The Strategic Value of Legal
December 15, 2005 | Filed Under Tactics, Organization
The corporate legal department as a strategic weapon?
Harvard Business School Professor Constance Bagley thinks so. In a recent interview in HBS Working Knowledge, Professor Bagley argues that companies should proactively use the law, and by extension, their in-house lawyers.
Professor Bagley’s interview coincides with her recently published book, “Winning Legally: How Managers Can Use the Law to Create Value, Marshal Resources, and Manage Risk.”
The Professor notes that management, up to the CEO, needs to understand the legal dimensions of operating the modern business. In addition, she has some thoughts on the lawyer’s role as well:
“Lawyers advising firms or acting as in-house counsel need to learn enough about the general practice of management that they can communicate effectively with the management team. A lawyer who can’t read an income statement or understand the rudiments of strategy is far less able to help the non-lawyers on the team consider alternate goals or ways of achieving them.
“Our law schools need to do more in this area by offering courses in accounting, internal controls, and strategy. They are as important for a business lawyer as courses in civil procedure and evidence are to litigators. Practicing lawyers need to read the business press more widely and take advantage of executive education opportunities to increase their business acumen.”
I find Professor Bagley’s comments about law schools in this context particularly noteworthy. The Professor is in the minority of law professors in that she has experience in a corporate private practice (with the law firm Bingham McCutchen). Most law schools have nothing like a “corporate practice” class akin to trial practice or moot court.
The entire interview is definitely worth a close reading. I’m going issue a rev. 2.0 of my list for Santa to include Professor Bagley’s book (that move may bump this from the list–darn).
Any effective use of law as a strategic weapon would require alignment between in-house and outside counsel. Doing this effectively under the reigning billable hour model is a perennial challenge for today’s general counsel. Tomorrow, an interview with a leader behind a new initiative that applies technology to this challenge in an innovative and cost-effective manner when the Wired GC again goes…
MOTO LEGL 2.0
November 17, 2005 | Filed Under Tactics, New Services
Yesterday, a view of the last five years in the life of the Motorola legal department–raising revenues, lowering legal spending, and taking a RAZR to its roster of law firms.
Today, an idea about how managing partners could position their firms to “make the cut” in this new (law) world order. Here’s what you do:
1. Hold an event: an off-site brainstorming session that divides attendees into groups of 4 or 5 lawyers (include one associate in each group–and that means a few new ones).
2. Have a goal: increase firm profits (and profit sharing) over the next five years.
3. Tweak the scenario: you can’t increase hourly rates or billable targets during that period.
Serve good food and relevant spirits. Stand back and see what happens. (A rope course is optional; but a firewalk would be cool).
Each member of the group with the best idea as voted by all attendees gets one of these credit tickets that apply to their billable hours-to-date.
Take the top 6 ideas–and implement one a month starting the Monday after the event.
Resist the Cease-and-Desist?
November 14, 2005 | Filed Under Tactics, In the News
Just because you have in-house attorneys, doesn’t mean you should always use them.
According to The Day in New London CT (ed: reg req after 1 day, bah!) , Subway had its attorneys lob a legal Meatball Marinara at an alleged competitor, unintentionally enhancing their quarry’s business in the process:
Upstart Steakways of Milford, a family sandwich shop focusing on beef, pork and chicken, can thank the international behemoth Subway for generating interest and new customers. Subway, meanwhile, appears to have confused its own position in the market by groveling in turf where no war existed. Seems to me the legal department has too much free time on its hands.
The brouhaha began last month when the Subway legal department sent a cease-and-desist letter to Steakways. “Steakways,” corporate attorney Valerie Pochron wrote, “is confusingly similar to … Subway … and maybe [sic]” a trademark infringement.
As the owner of Steakways noted,
“I’m getting a lot of activity on this,” said Brian Bowser, who launched Steakways with his father. “I can’t understand how this is a threat to 2,600 stores in 81 countries.”
(ed: It’s actually 24,648 stores in 82 countries).
Then there’s the obligatory quote from the “local expert”:
“Subway couldn’t have been a better advocate for more business for Steakways,” said Michael London, a Trumbull-based marketing and public relations consultant. “It would have been nearly impossible for a small business like Steakways to get national media attention. Subway made it happen. It would have been smarter for Subway to ignore this business. No one would have cared.”
When news outlets picked up on the story, Subway seems to have circled the wagons and refused comment. The media love a David and Goliath (or Jared) type of story. It’s not easy, but you have to think about your fundamental legal position and how these things will play in the press before you dash off the initial C&D.
Perhaps Subway should fly a flag of surrender.
For the record, I dine at Subway, and am partial to the new Turkey Wrap (which goes very well with bag-in-a-box Chardonnay).
Bet-the-Company Litigation: Part 3
November 2, 2005 | Filed Under Tactics, Managing
Concluding this series, today a look at the demise of the Arthur Andersen accounting firm through the prism of the three ways to avoid bet-the-company litigation outlined on Monday. While Andersen’s conviction over its Enron work occurred in 2002, the signs were present much earlier.
Some of the information on Arthur Andersen is from Barbara Ley Toffler’s excellent book, Final Accounting. Ms. Toffler had a unique viewpoint as the Andersen partner in charge of Ethics & Responsible Business Practices in the early years of its decline. She left after warning signs were being ignored and before the Enron implosion. No word whether senior management conducted an exit interview.
On to the big three:
– Lessons Learned: As early as 1998, Andersen was convening special meetings on the subject of managing internal risks, based upon audit quality problems that were on the increase. The firm was in the throes of shareholder lawsuits over its audit of Waste Management at this time, but Andersen’s settlement with the SEC over that audit was not publicly announced until 2001. That time period proved crucial, since ongoing audits of other clients were going sideways. Some people in Andersen were trying to learn lessons, but this did apparently not capture the attention or leadership of senior management. Strike one.
– Connect the Dots: As with Waste Management, Andersen was involved in litigation over its audits of Sunbeam, the Baptist Foundation, McKesson and that other household name, WorldCom. If management couldn’t learn a lesson from Waste Management, you would think the other bogeys appearing on the compliance radar screen would set off an alarm or two. Apparently not. Strike two.
– The Crown Jewels: If Andersen had one key regulator, it would have been the SEC. In announcing its settlement with Andersen over its Waste Management audit, the SEC stated that the firm failed to stand up to company management and thereby betrayed their ultimate allegiance to Waste Management’s shareholders and the investing public. The settlement also contained customary provisions in which Andersen agreed not to violate securities laws in the future. Then came Sunbeam, WorldCom and, you guessed it, Enron. By the time Enron hits in 2001, the SEC is clearly at wits end with Andersen. Poisoned well with primary regulator means no slack to avoid indictment. Indictment equals strike three. You’re out (of business).
Commentators Tom Kirkendall and Professor Ribstein have put the government’s indictment of Andersen over Enron under the microscope and correctly question whether this was the best public policy since it was a virtual “death sentence” for the firm. Professor Henning noted the Supreme Court decision belatedly overturning Andersen’s 2002 conviction, but reflected the following day that the firm was certainly not blameless in this affair.
From the standpoint of avoiding bet-the-company litigation, you have to look at the final years of Arthur Andersen though a telescope. The signs were there, people inside the firm saw them, and yet they couldn’t break the chain of events that lead to the Enron conviction, perhaps the ultimate in bet-the-company litigation. Taking seriously any one of the three ways outlined above might have lead to a different result.
It certainly couldn’t have hurt.
Bet-the-Company Litigation: China Style
November 1, 2005 | Filed Under Tactics, Managing, In the News
This is Part 2A of the BTC litigation triptych that ends tomorrow.
The New York Times has a sobering article today regarding the Chinese legal “system.” Mr. David Ji is an executive with Apex Digital, and his company is involved in a dispute with Sichuan Changhong Electric. Changhong is apparently a majority state-owned company based in China’s Sichuan Province. The Times alleges in vivid detail how Changhong used police, prosecutors and judges to try to collect a monies it believed were owed by Apex.
The Times notes that Mr. Ji spent two months in custody at a Changhong-owned apartment that featured all-night interrogation sessions:
So in late December last year, according to a person who compiled a record of the encounter, guards emptied his pockets, removed his shoes and socks, and ripped the buttons off his oxford shirt. He was ushered disheveled and barefoot into the office of Zhao Yong, the chief executive of Sichuan Changhong Electric, Mr. Ji’s onetime business partner and, more recently, his warden.
“Your only way out is to do what Changhong tells you to do,” Mr. Zhao told him. “If I decide today I want you to die, you will be dead tomorrow.”
Mr. Ji soon agreed to cooperate with Changhong. But a year after the Chinese police apprehended him in his hotel room during a business trip, he remains in China as a pawn - Mr. Ji’s colleagues say a hostage - in a commercial dispute…”
Does this fit the definition of bet-the-company litigation? How about BTL: bet-your-life?
We previously examined corporate responsibility issues involved with companies doing business in such countries as China and Russia. That posting noted Yahoo’s recent travails in China.
Since then, Yahoo CEO Terry Semel gave these remarks, reported by CNET:
Asked to comment on the criticism Yahoo received for providing information that helped the Chinese government convict a journalist accused of leaking state secrets, Semel said companies doing business in China and other foreign countries are subject to the laws of that land.
“It’s both a moral issue and a legal issue…Sometimes, on a personal level, I wince,” he said. However, “everyone (living in China) knows the law, and everyone operating (businesses) in those countries knows the law.”
It sounds like Apex’s Mr. Ji has had to do more than wince. And as far as everyone doing business with China knowing the law, I suggest a reading of the Times article. It definitely raises the stakes for bet-the-company litigation.
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