Structure: Re-engineeringthe Law Department

George W. Madison, TIAA-CREF

John M. Liftin, Bank of New York

Rees W. Morrison, Hildebrandt

ABA General Counsel ForumWashington DC - November 18, 2005

2

Challenges of Globalization

• Reconciling differences in;– Cultural and business protocols.– Language.– Laws, regulations and regulators.– Company and local interests.

• Assuring consistency in;– Approach to key issues.– Hiring standards for employees.– Technology standards.

3

Challenges of Globalization

• Promoting a sense of team unity.

• Communicating clearly with constituents.

• Location

– Regional v. local

– Follow business structure

4

Potential Solutions

• Establish inclusive mission and objectives.

• Hire experienced attorneys with knowledge ofU.S. business/legal approach.

• Require centralized reporting to GeneralCounsel.– Regional hubs.

– Global v. international structure.

5

Potential Solutions

• Periodically visit lawyers and law firms.

• Hold global attorney/management meetings.

• Enforce Legal approval and contact with locallaw firms.

• Use technology (e.g., intranet) to promoteconsistency.

6

Global Law Departments

Among a group of 23 law departments in companies withmore than $20 billion in revenue, the average percentageof lawyers in the largest site was 63%.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: Hildebrandt research

Many ways exist to meet legal needs of clients overseas…

Findings

• No "right" structure for theglobal legal department; trendtowards hybrid approach

• Centralizing managementtechniques like networks,intranet, communities ofinterest help unit overseaslawyers (Deutsche Bank)

• Goal is close alignment andintegration with clients, yetstrong links to the legaldepartment

• Most international lawyers havemultiple reporting lines, withdotted-line reporting to acommon GC

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Law Department Structure

GC

LawyerLawyerLawyer

Lawyer

Lawyer

Lawyer Para Sec Clerk

Client

B. Location

C. Reporting to GC

D. Specialist/

Generalist

E. Levels

F. Support

G. Administration

Administrator

Lawyer

A. Alignment

Key elements of structure

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Advantages

Encourages lawyers to keep current

Lawyers recognized by other lawyersoutside company

Makes hiring from law firms more easy

May be less use and better management ofoutside counsel

Disadvantages

Less familiar with or sensitive to operationalrealities

Imbalances of workloads

Tend to view business problems through a lawschool lens

Requires coordination if a matter involves severallegal areas

Aligns with business desires and approach

Wide-ranging practice may appeal tolawyers (reduces turnover)

Fits conglomerate or geographicallydispersed lawyers

Might aid knowledge management andsharing

Often needs senior, experienced lawyers

May generate more need for outside counselspecialists

Might miss sophisticated legal issue

Could cause more use of outside counsel

Specialty and Ops Lawyers

Specialists:

Ops lawyers (business generalists):

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Reporting to GC or Business

CentralizingForces

• Evolution of globalbusiness units &product strategies

• Need for cohesiveand efficient legalfunction withstrong professionalidentity

• Increasingspecializationrequirements

• Sabarnes-Oxley

• and corp.governance

• Need for checksand balances

DecentralizingForces

• Continuing need toconform to nationallaws andregulations

• Need for specificlocal expertise andknow-how tooperatecommercially

• Need for alignmentwith clients at alllevels andlocations in thecompany

• Desire ofmanagers tocontrol all costs

Having all practicing lawyers (except Tax) report to the GC is a best practice.

88%

5%

16%

2%All lawyers reportdirectly to the GC,irrespective of location

More than 50% oflawyers report directlyto BU managers, dottedline to GC

Majority of lawyersreport to the GC andsome to BU managers.

Majority of lawyersreport to both the GCand BU managers.

Source: Hildebrandt 2005 U.S. Law Department Survey

Note: A law department may have more than one type of reportingrelationship.

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Matrix Reporting

• ChallengesConflicting business and legal priorities.

Risks of attorneys being co-opted.Client asks attorneys to do non-legal work.

If client pays compensation, more difficult to manage.

Undue business pressure to reduce expenses.

Attorneys compare their compensation to others.

• BenefitsGreater familiarity with products and services.

Earlier involvement in business strategies and decisions.

Improved credibility with business leaders.

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Managing Outsourcingthrough the RFP Process

• Request of Outside Law Firms

- Description of your Company

- Legal Services to be Provided

• RFP Questionnaire- General Firm Information- Partnering and Staffing Solutions- Fee Arrangements- Conflicts of Interest- Performance Evaluation Methodology

12

Facilitating Diversity throughOutsourcing

• RFP Questions

• Preferred Vendor Status

• Ongoing Reporting of Preferred Vendors

• Internal Review Committee

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Metrics and Benchmarking

• Reasons to measure– Cost management tool.– Design optimal outside/inside mix.– Staffing (i.e., attorney/paralegal/secretary mix).– Set compensation.

• Things to measure– Inside expense v. outside expense.– Legal costs/revenue.– Hours worked.– Costs/unit of work.– Differential in costs by specialties.

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Metrics and Benchmarking

• Is peer group relevant?– Size of business (revenues, employees).

– Domestic v. international.

– Degree of regulation.

– Litigation intensive, IP intensive.

– Compliance culture.

• Is data reliable?– Are legal costs regular or episodic?

– In-house time sheets v. law firm hours.

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Metrics -- Legal Staffing

46%44%10%

Expectations for Staffing Changes in the Number of Attorneys in theComing YearIncreaseStay the SameDecrease

0.40Secretaries per Attorney

0.32Legal Assistants per Attorney

7.9Number of Total Law Department Staff per Billion Dollars of WorldwideRevenues

9.9Number of Total Law Department Staff per Billion Dollars of U.S.Revenues

2.55Number of Attorneys per 1,000 U.S. Employees

3.7Number of Attorneys per Billion Dollars of Worldwide Revenues

4.8Number of Attorneys per Billion Dollars of U.S. Revenues

MedianMetric

Note: All data are medians and all staffing data is for U.S. operations for the All Participant Group unless otherwise indicated.

Source: Hildebrandt 2005 U.S. Law Department Survey

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Metrics: Employees Per $1B Revenue

0.61

1.79 1.53 1.55

2.30

3.67 4.09 3.04 3.41

1.00

0.09

1.69

1.12

1.00

0.71

1.000.660.30

2.14

0.430.82

0.820.74

1.001.04

0.79

0.18

0.20

0.21

0.330.45

0.35

0.50

0.43

1.19

0.00

H D E A B G I F C

Law yers/$1B Rev Paralegals/$1B Rev

Secretaries/$1B Rev Other Staff/$1B Rev

Source: Alcoa Benchmark Study 2005

This covers all categories of law department employees.

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Metrics -- Legal SpendingNote: All data are medians for the All Participant Group.

Source: Hildebrandt 2005 U.S. Law Department Survey

4%Percent Change in Outside Counsel Spending on Intellectual Property(Litigation and Non-Litigation)

2%Percent Change in Outside Counsel Spending (Excluding IntellectualProperty)

6%Percent Change in Total Legal Spending (from the prior year)

$192/hourFully Loaded Inside Hourly Cost per Attorney

$622,007Total Outside Counsel Spending per Attorney

$376,753Total Inside Legal Spending per Attorney

39%Inside Legal Spending as a Percent of Total Legal Spending

0.28%Outside Counsel Spending as a Percent of U.S. Revenues

0.17%Inside Legal Spending as a Percent of U.S. Revenues

0.48%Total Legal Spending as a Percent of U.S. Revenues

MedianMetric

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$131$147 $148

$168 $175

$213$203

$172$165

B H I G F C D E A

Fully-Loaded Cost Per Lawyer Hour*

* The inside budget divided by the product of the number of lawyers multiplied by an assumed 1,850 chargeable hours.

$163

$168$169

Blended Median Average

Source: Alcoa Benchmark Study 2005 (See Appendix for details)

Typically, the blended cost per hour of outside counsel runs 30–40 percenthigher than the counterpart inside cost.

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Your Responsibilities as a Leader

Set the tone of the law department

“Culture” and the fingerprints of the GC

Use development tools like “profiling,” rotations,executive education, special assignments, and “actionlearning”

Communicate, and encourage communication

Plan for succession and development

Explain career paths and limits (internal hire rates)

Promote the department, visibly

Make the strategic decisions

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Above all: Help lawyers develop competent legal skills

Set priorities and performance goals . . . with supervisee(“reflective,” not “directive”)

Give immediate and specific feedback

Help lawyers identify and leverage their strengths

Think in terms of processes and systems

Be a role model for effectiveness

Run interference: provide resources, remove obstacles

For more senior lawyers, guide them about moving up tomanagement

Your Responsibilities as a Manager

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Psychological Reasons WhySupervising Lawyers Is Hard

• Many lawyers skeptical about supervision

• “Herding cats”: Lawyers dislike like being told whatto do (ego, background)

• Time-constraints on both ends

• Low value on relationships to begin with

• Assumption that bright people don’t need“coddling” (“Sink or swim” and other attitudes)

• Defensiveness when asked to do it

• Misunderstanding what motivates professionals

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0

10

20

30

40

50

60

70

80

90

100

Skepticism Autonomy Sociability Abstract

Reasoning

Urgency Resilence

Lawyers

General Public

Source: Research by Dr. Larry Richard (Hildebrandt)

Comparison of Lawyers to People

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Experience, Quality In-House

Law Department Demographics, 20051

103

45

84

111

Nu

mb

er

of

Law

yers

Average Age

of Lawyers48.5 46.0 53.7

Average Years

of Experience21.4 17.7 21.3

51.8

25.8

49.7

21.6

Tier 1: Law Schools 1-25

Tier 2: Law Schools 26-100

Tier 3: Law Schools 101+

Law School Rankings2

1 Source: Martindale Hubbell Directory2 Source: US News and World Report Annual Rankings

Within one industry, several major law departments were similar.

0

120

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Security

Job security

Financial success

Equity

Belongingness

Teamwork

Family

Relationships

Mentoring

Part of profession

Community work

Self actualization

Solving complex problems

Intellectual challenge

Creative thought

Esteem

Status

Reputation

Recognition

Influence

Authority

Being my own boss

Key Motivators of Professionals

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Law Department People ToolsAnnual objectives

Coaching and evaluationsCompetency development

Employee satisfactionComplementary skills

Career pathsSuccession planning

High potentialsTeamwork skills

Psychometric instrumentsEngagement measurement

Values assessment

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Think Creatively

• Challenge defensiveness and “we tried it”

• Brainstorm and use scenarios

• Encourage contrarian views

• Explore creativity enhancers, such asreversal, what-ifs, exposed assumptions,metaphors

• Appoint Devil’s Advocates

• Bring in viewpoints of outsiders

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7TALENTS

INTRA-

PERSONAL

INTER-PERSONAL

LINGUISTICMATHEMATICAL

/ LOGICAL

SPACIAL /

VISUAL

BODILY /

PHYSICAL

MUSICAL /

RHYTHMICAL

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Unleash Creativity• 99% of learning is subconscious

– Use POSTERS with key messages

– Open learning loops - always closethem !

– It doesn’t matter how badly drawnthe posters are

– Use borders, don’t put them upstraight

• Sitting or Standing

– After 25mins sitting down we alltake in 15% less, due to poor bloodcirculation to the brain

• Give learners time to learn

– Create ‘desire’ to learn by gettingengagement & opening learningloops, always close

– Brief ‘tasks’ one step at a time

• 7 Talents of learning (Eric Yessen)

– Everyone learns in different ways !

– Appeal to everyone at sometime !

• Intrapersonal - Time to reflect

• Interpersonal - Work with others

• Linguistic - Likes using words, bothwritten & spoken

• Mathematical - Working logicallythrough

• Spacial / Visual - Need to see whatit looks like

• Bodily Physical - Move to Action

• Language

– Small language make a hugedifference with engagement

• Can we...

• Let’s….

• It would be great….

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