GC = General Cop?

July 11, 2005 | Filed Under Compliance, Governance 

Are you liable for the improper acts of your CEO if you did not know about them (and did not profit from them)?

Saturday’s NY Times reported on a case involving Marshall Cogan and his company, Trace Holdings. One of the officers a backruptcy trustee went after was the firm’s GC, Philip Smith. As the Times reports:

Mr. Smith was Trace’s general counsel from 1988 to 1999. He also served as corporate secretary until 1996. Beginning in 1995, he began primarily working as general counsel for Foamex, said his lawyer, Robert A. Meister of Piper Rudnick Gray Cary.

“They weren’t inspectors general; they weren’t F.B.I. people,” Mr. Meister said. “They were businessmen running a business. They knew what they were doing in their business, but they didn’t know what Mr. Cogan was doing on his own.”

He added, “It would be grossly unfair to hold an innocent director liable for more than $20 million when he didn’t receive a penny.”

At a non-jury trial, the lower court found Mr. Smith and other officers liable for some of Mr. Cogan’s actions. Mr. Smith appealed the decision, and the lower court’s denial of a jury trial. The Second Circuit vacated the judgment and remanded for a new trial by jury; the opinion is here.

The Fried, Frank firm covered a lower court case some years ago in the general context of director liability; Dorsey & Whitney did as well. The AICPA is also giving it credit (or debit?).

Inquiring GCs will want to watch this case on re-trial.

Genie II

July 8, 2005 | Filed Under New Services, In the News 

One thing about new sourcing solutions for corporate legal services–the spotlight is on.

Two days ago I wrote about the unbundling of corporate legal services. Since then, two fellow law.com network members continue their excellent coverage of this emerging story.

Yesterday afternoon, Bruce MacEwen raised a bit of a cautionary flag, wondering whether the outsourcing hype is getting a bit ahead of itself. He links to an excellent article in asialaw where he is quoted (look for the highlighting).

Then yesterday evening, Ron Friedmann notes (via Gerry Riskin) news of Orrick’s plans to offer back-office services to other firms from its West Virginia facilities.

So who is right? Time will tell; maybe all of us.

Some large firms seem to think (hope?) legal outsourcing won’t work in the long run. This is what I call the “corporate law is different” crowd.

When I recall the thoughts of Laura Owen of Cisco I am still intrigued by her point #3 that work moving to lower-cost providers could involve moving work from mega-firms in money-center locations (say NYC or LA) to large firms in less-tony regional locations. Bruce makes this point well in the asialaw article.

The danger for any AM Law 100 firms who may have their heads a bit in the sand: what is the difference to you if the work goes to a regional firm in Detroit, a lawyer in India or a web application on a server in Pago Pago?

When it goes, there’s a good chance it ain’t coming back.

Bruce quotes this survey of GCs by the ACC; items 5 and 6 show only 1.8% of those surveyed have gone offshore for services and 8% may do so in the coming year. While this may not yet be “serious traction,” 1.8% to even 4% would be more than a 100% increase.

Put in economic terms, take the gross billings of the AM Law 100 (Bruce has done the math for us for 2004): $46 billion. Take 2.5% of this and you have over $1 billion. And that’s just for the Am Law 100, not the 500 or 1,000.

Somewhere in all these large numbers is a starting point for an attractive business.

I do agree with Bruce that those who are doing corporate legal outsourcing may not be talking. There are solid strategic and political reasons for this.

This may be a tortoise-and-hare thing. But we know who to bet on, don’t we?

The Genie and the Bottle

July 6, 2005 | Filed Under New Services, In the News 

The National Law Journal has an interesting story about “unbundling.” It’s described as a growing movement to allow lawyers to work on part of a matter, while the clients do the rest:

An unbundled lawyer might, for example, advise clients of their rights in a divorce, help clients fill out forms, confine court appearances to child custody issues, and review the judgment. Other than that, clients could be on their own, if they want to proceed that way.

Proponents see it as increasing access to the legal system; others see it as dangerous for individual clients who may not fully understand the scope of what they are in for. The ABA has a white paper on the subject.

Then a quote from law professor Ronald Staudt caught my eye:

“Our profession is client-centric, and if what the client wants is to pay less and only get pieces of service, we should give them what they want as long as it doesn’t cause an ethical breach.”

This insightful remark helped me see a parallel with trends in corporate legal services. Large law firm mergers are partially justified on offering full-service options to clients and cross-selling opportunities to partners.

At the same time, client GCs are going through the 2006 budget process right now and care most about controlling costs and delivering results. And to be clear: “controlling costs” equals lowering costs over time, not just slowing the rate of increase.

Part of the solution will be to unbundle corporate legal services: less-expensive lawyers or paralegals (whether in Peoria or Bangalore) doing only the highest tasks justifying their rates. The rest goes to non-legal staff, automation, or just gets “designed out” by an intelligent process review.

But “corporate law is different” some will say.

We’ll see. I expect news of initiatives to take the unbundling of corporate legal services to unheard-of levels in the coming months.

The only thing “different” about the law is the lawyers who think they are special.

Email is not Real Mail

July 5, 2005 | Filed Under Technology 

Last week I had a draft agreement hit my desk that allowed notice to be sent by regular mail, fax, overnight courier or email.

That triggered a search through my rag-tag collection of Internet bookmarks; and a link to Real Lawyers Have Blogs which reported that a high percentage is not opened or read, and a similar high percentage is blocked by antivirus programs or directed to junk mail folders.

So if you think you’re sending notice by email, no one may get it, you may never know, and just try proving receipt in court.

Denise Howell just noted that registered email may soon be available in Switzerland. Another reason to remain neutral. Applications for this are available.

Ernest Svenson has another take, when he reported from the recent LegalTech in LA. Number 3 in his hit parade was the observation that email is out of control; people can’t manage their regular, non-spam messages. That’s certainly my experience, although some spam is actually interesting compared to my work email. No one at the office can lower my mortgage interest rate for a limited time only.

Sending email is easy. Too easy, much of the time. I hope Bill Gates disables “Reply All” in the Longhorn version of Outlook; it would also be great to specify that an email cannot be forwarded (calling Mr. Scoble)?

In a rare unplugged moment, I recently found letterpress stationery from an awesome printer in the 94608. If you want to absolutely blow someone’s mind these days, send them a short handwritten note. It’s always opened first.

An Honest Mistake?

July 1, 2005 | Filed Under Managing 

Patrick Lamb has an interesting post on a subject that is nearly taboo for corporate lawyers: mistakes. Part of our DNA is a strain of hubris that seems to prevent admitting a mistake, let alone being open about solving it. A good summary of how to handle mistakes is presented.

I have learned a lot from my mistakes, and I believe how you deal with the mistakes of others is a big part of something called morale.

Another sort of “mistake” is getting some press, and it involves a conversation unintentionally recorded on voicemail. I have done this, and I have had such an unintentional message left on my voicemail. Without thinking about it much, I just deleted it. Seemed like an honest mistake.

The problem with this one is that the lawyer who left the message allegedly wasn’t being that honest. The litigation that ensued is described here, and for some reason the Association of Corporate Counsel has taken up the matter and is trying to undo the privilege waiver at issue legislatively. I seem to remember a law professor remarking that hard cases make bad law.

Polaroid founder Edwin Land once said: “A mistake is a future benefit, the full value of which has yet to be realized.”

In the “wayward voicemail” case, the lawyer left a message all right. Just not the one intended.

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