’re telling me is they really don’t know who I am as a client.

Earlier you mentioned that there is a growing trend of bringing work in-house. I’ve heard that this trend is sort of like a pendulum, and sometimes legal departments swing back and forth between hiring outside counsel and bringing work in-house. Where is the pendulum now? I look at it a different way. In-house legal department models are such that the parts of your business that are the most dynamic and have the most work product being created are where you put the bulk of your employees. In my organization, and in most tech companies, it’s your transactional teams, whether you’re bringing in technology through licensing agreements or outbound commercial agreements: sales, direct, indirect channel agreements and things of that nature. If I look at my 165 people, probably 80 or 90 of them are in those groups. If I was the general counsel for Allstate Insurance, I would probably have a very small team, but my big team would be all litigators, because the bulk of what I do is litigation, as a legal department. In my world, it wouldn’t make sense giving all that work to outside counsel, because our business is dynamic. Our business models change; the organization changes. Who you go to for approvals, for nonstandard provisions or for signatures changes daily. It just wouldn’t be cost-effective. That’s how I think about staffing.

The next question is, what’s the balance between outside spend and inside? One of the things I’ve done for years, and [senior director of legal operations] Lisa [Konie] and I keep this metric, is, we look at our outside counsel, like the top 10 firms, and twice a year we do an analysis where we look at fully blended, what is that cost, including everything from a secretary to a senior partner. We get a fully blended billable hour. Then we do the same analysis for my organization. That way you’ve got an apples to apples, and, almost—again, ever since I started doing this, it’s always been fairly consistent—in-house legal departments cost about a third of what external does. That data is a great metric, because I sit down with the CFO and—every CFO I’ve sat down with—their first question is “Why aren’t you hiring more people?” And then, that’s a nice conversation to have because I can explain “No, I want a mix.” I want, usually something around 55/45 kind of blend where I’ve got external counsel who are true specialists that are adding really high value. I want that mix. That’s a much easier conversation when you have those metrics.

What do you do outside of Adobe? I’ve got a lot of interests. I like outdoor activities. I’m an avid cyclist, kayaking, I raise bees, I’m a gardener, I love to write, I love to read.