Assessing the in-house revolution

From 2010 to 2015, my former company, Atmel Corporation, reduced external legal spend from approximately $40 million to $8.5 million. In parallel, we reduced the size of the legal department by nearly 50 percent. Through these efforts, we increased efficiencies, increased productivity, improved internal processes and controls and enhanced overall execution. How do you accomplish that? By having in-house lawyers that are as good as, or better than, the lawyers you might otherwise hire, or partner with, at external firms. By hiring lawyers that have the abilities, technical and otherwise, that you would expect to find at external counsel. And, by offering those in-house lawyers work that will challenge them and allow them to continue to grow as lawyers and professionals.

M&A work can be executed in-house. Employment law matters can be dealt with by in-house counsel. Compliance programs can be developed and implemented internally. Those and many other practice areas can today readily be addressed by numerous in-house legal teams without engagement or oversight by external counsel. In a sense, the historical relationship between in-house and external counsel has turned on its head - with in-house counsel having the expertise, competencies and capabilities to manage issues that might previously have been reflexively referred to outside counsel. And, even in those instances in which there is a need for external counsel, whether because of limited internal resources, jurisdictional constraints or esoteric legal questions among others, the in-house legal team can still set, direct and orchestrate fundamental legal strategies.

The in-house counsel role has become proactive, not reactive. The general counsel role, likewise, has evolved to give the general counsel a prime seat at the executive round table, a place within the coveted "C-Suite," and an equal voice with other business unit leaders and corporate executives. In some ways, the general counsel may today have an even greater voice than other executives in light of the fairly steady access she likely has to the board of directors for governance, compliance and similar critical corporate matters.

With that as background, it is easy to suggest that the evolution, and indeed "revolution," of the general counsel role, and the generally elevated status and capabilities of today's in-house legal departments, would not have occurred without the vision and thought leadership that Ben Heineman Jr. brought to the General Electric Company in 1987, when he began his tenure as its senior vice president-general counsel. Heineman's new book, "The Inside Counsel Revolution: Resolving the Partner-Guardian Tension" (Ankerwycke, April 2016), is a thorough, generally readable treatise describing how the general counsel role, and the stature of the in-house legal department, has developed over several decades (as an aside, it might have been interesting to read Heineman's take on the evolving use of the "chief legal officer" title rather than the traditional "general counsel" nomenclature). Perhaps even more helpful, he has also offered aspirational principles and a series of prescriptions for departmental development and management.

Heineman joined General Electric after having served as a U.S. Supreme Court law clerk, having been a partner at a large global law firm, and having served in government. No doubt those experiences gave Heineman the critical "360 degree" perspective of legal culture, legal practice and legal management that was unusual for an in-house lawyer in the 1970s and 1980s. Understanding how law firms functioned, how law firms priced matters, how law firms staffed matters, and how policy was developed within government gave Heineman a fairly unique and relatively ideal background from which to re-engineer the in-house legal department. As Heineman discusses his book, he successfully sought to hire the best lawyers, pay them market rates, and exact performance and quality that equaled or exceeded outside counsel. Since his days at General Electric, those expectations for performance and quality have become the norm for top-tier in-house legal departments. No longer is "interesting" work necessarily outsourced to external firms. No longer does "wise counsel" need to emanate from the "senior partner" at a company's outside law firm. Rather, the expectation is, and should be, that the general counsel will offer "wise counsel." And that the general counsel will serve as a "lawyer-statesman" in Heineman's formulation, offering advice that goes beyond what is simply "legal" to a more holistic analysis of what is "right."

Heineman is clearly "right" in this view of the general counsel role - and, for that matter, any lawyer worth her salt. While the concept of a "lawyer-statesman" seems dated, and may lack resonance with younger lawyers, the underlying orientation remains absolutely correct. To become an integral part of corporate management, and a valued, trusted partner for any board of directors, determining what is "right" must inform any advice.

While appreciating Heineman's perspective, my own preference - and in response to Heineman's own characterization of the "statesman" term as "old fashioned" - is to characterize the general counsel, and any in-house counsel for that matter, as a "business person with legal perspective." To gain credibility within the corporate environment, it is essential to think like a business person, and to understand business objectives, while simultaneously bringing legal discipline, legal analytics, legal ethics and legal expertise to any discussion. Heineman indeed alludes to some of the subtleties raised by that particular characterization, discussing how "attorney-client privilege" may be implicated if, and when, crossing from legal to business advice. But the anachronistic "statesman" term would be better served with somewhat more focus on the business acumen and "common sense" an effective lawyer infuses in any legal advice she may offer. It is ultimately that form of business/legal advice, and management's achievement of team oriented, corporate goals, that tends to cement the trust essential for an effective relationship between business leader and business lawyer.

Heineman ably describes the core mission for any global corporation - "the fusion of high performance with high integrity and sound risk management." That description sets the framework for his overall analysis. It is a core mission with which is difficult to argue. Legal departments must align themselves with that core mission. In some cases, as Heineman notes, tensions may arise. In-house counsel may need to serve as "parent-guardians" of the corporation. Corporate objectives may seemingly clash with legal requirements or with what is right, especially, for example, in compensation matters if the underlying compensation programs are not effectively designed. Heineman provides a helpful discussion of compensation plan design and the governance philosophies that should underlie those discussions. He effectively integrates discussions of many recent well-known corporate events, or more accurately "catastrophes," and guides the reader through his own analysis of what went wrong in those cases and where matters could have been improved. He dissects the BP "Deepwater Horizon" Gulf oil spill, the JP Morgan "London Whale" trading scandal, and even the recent General Motors ignition switch failures. Heineman notes situations in which the in-house lawyer must think like a corporate "guardian."

To his credit, Heineman also evaluates his own performance during his tenure at General Electric, offering insightful self-analysis of matters that crossed his desk. He retains a signal focus throughout his book on identifying, discussing and ideally resolving the inevitable tensions that may arise within the corporate environment between in-house lawyers and their business colleagues. Readers will find these reviews, and self-assessments, good case studies to help think through difficult issues they may themselves face in the future.

Heineman concludes his review of the in-house counsel revolution with a helpful discussion of the future, raising many of the issues the legal industry grapples with today: Where are law firms headed? How can they continue to raise rates without concomitant improvements in productivity? How can legal departments develop in-house lawyers? Should legal departments "partner" with law firms to help develop and mentor the attorneys of tomorrow? Where are fee arrangements and alternative fees headed? How can legal departments fulfill their pro bono interests? How can value and performance of outside counsel be more effectively linked? How do legal departments fit within "globalizing" companies, with operations, facilities and personnel in more and more diverse jurisdictions with potentially conflicting rules, regulations or ethics?

Having dealt with many of these issues throughout my own in-house career, Heineman's effort to synthetize these disparate issues, to explicate a set of guiding principles for in-house counsel and to offer thoughtful commentary about issues affecting the quickly evolving and changing global legal industry - both in-house and external law firms - is a welcome addition to the literature. Readers will need to consider for themselves, in light of Heineman's insights, the "high performance, high integrity" expectations that have come to define, and are demanded of, the general counsel role and the in-house team of lawyers that an effective general counsel must lead in today's corporate world.

Scott M. Wornow is former general counsel of Atmel Corporation.