Managing Legal
Lawyers are indispensable for legal analysis.
In fact, they’re so indispensable in situations that call for legal analysis that it’s dumb not to defer to them when a business decision depends on getting the law right.
…
Consider:
While in corporate practice in early 1987, I was asked to advise on a lease deal with a company whose principal customer was Texaco. As one of the world’s leading oil companies at the time, Texaco would be an eminently creditworthy customer.
Creditworthy with one caveat: Pennzoil’s 1985 judgment for $8.7 billion then pending against Texaco.
But those pursuing this lease deal were upbeat and undeterred.
They were sure that Texaco would never file bankruptcy. And they asked me to support their conclusion so that they could get on with their credit approval process.
After all, they said, wasn’t it true that no business this big and this creditworthy (except for that pesky $8.7 billion “payable”) had ever filed for bankruptcy?
Well — yes.
But … that big verdict had made Texaco insolvent. The law gave this insolvent company the right to file bankruptcy. And a Chapter 11 reorganization would afford discharge of most of its indebtedness.
Unprecedented if it happened. Historic. But quite possible.
…
Our meeting ended.
Weeks later I learned that the deal had been advanced through the approval process, with a credit officer’s memo saying that Texaco would not file bankruptcy.
Embarrassingly for the hapless credit officer and those who signed off on the deal, Texaco did in fact file for bankruptcy under Chapter 11 later in 1987.
This was the most blatant do-it-yourself lawyering by non-attorneys that I’ve ever run across. But I’ve seen business people substitute their judgment for qualified legal advice many times afterward in less obvious ways.
…
When a company’s decision depends on a legal analysis, owners and executives should not dismiss what their attorney tells them. Not without a second opinion.
But those owners and executives need to be just as savvy in avoiding dependency on their lawyers for things that attorneys are not good at.
…
John Grant is a lawyer who advises attorneys on organizational effectiveness.
Mr. Grant once had a consulting assignment on process improvement. His client: a large in-house law department.
First, John Grant surveyed the in-house lawyers within his own client organization:
What are your biggest complaints about the outside law firms doing work for you?
The responses:
- Don’t understand my business.
- Can’t tell me how long anything will take.
- Overwork a problem / introduce complexity.
- Don’t give me output in a format I can use.
Then — with perhaps more professional thoroughness than diplomatic finesse — Mr. Grant surveyed the business people whom this law department served:
What are your biggest complaints about your in-house lawyers?
The responses:
- Don’t understand my business.
- Can’t tell me how long anything will take.
- Overwork a problem / introduce complexity.
- Don’t give me output in a format I can use.
Really. Not a typo.
…
Technical lawyer skills by themselves are not enough.
Every company’s legal and regulatory function needs to do a good job on the four practical business concerns set forth in John Grant’s survey results.
The lawyers in Mr. Grant’s surveys were not delivering on these practical business needs.
This was my own experience with in-house counsel and law firm lawyers as an executive at GE and Whirlpool. Except when I had a direct hand in hiring and setting terms of engagement with outside counsel.
…
As wrote in a recent post, what I’m saying here about lawyers’ strengths and weaknesses is not a value judgment about which skills are more important. It’s just an assessment of who has which skills.
So don’t ask non-lawyers for legal analysis.
And don’t expect lawyers to bring management and budgeting skills to your company’s legal and regulatory function.