New England Biz Law Update
A familiar lament of in-house lawyers is that while they enjoy their jobs and are glad they went in-house, they have limited opportunities for advancement and are frustrated at having so few prospects for the future.
The reason for this stasis is simple: In-house legal departments are small and tend to have a flat hierarchy – which means there simply aren’t very many rungs on the upward ladder.
What can in-house lawyers do, then, to bring opportunity and challenge to their work? The short answer: Redefine the scope of their jobs by playing a larger role in the business of the enterprise.
This solution raises an obvious question: Are lawyers qualified to give business advice?
Evolving Status
To answer this question, we need to step back in time and take a brief look at the history of in-house lawyers. From about 1900 through the 1930s, in-house counsel played an important role in business – serving as advisors to the CEO and often even occupying the CEO chair.
In this era, about 75 percent of the CEOs of top corporations were lawyers (compared with less than 10 percent today). General counsel were typically one of the three highest paid executives in the company, earning about 65 percent of what the CEO did.
The in-house environment changed dramatically in the 1940s, with the advent of a more scientific approach to business, as typified by the so-called “Whiz Kids” – Robert S. McNamara and nine Air Force veterans who became executives at Ford Motor Company. Businesses sought MBAs who had technical expertise in subjects such as finance and operations.
In-house lawyers lacked technical business skills, so they became middle managers whose role was to perform routine legal tasks cheaply.
But in the last two decades, the role of in-house counsel has evolved once again. In-house lawyers are in the midst of a Renaissance Era.
One of the biggest stories in the modern practice of law is the change in role of in-house counsel from overseer of routine legal tasks to respected member of the business team, fully engaged in the creation and implementation of the company’s strategic goals. Sure, CEOs hope and expect that their general counsel will reduce legal expenses. The CLO must create an efficient legal department while keeping the staff engaged and motivated.
And in-house lawyers have always played a major role in establishing compliance programs, which are now more important than ever with the advent of Sarbanes-Oxley, the new Federal Sentencing Guidelines, and the U.S. Supreme Court decision on sexual harassment (Faragher v. Boca Raton).
But in-house lawyers can do much more. The Renaissance inside lawyer knows how the company works: Who can get things done, and who simply causes problems. When these lawyers are brought into a deal early, that deal gets done faster and better. This early involvement creates a virtuous circle – the more lawyers get to know the various players in the company, the more valuable they become.
Trusted Advisors
In this Renaissance Era, however, being in-house counsel means more than getting deals done. In one survey of general counsel, 54 percent of the respondents said that their most important role was as advisor. Only 38 percent said that their legal role was most important.
As advisor, it often falls to the inside lawyer to keep the boss aware of potential problems that other employees may be reluctant to raise. For example, one retail chain decided to set up a special in-house boutique for a supplier – as if, say, Macy’s created separate floor space for Brooks Brothers’ wares.
The deal was troubled from the beginning because the companies’ inventory and accounting systems did not mesh easily. Many of the employees working on the project wanted to kill the deal, but none of them was willing to go to the CEO to say so.
They asked the CLO to intervene but he felt it was not his responsibility. This was a company that did not respect the role of in-house lawyers. Many of the company’s top officers had worked their way up from the stockroom and they viewed lawyers as being over-educated and under-worked. In the end, the company paid a price.
By contrast, another company had decided to build a new manufacturing facility. The legal department was asked to prepare the real estate documentation. But then one of the lawyers started to ask questions: Do we need this facility at all? Would it be profitable for us? Where should we put it? In the end, the deal changed for the better.
Many Roles to Play
What other roles does the Renaissance in-house counsel play?
Creator of business opportunities. For its first nine years, Genentech did not sell a product, yet it had $80 million in annual revenue from R&D limited partnerships and licensing agreements. As the vice president for corporate development put it, “Talk about a proactive law department, our assets were legal agreements, not products.”
Arbiter. A lawyer can serve as arbiter between cultures and factions. At one firm, the salespeople wanted to ship products on whatever basis the customers would accept, but the financial department argued for ironclad contracts. Both sides agreed to let in-house counsel arbitrate their differences.
Communicators. In high-tech companies, where the managers are often engineers, the in-house lawyer who is a polished speaker and writer can be valuable in dealing with “non-techie” outsiders such as bankers, investors, analysts and government officials. Early in the life of Biogen, the general counsel coordinated communications with limited-partnership investors.
Conscience. Lawyers are also involved in the heart as well as the mind of the business, serving as the conscience of the corporation. The Financial Times recently reported that more than half of surveyed senior executives thought that in-house lawyers should take the lead on corporate social responsibility because they are “strategic thought leaders.”
In-house lawyers may not have as much upward mobility as they would like, but if they understand the business of their enterprise, they can expand their roles laterally and become a savvy advisor in addition to a skilled lawyer.
The next step for the Renaissance in-house lawyer is to understand the fundamentals of accounting, finance, marketing, strategy and organizational behavior. Lawyers who know their business as well as they know the law, represent their clients better and enjoy their practices more.
Susan S. Samuelson is a graduate of Harvard Law School. At the Boston University School of Management, she serves as the faculty director of the Pocket MBA for Lawyers program, the faculty director of the Executive MBA program and as an associate professor of Strategy & Policy.
