Monday, April 6, 2015

Five requirements of corporate culture for building an effective in-house legal function

In my nearly 20 years of corporate legal experience, I have built in-house legal functions, helped lead large, existing functions and yet also advised in-house lawyers as outside counsel. During this time, I have observed that the success of an in-house function will depend not just on the ability of the in-house legal professionals
running it (which is obvious), but also on the cultural receptivity to legal in the "host company."  As a result I have come to believe that there are five very important guidelines - prerequisites even - to ensure a corporate legal function's success.

The first is being very specific with respect to your job specification in terms of both qualifications and personality type.  Stick to that with conviction.  Is industry experience required?  What substantive areas of law are really arising on a regular basis?  That should be aligned with the ideal candidate's background. As far as personality type is concerned, consider that a spectrum exists with "forceful change agents" and "peacemaking cooperators" at the extremes - what type is best for your organization?  When ready to go find that right person, make sure you understand the difference between hunting and hiring.  It will drive the recruiting approach and likely determine whether you end up with a superstar or somebody who just needed a job.

The second requirement is to be very explicit, internally and externally, about what kind of role is being created when the legal department is launched. This is all part of good human resources practices in providing a candidate with a realistic job preview. There are basically two types of legal functions that get created with the first hire.  There is the best practices function and the...well, not best practices function.  In a best practices function, the candidate will have either a Chief Legal Officer or General Counsel title, will be a named executive officer and paid accordingly, will officially be part of the most senior executive team, will participate in all board meetings, will act as the company's lead decision maker on legal issues, will report directly to an engaged CEO and will have the authority to hire and fire outside legal vendors.  It is possible to create a legal function where these practices are not present. However, it's important to make sure that the candidate is acutely aware of the landscape so that expectations are not mismatched.  A great deal of confusion can be created when legal departments are established with some good practices but not all - this can create tension as the function tries to develop.

The third cultural requirement is to appreciate the need for a legal function to play a major role in developing a risk management philosophy for the entire corporation.  Many corporations evolve without any kind of risk management philosophy. This results in those companies being very aggressive in certain situations but skittish in others, without there being any rhyme or reason for these approaches.  This leads to unpredictable behavior that can frustrate investors, partners and employees.  An effective legal function will help the company develop a consistent and rational risk management approach that fits with the company's point in the corporate lifecycle.  Allow, encourage and expect your legal function to play this role.

The fourth need is to understand the impact that cynicism about the legal profession has on corporate America. Some of that cynicism is warranted. But some of it is not. The reluctance to engage "pricey and pedantic" transactional lawyers, for example, can create problems down the road when poor contracts turn into conflicts. This has a draining effect on the ability to maintain a cost effective and proactive function.  What's more, it can create a vicious cycle.  Companies that ignore or don't seek out legal advice because "those crazy lawyers are so cautious and expensive," will often end up only spending more money on legal services to reactively clean up messes.  Make sure your organization is really open to legal advice.

The fifth point is to ensure adequate resources and in fact require immediate hiring where the volume demands it. This also helps avoid chicken and egg situations.  For instance, a legal function won't have any internal credibility if it can't responsively review commercial contracts.  But, it can't be responsive if it's not adequately staffed.

1 comment:

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