The Point
In most companies, corporate Legal is a business function without a strategy.
Executive management needs to fix this. Because neither attorneys in law firms nor those in-house have defined what is — and is not — within Legal’s scope of responsibility. And, apart from generalized concern about cost, business leadership lacks agreed measures by which this function’s results can be evaluated.
Unaccountable to explicit performance metrics, Legal lacks a meaningful foundation on which to craft its strategy as a corporate function. (“The One Thing You Need to Know About Managing Functions“, Roger L. Martin & Jennifer Riel, Harvard Business Review, July – August 2019).
So Legal’s prevailing mode of operation, with minor exceptions, is reactive. With attorneys both in law firms and in-house making ad hoc responses to client events. Leaving the business enterprise without objectives and metrics by which to assess Legal’s effectiveness as a corporate function.
This Matters to Your Business
In-house Legal originated this way:
Hourly fees rendered law firm lawyers’ “retail” pricing too expensive for some tasks, so in-house departments were formed to pay for lawyers “wholesale” — as full-time employees of the company. A move dubbed “labor cost arbitrage”.
Kenneth A. Grady, former general counsel, law firm partner and innovation pioneer put it this way:
“Law departments grew as mini-firms without thought as to whether that made sense. If we had a do-over I think we could do much better … with much greater focus on operations, metrics, and prevention … Don’t just go for cost arbitrage.”
Here’s Gartner analyst Ron Friedmann’s view:
“Sizable legal departments only started forming in the 1980s … Companies built internal law firms without rethinking what a firm should be … At a minimum, the focus on labor cost arbitrage is the wrong focus.”
Because …
Professor Martin and Professor Riel, each of the University of Toronto’s Rotman School of Management, describe the business function which lacks a strategy in the article cited above:
“Does it really matter if … choices are made without an explicit strategy? We believe it does, because it means a function has fallen prey to one of the two damaging strategies:
“[1] Do everything the business units want. We call this the servile strategy … As one CEO recently told us, ‘Business units do strategy; functions support them.’ That view feels instinctively right to many managers … Functions that unconsciously adopt the servile strategy try to be all things to all people … spreading its resources too widely and thus not serving any business unit particularly well.”
“[2] Put the function first. In this imperial strategy, leaders put the function’s work front and center and pay relatively little attention to how it aligns with the needs of the business or the overall strategy of the firm … The result, unsurprisingly, is a function that serves itself rather than its customers ….”
Lacking any strategy other than generalized cost concerns, Legal careens between these two kinds of impairments in most companies.
As a division general manager at Whirlpool and then as an M&A executive at GE, I experienced each of these dysfunctions firsthand in my dealings with corporate Legal. In Part II of this series I address the current situation in law functions that lack a strategy.