New England Biz Law Update
Cutting-edge law departments are sharpening their performance and boosting shareholder value by focusing on managerial skills. These days, being better lawyers is only part of the equation.
These innovative in-house law groups are increasingly turning to management professionals for guidance on making workflow more efficient and reducing operational risks.
Not only that, they are catalysts in changing how their companies manage potential liabilities.
They are also aggressively managing intellectual portfolios to improve the bottom line.
“We constantly look at models for improving law department service now, and attempt to create a culture of delivering value back to the business,” said Aaron Van Nice, law department director of operations for Baxter International Inc.
John Barber, legal operations manager for Amgen, called 2007 a “breakout year for change and task management.” His department is now working with legal matter management technology that’s far superior to prior tools.
Experts agreed that effective use of technology and management tools can produce measurable results. These include: better and more instantaneous responses to internal business clients; more effective tracking, use and forecasting of legal expenditures; and improved management of serious matters and investigations.
Frank McCloskey, vice president of diversity in the legal group at Southern Company’s Georgia Power division, said management analysis can transform corporate cultures.
“It was the culture that put Enron at risk, and not the lack of express boundary lines or compliance mechanics. The most serious liabilities often emanate from cultural defects,” said McCloskey.
He said his company has used extensive analysis to make positive changes in values and actions at the leadership level that have led to better employee trust and retention. These changes are also expected to deliver greater productivity while lowering liability risks, McCloskey said.
The highest “returns on investment” often come from legal departments’ attention to effective management of intellectual property assets.
“The typical legal department is no longer just reactive. It often takes the lead now in IP strategic thinking and management,” said Steven J. Henry of Boston’s Wolf Greenfield. Henry suggested that such initiatives can save money by cutting patent suit exposures, while producing significant revenue streams from properties that can be licensed or sold.
Elizabeth Davis, a management consultant at CRA International in Chicago, said implementing programs to enhance legal functions “can position in-house counsel as risk-managers, decision-makers and executives, rather than firefighters.”
Enhancing value and performance can also help lawyers acquire business and project management skills, as well as a business vocabulary and understanding necessary to make it to the “C-suites” occupied by CEOs, CFOs, and other chief officers, according to Aileen Leventon, a former in-house lawyer and principal at QLex Consulting in New York.
Using technology to improve workflow
Even the smallest law departments handle scores of litigation, regulatory and transactional matters at any given time, which means they are responsible for assessing material exposures for company auditors.
Technology for tracking the status of matters and scheduling related tasks or deadlines can be enormously helpful.
Van Nice and Barber have designed technology models for: litigation and transaction matter tracking; document management and “litigation hold order” tracking; knowledge management (to archive and index “institutional” knowledge); and automated e-billing for payment processing and auditing law firm invoices.
“Once you have these systems in place, you can do much better executive management reporting,” said Barber, who is developing “dashboards” that aggregate information from the system so lawyers can instantaneously see the number of matters by category, the status of matters, the costs incurred, or other data.
He added that these tools provide a basis for easy comparison of costs and results by matter, by task, or by outside firm.
“Electronic billing is particularly useful,” he said, noting that e-billing systems can automatically process invoices for payment while flagging any line items that are not in accord with billing policies and engagement letters for each matter.
“If we set a rate of 10 cents per page for photocopies, or a certain rate for associate time, then e-billing auto-adjusts any incorrect amounts,” Barber noted. The system has blocked payment on items such as secretary overtime, double-billing for the same task, and dry cleaning charges.
“Not only does this save us money, but the attorneys love that they don’t spend hours reviewing bills with this system,” he said.
Van Nice said e-billing consistently recaptures one to three percent of invoiced amounts just by checking invoices against engagement protocols. But he said lawyers are most impressed by document and knowledge management systems that he has facilitated for both Amgen and Merrill Lynch in recent years.
“Organizing all of your documents into [central, electronic archives] makes things much easier to find. It provides a means for controlled access by outside counsel or experts, and it helps to create a knowledge management base,” said Van Nice. “People like having one format and one place for storing and retrieving information once they get used to the system [and] it makes it easier to manage security [through password-controlled access] for M&A or sensitive litigation.”
But the biggest time-saver may come from knowledge management systems, which can automatically store and retrieve years of institutional work so lawyers can pull up old research memos, opinion letters, pleadings, contracts or other documents arranged by subject matter, jurisdiction, and other key indicators.
These systems, according to Barber, also help supervisors manage workload and report to executives on workloads per lawyer, returns on investment, and the need for more resources. More information about using activity coded e-billing systems can be found at www.utbms.com and www.abanet.org.
Risk management and decision-mapping
Davis noted that many large companies that adopted technology early now have the capability to do much more sophisticated analysis with it.
She said developing a technological warehouse of data facilitates the use of mathematical modeling typically applied in other areas of business to improve decision-making while cutting costs and risks.
“You can look at historical data and examine costs or timelines associated with particular claims, specific judges or regulators, certain pockets of management within your company, or other variables,” said Davis. “The numbers can help you do better early case assessment and evaluation, and they can help to create benchmark and performance standards for lawyers [or firms] tied to what can reasonably be expected of them based on historical performance.”
Leventon said that “much as a supply chain might be mapped for optimal product development, delivery time and pricing, you can map the delivery of legal services” based on a storehouse of historical data. She said cutting-edge legal departments are using decision-tree software and process mapping software to optimize management of cases or transactions.
Process mapping is depicting visually what happens in your service supply chain, how it happens, at what costs and with what results. Those legal departments that engage in process mapping are “better able to understand what the CFO is always asking of them.” Leventon said. “Getting a seat at the executive management level is not a matter of being charming. It’s a matter of making decisions and communicating like an executive.”
In-house lawyers can also use the storehouse of data to discover the underlying causes for recurring liabilities.
“You can perform data mining exercises to determine if your problems may be the result of policy failures, management issues, flaws in employee hiring or screening, or even cultural issues,” said Davis. Some breakdowns may even be caused by external factors, such as regulators, tribunals, or competitive pressures in certain regions, she added.
“Once you know the cause of a problem, you can often avoid the trouble and gain control over it with better strategic decision-making related to risk and exposure factors,” she said. “You can’t say you will never have another problem after going through this process, but you can say that you did everything possible to reduce or prevent exposures.”
Transforming culture
Companies are increasingly aware of the link between their “cultural attitudes” and certain risks related to behavioral liability, according to Davis.
“Examination of corporate culture is a very hot area,” she said.
General counsel, who are often charged with compliance, “are becoming problem-solvers who identify the source of cultural problems and find remedies to improve performance and lower risks,” Davis said.
She pointed to Georgia Power’s cultural transformation as an example of problem-solving that has realigned employees with company goals and values.
The realignment project began in the wake of a class action alleging racial discrimination. The suit, filed seven years ago, was dismissed, but as McCloskey observed, the president and general counsel sought to determine why so many employees were disengaged from the company.
“Employee surveys showed disturbing feedback about the company not living up to its stated values of ‘unquestionable trust, superior performance and total commitment,’” McCloskey recalled.
There was too much fear of retaliation for reporting of misconduct, and that went well beyond the bounds of racial discrimination issues.
After extensive discussion involving a wide array of employees at all levels, Georgia Power undertook 33 cultural transformation initiatives to improve communications between management and employees, as well as bolster confidence in the human resource processes. The goal was to build trust among workers and their managers.
McCloskey said numerous employees worked on developing recommendations to improve areas identified as problematic by employees, including: equal compensation; equal hiring and job selection/promotion; training and development, particularly of managers; non-hostile work environment; and best practices for advancing diversity and inclusion.
“[A consulting group] performed an evaluation of our diversity initiative using an organizational effectiveness model and more than 100,000 data points from employee surveys and other sources,” McCloskey explained.
“In the course of doing this, we found a conformity element that threatened our vision of cultural change. Fears of retaliation [for reporting misconduct or mistakes] went back to the nuclear power days and a history of heavy payback for screwing things up,” he said.
The cultural transformation group worked on improving leadership and developing the performance management and assessment skills needed to produce better leaders. Managers, for example, were trained to react less defensively to questioning and reporting of problems by employees.
“We are scoring better with employees with more trust, more engagement with company goals, and more retention,” McCloskey said.
Georgia Power has also moved customer approval ratings into the top quartile of all power companies nationwide and it ranks 15 percent below national average in electric costs, positive indicators that many employees are connecting with management’s goals.
IP asset management
Many technology-based companies have hidden assets that can generate significant revenue streams from licensing, sale or further market-based development.
“The return on investment is particularly high for companies dealing in medical products, software, and media-communications,” Davis observed.
Creating an IP asset management program involves several essential steps, such as:
Henry said lawyers often get credit for “finding Rembrandts in the attic” when they go looking through their IP warehouses. “You may find underutilized assets that are of little value to your company, but of great importance to others who are willing to pay for them,” he said.
Commercial software and brokerages are making it easier to link intellectual property holders with buyers.
Henry noted that many companies are using data-mining tools that pair up available technologies with specific market segments or needs. Potentially fertile stockpiles of parents are at government laboratories and major universities.
“Some government laboratories will offer you much more than a license – they will even help your company with product development and research if you enter into a sponsored agreement,” Henry said.
Many in-house lawyers are managing collaboration efforts to develop useful properties for their companies, according to Henry.
He said lawyers are particularly good at directing strategic efforts because “they can provide discipline, direction and communication for a project that might otherwise get lost in scientific curiosity that easily detaches from company goals.”
Henry noted that many small to mid-sized companies are aggressively pursuing IP asset management because they are more worried about becoming victims in the escalating IP wars.
“Some companies are shopping for patents to shore up what they have invented already, and many are building up an arsenal of IP rights to compete with larger competitors,” he said. “When people are investing millions of dollars in a product or a process, they want to see the profits and protections that come from a patent.”
