Monday, 12 December 2011

Big 4 a reason

In 2011, the Big 4 "accountancy" firms reported revenues of $29.2 billion (PWC), $28.8 billion (Deloitte), $22.9 billion (E&Y), $22.7 billion (KPMG). The world's largest law firm reported revenues of $2.1 billion (Baker & McKenzie).

OK, you got me. That law firm number dates from 2010. Perhaps 2011 was a barnstorming year and they added a zero after 12 Stakhanovite months of wild billing. But probably not. In fact, based on published numbers, you'd need to add the revenues of the world's top 15 law firms before you get one Big 4 firm.


The largest law firms are very respectable sized businesses, but the Big 4 are so massive they make the law firms look like boutiques. I'm not suggesting revenue is everything, but it's a perfectly reasonable measure of how much the rest of the world wants you around. 


The Big 4 don't just sell audit or accountancy advice, they sell all kinds of professional services. That statement also describes one of their weaknesses. They have a tendency to appear at the elbow of the people on the opposite side of the table. Law firms are still focused enough to have narrower loyalties. But, apart from that, what's the Big 4's secret? Here are a few brief thoughts on their approach to client care, entirely based on unscientific personal experience.

First, the Big 4 are thoughtful about what's really important to their clients. Take for example advice on areas like tax or remuneration. In most law firms, these areas of practice are mostly regarded by the mainstream corporate lawyers as esoteric areas staffed by technical propeller-heads. But at the Big 4, they understand that both are key areas of discussion in any boardroom. They lead with strong practices in these areas and they're prepared to push the partners who understand them into the boardroom as the face of their businesses. In terms of building relationships, it works.


Second, there's little oppositional debate between "in-house" and "out-house" accountants. I don't see CFOs and the partners at the Big 4 firms involved in sterile debates about whether "business" is polluting the purity of accountancy or whether they should have direct access to the staff outside Finance. Lawyers take note. The race isn't with another part of your own profession. If we all combine to work out how to serve our clients, our profession will thrive. In-housers are just as culpable. Recently, I was challenged on whether I really involved my external legal advisers in the development of my department's strategy. I confess I'm nothing like systematic enough and that's going to change.

Third, the Big 4 think very carefully about how to engage with and develop their current and future clients. Everyone publishes briefing papers and many of them are very good. I have a Big Law corporate briefing and a Big 4 quarterly briefing on the table in front of me. Both are excellent. Law firms do very good training for their clients. But the Big 4 take this quite a lot further. One of them runs a "CFO Programme", designed for those in senior positions in Finance, who are either recently promoted into the CFO role or may soon be. The aim of the programme is to help budding CFOs prepare for and cope with the sheer complexity of their roles. That's a pretty clever way of building loyalty amongst a grateful client base. If there's a law firm with a systematic development programme for prospective General Counsel, I'm yet to hear of it.


Fourth, there's something important about the psychology of how they interact with you. In the past month, two partners from different Big 4 firms have come to see me. They opened the discussions by saying "Help me to understand you" and then they were nice enough to sit, patiently, listening. The General Counsel isn't their most important client inside a company. So, the fact they showed up at all is revealing. How many lawyers go to see the CFO to find out what's important to him/her? 


Those words "help me" are the key. They change the nature of the transaction. It's no longer you telling me what I ought to know. I've come to the meeting expecting to listen to someone trumpet their expertise and tell me why I ought to give them more work. Instead, they've made themselves vulnerable and asked for my help. Any human being will respond to that in a different way. 
Along similar lines, I saw a Big 4 pitch which laid out what the firm could do for us, but only on the condition that we achieved certain things for ourselves. That's also very human. The message is that we need each other. Neither of us can do this alone.

I recently saw a statement from a Big 4 partner which said simply "I'm really proud of my association with [your company]". That's a very simple and a very powerful thing to say. If you're a lawyer, ask yourself honestly whether you feel the same way about your own clients. If you do, would you tell them?


Maybe that's the real key to the success of the Big 4. They seem to believe their client isn't just another "dull company" (a comment made on this blog) that they wouldn't deign to work in. That makes them an awful lot easier to work with.

Sunday, 16 October 2011

Footnotes to The Bizzle's "The only way is ethics"

In a wittily titled recent post "The only way is ethics?", The Bizzle raised a whole series of issues about what companies say about ethical behaviour. I agree with his post and the conclusion "either walk your talk, or stop going on about it" is unarguable. But it seems to me there are several different strands wound together under this topic of "corporate ethics". I'd like to try to separate those strands. 

The debate in the room at the Corporate Counsel Forum focused on the "compliance" side of ethical behaviour and on creating a culture in a company to meet the challenge of legislation like the UK's new Bribery Act. That was the subject of my own post "Ethics and the General Counsel". As he said in his post, The Bizzle didn't set out to discuss this topic (but he has promised to at a later date).


We might call the next strand "ethics as a fig-leaf for the profit motive". Companies often talk about how ethical they are because they're embarrassed to say clearly that their primary, fundamental role is to be successful and generate profits. If they cannot be financially successful, they can't employ staff, they cannot spend money, they cannot fulfil their role in our economies. If they cannot achieve high performance, there's no point debating what more they might be responsible to do. I'm a meat-eating capitalist, so I don't have any problem being clear about this. But a lot of what gets branded "corporate ethics" looks to me like people trying to hide or soften this stark but important truth. 


It's sometimes difficult to separate the previous strand from the next one, which is when companies try to persuade us they are "good" in some unspecified way. Some of the thinking in this space is so confused and nebulous, it barely merits a response. I really don't know how to respond to "don't be evil" other than to remind people that the world really isn't a Manichean struggle. Even if it were, a
ny large company is, necessarily, made up of a lot of people and a great deal of dispersed activities. I don't see how this kind of terminology can even be meaningful. 

After this, we come to "Corporate Social Responsibility". In the past, some companies' communications about CSR have been muddled up with the "fig-leaf" and "goodness" strands I describe above. I have no time for that. But I do think CSR is a real and important part of what a high performance company should set out to do. This point is worth elaborating a little.


As individuals, we don't expect merely to go to work, comply with the law, pay our taxes
 and ask the state provide everything else. We form groups and take responsibility for all sorts of things in our communities. Now I don't want to come over all Big Society, but lots of people, whatever their politics, are engaged in activities they feel strongly about. They care and they're well placed to make a difference. They don't wait to be told what to do.

In the corporate context, it's probably best I illustrate with a real example. Recently, I went with four colleagues to visit a further education college which is five minutes walk from our office. We're in the process of establishing what we hope will be a lasting relationship. That college has 100 students studying IT. My employer is a large, British headquartered, multi-national IT company. Many of my colleagues think we might be able to help those students raise their horizons. The development staff at the college agree. We seem to be very well placed to make a difference in a targeted way. So we have a choice. We could obey the law, pay our taxes and hope someone else sorts it out. Or we can get involved. I know which makes sense to me. 
 

Finally, The Bizzle rightly highlights the type of self-serving nonsense you see from many procurement departments, who proclaim they are "partnering" ethically with suppliers before nailing them to the wall. There's a lot of writing on the symbiotic relationship companies have with their supply chains. That's one for another post.

Thursday, 13 October 2011

It's criminal on the 07:43 from Woking

This morning, just by coincidence, two people I follow on Twitter had very similar experiences while commuting on the train. Both saw a fellow passenger working on a laptop. We'll omit the names to protect the guilty, but the laptop-jockeys were lawyers, one of them at a famous magic circle firm. The details of their clients and the matters they were working on were clearly visible to their fellow passengers.

This sparked a light-hearted debate on Twitter about work life balance. Workaholic lawyers are using their train journeys to finish off those crucial PowerPoint presentations. The phrase "get a life" was used. But what went through my mind was "get a grip". There are serious issues involved.


Anyone who reads my blog regularly will know I am an advocate for normalising legal services, demystifying communications between lawyers and clients and bringing the profession up to date. But there are some things that are too important to compromise. A fundamental part of what makes a lawyer special is the promise of absolute confidentiality. The public don't understand legal privilege and I'm not sure much of the legal profession do either after Three Rivers. But they know that, like a priest in a confessional, a lawyer will keep your secrets, so you can tell them everything. This is true of every branch of the profession, from criminal briefs to in-house lawyers. In my own job, the ability to keep confidences, not most of the time but every single time, is a critical part of the role I perform. To operate effectively as a lawyer, you need to be unimpeachable when it comes to keeping secrets.


Let's just remind ourselves of some black letter rules here. SRA O4.1 states: "You must achieve these outcomes: you keep the affairs of clients confidential unless disclosure is required or permitted by law or the client consents". SRA IB4.2 states "you comply with the law in respect of your fiduciary duties in relation to confidentiality and disclosure".


If your client is a company listed in London, like my own employer, and the matter you're working on is inside information, then there's more. Section 52(2) (b) in Part V of the Criminal Justice Act 1993 states that an individual commits an offence if "
he discloses the [inside] information, otherwise than in the proper performance of the functions of his employment, office or profession, to another person." The maximum penalty for a violation is seven years in prison.


If a firm I instructed was to allow my company's confidential information to be seen on trains, I would disinstruct the firm, blacklist them and report them to the SRA. If an individual lawyer in my team did the same, I would fire them summarily for gross misconduct. 


If you think that a secret is something you tell one person at a time, you're in the wrong job. If you've got work life problems, resolve them. If you're on the train working on my file on your laptop, you're a criminal and you're fired.

Wednesday, 24 August 2011

Ethics and the General Counsel

My guess is that almost none of the people reading this blog consider themselves rich. Some are probably well off. Some are students, who don't, at least yet, have a great deal of money. Even those of us who think they're financially stable would probably class ourselves as relatively "ordinary". But compared to almost everyone who lived before 1850 or thereabouts, we are all fabulously rich, in terms of what we can afford and what we own. We've just come to take that fact for granted.

I'm typing this blog on an Apple MacBook Pro in the South of France. I flew here with my family on EasyJet. Each of you is reading this on an amazing piece of electronic equipment, maybe an iPad, a Dell PC, a ThinkPad, an iPhone or something similar. You own a mobile phone, along with almost everyone in developed countries and increasing numbers in developing ones. You've got a fridge, a washing machine, central heating, probably a car. You've almost certainly travelled more widely than any previous generation of your family.


How is this possible? You don't have the government to thank for all this. The reality is that the modern corporation has changed all our lives, including your life, by making extraordinary things available to ordinary people at prices they can actually afford. Collectively, companies perform these feats on a massive scale and their influence permeates our entire lives. Just think of your average day from start to finish. From the moment the electricity flows into the bedside light when you switch it on, through the tea you drink with your toast for breakfast, the clothes you wear, the newspaper you read on your way to work etc. I'll let you think your way through the rest of your day. 


So many of the extraordinary things in your life are provided by companies that, by rights, half the stories in the newspapers ought to be concerned with their amazing achievements. But the people who write our papers are preoccupied with other matters. Some are obsessed by gossip and tittle tattle. Most are hampered by their poor understanding of science and technology. As an example of this, in 1989, at the time of the 200th anniversary of the French Revolution, a letter to one of the British papers asked "If you want to know who has had a greater impact on your life, Maximilien Robespierre or his contemporary Allesandro Volta, try reading all the articles about Robespierre in your Sunday colour supplement with the lights turned off". And finally, most are ignorant of and even hostile to business. If you doubt this, try starting your day with the business correspondent on BBC Radio 4's Today. You'd think from the tone that he'd been told he was interviewing known conmen.


Many people dislike companies. More people, maybe even most, are suspicious of them. This suspicion of private enterprise is very deep seated. Tales of private enterprises that are involved in wrongdoing are given a great deal of prominence. Just think of the stories of fraudulent Christmas clubs that have stolen a few tens of thousands of pounds from the hard up. Such incidents are deplorable, but they are not mirrored by equivalent moral outrage in the reports that the government has taken and wasted £12 billion from ordinary taxpayers in its failed attempt to create an electronic medical record for each of us within the NHS. 


Before we get too far down this line, I will restate that the purpose of this blog is not to line up in a political debate or even to try to persuade people that their attitude to private enterprise is distorted. The purpose of this blog is to discuss the role of lawyers in business. Nevertheless, the context we've established - that companies are widely suspected of being venal, self-interested and untrustworthy - is important when it comes to asking the following question. What is the role of an employed lawyer, particularly the most senior lawyer, the General Counsel, in relation to ethics in a private enterprise? 


This question is becoming more important for two reasons. First, there are increasing levels of legislation specifically aimed at compelling ethical behaviour by companies. The UK's new Bribery Act is a well-publicised recent example, while the USA's Sarbanes-Oxley and FCPA are other, more established, ones. Second, companies are relying more on their employed lawyers for advice and guidance. In relation to this second point, I'd encourage you to read the Deloitte Global General Counsel Report 2011 titled "How the game is changing" which you can find at this link: http://bit.ly/qmZZnC. The report is based on a survey of GCs and gives comparisons with data collected five years ago. I'll draw out a few relevant conclusions.


A greater proportion of GCs now function as a member of their company's senior management  (62% compared to 47% five years ago). In the UK, employed lawyers are taking on more responsibility for ethics and whistle-blowing (56% compared to 25% five years ago) and risk management (61% compared to 36% five years ago). Companies now turn in the first instance more often to their GC rather than external counsel for advice on serious legal or regulatory risk (82% compared to 59% five years ago). Most tellingly, GCs now believe that their advice on such issues has more influence than that of any partner in an external law firm (71% compared to just 35% five years ago). These shifts are dramatic. I find them convincing because they reflect my own personal experience.


Until now, the role of the employed lawyer in relation to ethical behaviour in a corporation hasn't been the subject of much scholarly study and in many ways has been poorly articulated by the profession as a whole. I remain an advocate for the view that our profession is most effective when all lawyers work together, barristers, solicitors, employed lawyers and others each playing their role. But I've been reminded this week that there are some who believe the only people in a position to give proper advice on anything relating to the law are external barristers or solicitors. I don't agree. Yes, they are independent and often fearless. But they don't, can't, know what's going on inside a company. Sometimes nobody outside a company does. Sometimes even many of the people inside a company don't know what's going on. I'll return to that in a moment.

Having said that there isn't a great deal of academic discussion on the topic of employed lawyers and their role in the ethical conduct of corporations, for those of you that have time to read them, I would recommend the following papers, which are reasonably recent and fairly digestible. Steven Vaughan's review of Robert Eli Rosen's "Lawyers in Corporate Decision Making": http://bit.ly/prOlkm. Christine Parker and Robert Eli Rosen's "The Two Faces of Lawyers": http://bit.ly/qgoX8L. Sung Hui Kim's "Gatekeepers Inside Out": http://bit.ly/qvk5Ps. Finally, and if you only have time to read one of them this should be it, Ben Heineman's "The General Counsel as Lawyer Statesman": http://hvrd.me/nYw5IF
. Ben Heineman was, for many years, the GC of General Electric. I'm an alumnus of GE's legal team myself, and I find his paper very persuasive.

If you read these articles, you'll see they are by no means a one-sided argument that in-house lawyers are always good ethical gatekeepers for a company. I'm going to draw out the things which, from my own experience, I think are most important.

1. All business leaders own compliance with ethical standards. The General Counsel doesn't "own" ethics by himself or herself. Suggesting they do is like suggesting the CFO "owns" profitability, without reference to all those functions that influence it. An organisation that makes Legal own compliance with the law without involvement of everybody else, isn't going to create a culture of compliance.  "
Culture" has been described as "the way people do things when nobody else is watching" and is the principal factor in whether an organisation will successfully strive to adhere to legal and moral standards. The "tone from the top" must involve all business leaders, not the GC alone. On a more prosaic level, a GC mentor of mine once told me that the general manager of a manufacturing plant had asked him: "What are all the laws I need to comply with in running my factory" to be met with the answer: "I don't know. But I'm not running your factory. If you don't know the answer to that question, you shouldn't be running a factory at all".  

2. Having said this, the GC does have a special role in providing an objective view on what's right.
 The perspective that comes with legal training should enable the GC to see the activities of their own corporation (and all corporations) in a wider context. Companies are just one group of actors in society. Lawyers are trained to understand how they function within the structures of company law, criminal law etc. The GC is also in a position to be more objective than some colleagues. Ordinarily, employed lawyers are not remunerated on the basis of specific deals or decisions (unlike, say, sales leaders), although they are often paid bonuses on the performance of the company as a whole. This should ensure they can adopt the necessary level of detachment in relation to any particular decision. (For those who doubt this, I'd point out that law firm equity partners are more directly financially dependent on the performance of their firm than GCs are on the performance of their company).

3. A GC needs to be able to define and build an infrastructure which supports integrity. Many lawyers spend long parts of their career specialising in one area of legal activity. That could be commercial contracting, it could be corporate transactions, it could be litigation. But at the level of GC, you need to be able to define and install a compliance programme in your company which meets certain criteria. Those criteria were largely established after 1991 when the US Congress enacted new US Federal Sentencing Guidelines on what constituted an effective compliance programme for institutionalising ethical and lawful behaviour in large organisations. Very similar concepts have recently been set out in the guidelines on "adequate procedures" accompanying the UK's Bribery Act. As a GC, it's your role to ensure your company has clearly defined statements of policy on compliance with law and ethics, clear communications from the top, training for employees on the content of the company's policies, ways for staff to raise concerns without fear of retaliation, due diligence on third parties you do business with, ways of monitoring and auditing compliance and appropriately independent response to policy violations. If you don't know what this kind of programme looks like, you aren't ready to be a GC.


4. In order to be influential, a GC needs to be sufficiently embedded to be able to couch their input in terms of business goals. This is simply a reflection of the truism that nobody listens as closely to an outsider as they do to one of their own team. That fact isn't confined to legal advice. It's just as true in accountancy or in any number of other areas in which companies seek advice. If you are part of the team, trusted to be trying to achieve the same business objectives, rather than just laying out a risk analysis, then when you advise strongly in one particular direction, you will be much more carefully listened to.  


5. A GC can be misused by a business that wants to "game" the system rather than comply. All lawyers are trained that it's their professional responsibility to make the best case for their client. As a result, lawyers develop a great deal of flexibility in being able to argue a case for any client, no matter how little they agree with it. I'm reminded of a line of questioning which an interviewer took with me when I applied to become a trainee solicitor. She asked: "Would you represent a surgeon before the General Medical Council if he or she had a communicable disease (for example AIDS) and was threatened with being disbarred from practice? Assume you had seen data that one in a thousand of this surgeon's patients would die as a direct result of this surgeon carrying out the operation." I trotted out the answer that everyone should be entitled to fearless representation. "How about one in a hundred?" she said and finally "Every other one?" In private practice you have the luxury of saying that there's a genuine distinction between you and your client. In-house, I don't think it's the same. You cannot be responsible for every action your company takes, but you are responsible for every decision in which you're involved. Yes you need to ensure your company can achieve its goals by legitimate means, but you mustn't allow your company to misuse your legal skills to enable it to do things you believe are actually wrong.


6. A GC has an overwhelming advantage in getting at the facts through formal and informal information flows. For me this is a clinching argument on why in-house lawyers are essential players in ensuring that large organisations understand and comply with the law. Internal lawyers are able to get to the underlying facts of a particular situation in a way no external lawyer can. This is true not just of lawyers but all external advisers, including accountants. It may well be that, in a serious case, the advice of external counsel will enable the in-house counsel to interdict non-compliance where they otherwise feel unable to. But even discounting deliberate wrongdoing, many large organisations suffer from a lot of accidental or ignorant non-compliance. Without someone in the position of the in-house lawyer, there is a much lower chance of reducing corporate non-compliance with law.


Wrapping all this up, in response to the question "Should the General Counsel be a company's moral compass?", I have to disagree. This statement goes too far. It implies that the GC has unique access to information which enables them to decide the correct direction to take and that others standing on the bridge with them don't. I don't accept that. But I do think the GC has a role in fearlessly stating when they think the direction is wrong.


For those that aspire to become a General Counsel within an organisation, there's an important lesson from the Deloitte report. Until recently, I don't think in-house counsel, particularly in British companies, have been nearly explicit enough in defining their role when it comes to risk. When you interview for a position where you will be the most senior lawyer in a company, the General Counsel, the people you meet are going to want to be confident of various different things about you. Let's distil two of those things. The executive management team, including the CEO, is primarily going to want to be satisfied that you understand and will help achieve growth. Those with a guardianship role, including non-executive board members, the chairman of the board and chairman of the audit committee, are primarily going to want to be satisfied that you understand risk and will help achieve compliance. Both groups will be experienced enough to know that you cannot succeed as the GC unless you can do both. If you misjudge the balance in either direction, you will fail to be influential in the way a company striving for both high performance and high integrity requires. 


So, if you want to be a General Counsel, look hard at the experience you have gained so far in your career and are gaining in your current role. If your role isn't helping you build the skills needed to turn yourself into a "lawyer statesman", then you should consider changing jobs or changing the way you do your job.

Sunday, 17 July 2011

No timesheets! Making the transition from private practice to in-house

Imagine yourself sitting in the double height reception of a large office building in West London. You're there for an interview, having applied for the role of "Legal Counsel, Intellectual Property". So far, the selection process has involved meetings with HR and Legal. Today, you're due to see senior business staff. You don't know it yet, but the whole process will consist of 10 meetings, including one with an "industrial psychologist" (a story for another day). 

That was me, 15 years ago. My previous meetings with HR and Legal had gone well. I didn't really know what to expect from the business leaders I was about to meet. Despite a few years in private practice, I hadn't met many people from "Marketing" or "Operations" before and I only had a hazy idea of what their jobs might involve. I should have done more research, but I was feeling pretty cocky. After all, I had a blue chip CV, with a good degree from a famous university, excellent results from the College of Law and City of London law firm experience. I thought they were lucky to have the chance to hire me and they were bound to see it the same way.

This particular company made toys, games and computer games, with a global turnover of $4B. Sitting there in reception, I saw a display of "Transformers: Robots in Disguise" behind some glass. I went upstairs for my interview and during the meeting made a flippant remark about the product. The head of marketing looked across the table at me. He didn't smile. He said “We sell more than $40M a year of that product in the UK”. I was silent. The tumbleweed blew across the office. I thought I'd lost the job and I probably nearly did. He was right to respond like that. I was applying for the role because the company was very brand driven, making it interesting for an IP lawyer. But he'd have been perfectly entitled to refuse to hire me for my arrogance and my attitude to his business.

Recently, there was an excellent post from Mark Smith on his site "The Intelligent Challenge", called "The Five Skills of Highly Effective In-House Lawyers" and you can find it here: http://bit.ly/oHBnFA.  Mark's broad ranging experience is evident in his clear summary of the skills needed by in-house lawyers. You can also find excellent writing on this topic at Paul Gilbert's site: http://www.lbcwisecounsel.com/. I've also previously posted some brief thoughts in "Name the behaviour - what makes a lawyer successful in-house?": http://bit.ly/n6TnAU

Is there anything really worth adding? Aren't we all in violent agreement with each other? Yes we are, but, looking back, I know how ill-prepared I was to make the transition from private practice to in-house. Many people I interview today are equally ill-prepared. So, there's clearly more explaining to do. For this reason, I thought it would be worth drawing out some points more fully, explaining why they matter and providing practical suggestions on how to go about implementing this advice. 

I'll assume for the purposes of this post that you want to go in-house for the right reasons - because you're interested in business and would like a new challenge. If you're suffering from the misconception that you'll work fewer hours, think again. You will likely have more control over how you spend your time in-house and you'll rid yourself of the hated timesheets. But, like any career, you'll have to work hard if you want to do well. Beyond that, I suggest there are two things you ought to consider carefully before taking an in-house role and seven things to do once you start. 

Before you go in-house

1. What kind of business are you joining? 
The phrase "in-house" is a handy way to tell you a lawyer is employed in an organisation whose primary product isn't legal services, but next to useless in every other respect. The provision of legal services is a relatively small part of the overall economy. That leaves everything else to be covered by the label "in-house". Your role is going to depend enormously on the nature of the business you join.  In my own career, I've worked in fast moving consumer goods (FMCG), biotech, pharmaceuticals and software. FMCG companies are often fashion driven, marketing led and with a time horizon of 12 months. Biotech, pharmaceuticals and software are heavily engaged in long-cycle R&D, but with very differing levels of regulation. The role of lawyers varies enormously in each of these sectors. Others, from newspapers to private equity funds are going to be equally diverse.

Practical Tips:
 (i) You need to ask what Legal does in the business you want to join. Some companies put functions like Government Affairs, Tax, Environment, Health & Safety under the remit of Legal. Make sure you're clear on the scope of the activity. (ii) Ensure you’re joining a business you’re interested in. I've spent much of my career in healthcare, a sector I find fascinating. If you aren't really interested in the business you're working in, it's going to be awfully hard going, because that's all anyone else is going to want to talk about.

2. Is the business you're joining legally astute? You want to find 
a business which is "legally astute" or at least one which aspires to be. What does this mean? In a nutshell, it means a business which understands what Legal can do for them and has integrated Legal into its decision making processes. You might think the fact that they are hiring lawyers at all guarantees this, but I don't think it's that straightforward. If you're interested in reading an academic paper to explain this concept more fully, try "Winning Legally: How Legally Astute Management Teams Can Use Law to Create and Capture Value" by Constance E. Bagle at this link: http://bit.ly/n1KF6g. If you don't have the time for that, I can illustrate the exact opposite of a legally astute business with an extract from a hilarious letter which purports to be from an executive in the oil industry in the early 20th century (but which may be a hoax):

"It seems to me from your letter as if the lawyers are a kind of department to your business. Their idea that we should be inclined to give them a fixed fee is absurd, but what astonishes me most is their proposal that you should make an arrangement by which one member of their firm should give practically his entire time to the conduct of our affairs. We would never think of such an arrangement. We do not wish a lawyer to give his entire time to our business. We have not got daily disputes, neither do we want to create them. A lawyer absolutely unfit as a business man, he is to give us advice if trouble arises and if you employ him say 6 times a year this can be considered the average maximum. I do not think that we employ a lawyer many more times and our total lawyers bill is considerably less than yours. Messrs. Rice & Lyons’ statement that at the present time the daily routine business of our Company consumes the time and efforts of one member of their firm, is a revelation to me. How can you conduct business in such a way! I hate to see a lawyer in our office, if I want him I go to his office and limit the conversation to the shortest possible period. Allowing a lawyer to be practically in daily touch with me would certainly take 90% of my time which ought to be devoted to money making and not to discussing legal squabbles or legal phraseologies.
Yours etc"

Practical Tips: (i) You need to ask about the status of the most senior lawyer in the company. Does the GC sit on the Executive Committee and are they involved in the company's decision making? (ii) Ask whether members of the Legal function sit on other key decision making bodies in the company, whatever those are called, at each level of the business? (iii) Ask about the reporting lines for Legal. Are lawyers embedded in the business or are all reporting lines within Legal? Are there multiple reporting lines? (iv) When you meet the business people, ask "what do you want from your lawyers?". The answers will be revealing on whether they are legally astute or not. If they look blankly at you, the chances are they aren't legally astute. Historically, it has been the case that US businesses are legally astute and British and European businesses are not (see my post called "If your GC reports to the CFO, your company doesn't understand what Legal does"). But that is changing.

Once you arrive in-house

It seems congratulations are in order. You've found a great job with a legally astute business. You're all signed up. What next?

1. Establish your credibility.
Before you can really advise your business colleagues, you need to persuade them that you care about the success of the business. They already care about the business, but you're a newcomer. Some of the advice you're going to need to give them will contradict what they believe is the right thing to do for the success of the business. If you're going to persuade them, they're going to need to believe you are trying to achieve the same goal they are.  

Practical Tips:
Early on, there is almost always a moment where you will be tested. You'll be put through the fire. You need to recognise this moment and rise to it. Do whatever it takes to meet this challenge, because it will often shape your career at the company. In my case, this has happened each time I've been in a new role. On one occasion, I was told by my boss, six weeks into the job: "I'm unhappy with our external counsel's strategy. We're always on the back foot. I want to get onto the front foot". I recognised that for what it was. I was responsible for the company's legal strategy, not our external lawyers. It was Friday. When I went home that night, I told my wife "I think I might fail in this job". On Saturday morning I called my boss and asked for 2 hours with him in the office on Sunday afternoon, so I could debate our legal strategy. We met, in jeans, without phones ringing. I put 10 radical ideas to him, some of them pretty extreme. We argued and reduced the list from 10 to 2. After that, he knew I cared about the business and I never had a problem giving tough advice. 

2.
 
Get organised
. In private practice, you're largely organised by the firm's incoming work. You have matters to work on and you complete timesheets to show what you've been doing. Of course you may have management responsibilities relating to your law firm or business development obligations, but delivering legal services to clients in response to demand is the basic model. If you do that in-house, you're going to fail. You'll simply be allowing other executives in the business to determine everything Legal delivers. The other people in the business aren't the only clients. The whole company is the client, including its shareholders. It's your responsibility to determine what Legal does. You wouldn't expect the head of Marketing to sit in his/her office waiting for someone to ask for "marketing advice". So why would Legal behave like that?

Practical Tips:
(i) You need operating mechanisms to manage Legal and its interactions with the business. There are only 220 working days in the year and all of them will have passed quickly without any discernable shape if you don't institute operating mechanisms. Other functions will have their own and you will need to join some of them. Some can be held annually (e.g. full review of IP), some monthly (e.g. compliance or risk reviews, business development reviews) and some weekly (e.g. sales operations). There needs to be a "shape of the year" map for Legal. (ii) When you arrive in your role, use a 30 / 60 / 90 day checklist which maps out your first six months. My own checklist gives guidance on a range of things from how fast you ought to meet all the key stakeholders (first 30 days) to when you can start thinking about objectives (not before 90 days). If you don't structure this critical early period, you won't establish yourself properly.

3. 
Learn the business.
Everyone says this. There are two reasons you need to learn the business, one noble and one selfish. The noble reason is that you won't be able to determine where to spend your time unless you understand how the business works and what it is trying to achieve. The selfish reason is that it's just more interesting if you know what's going on. When you watch sport, if you don't know the rules, it's boring. The more you understand about what you're watching, the more interesting it becomes. If you're going to enjoy your job and do well, you need to learn the business.

Practical Tips:
To learn any business properly, I recommend that in the first 60 days you ask at least five people, separately, to explain it to you. You may need to adapt this list slightly depending on the type of business. (i) A senior manager, from whom you'll be able to get a high level overview of the strategy. (ii) A finance professional, who can explain where the company makes money and where it spends money. (iii) Someone involved in "upstream" development of future products and services. (iv) Someone involved in selling the company's current products or services. (v) Someone involved in "operations" responsible for ensuring the delivery of products and services. Don’t be shy about asking questions and showing your ignorance. You have a golden opportunity to ask lots of questions early on, so don't waste it.

4.
 
Determine Priorities
. I've already covered some of this under "Get Organised". As soon as you arrive, people are going to start sending you e-mails and asking you to do things. Some of these things you need to do and some of them you need to decline to do (see "It's your job to ignore thousands of e-mails" http://bit.ly/qB2qjq). Some of the things Legal needs to deliver aren't going to asked for. Let me give you an example. When I arrived in one role, I asked to see the company's litigation tracker. There wasn't one. That's not necessarily a disaster, but it makes running the company and dealing with the auditors more difficult than it needs to be. Nobody will ask you to fix this kind of thing, but you need to anyway. There are certain things Legal should have a good grasp of in any company. How many legal entities are there? Is the company involved in any court cases? What regulators have authority over the business? Is there a repository for contracts, or at least material ones? There's a long list of hygiene items like this and it's surprising how patchy many businesses are in meeting these basic requirements.

Practical Tips: (i) 
If nobody can give you a clear picture of what the Legal function should be doing, you're going to need to speak to someone, either in your own company or in another one, to get a view on what "good" looks like. (ii) Be sure to determine what your function is not going to do. For example, in my own function, we don't do Real Estate. It's specialised and non-core for us, so we send it out.

5. 
Communicate. Many of your non-legal colleagues will only have a vague idea about what Legal does, likely influenced by watching Boston Legal, The Good Wife and Kavanagh QC. Some will be better informed, but often even their view of Legal will be limited to the part of the service they consume. For example, many people think Legal is a contract shop. Even some lawyers think this. Sure, Legal does contracts, but that's a very narrow reading. You need to communicate clearly what the function will and won't do.

Practical Tip:
One of my former colleagues was an employment lawyer in an organisation of 45,000 people. She had a team of four lawyers working for her, but with these kind of ratios, it was impossible to do everything that was asked of them. She took the approach of being very explicit, publishing a one page guide on where she and her team could add value (e.g. major reductions in force, integrating acquisitions) and where they would not (e.g. individual dismissals). If the demand you face is overwhelming, produce a one-pager like this. People are disappointed if you tell them you are going to do something and you don't do it. If you tell them up front you cannot and won't do it and explain why, they will understand.

6.
 Become a decision maker. In private practice, the mantra that "clients decide and lawyers advise", is endlessly reinforced. That's fair enough, but it doesn't work in-house, because it's an incomplete description of your responsibilities. Apart from your role as a lawyer, you'll have some kind of status as a manager. People will expect you to wield influence and make decisions commensurate with your role. On some issues, the appropriate thing for you to do will be to follow the lead of others. In other cases, your role will be to give advice. And on some issues, your role will be to lead or mandate an outcome (e.g. preventing illegal behaviour). You may find switching between these roles uncomfortable at first, but you will have to get used to it. You'd be amazed if the Finance function told you their role was to keep score for the business but not to make decisions. They see their role as shaping the business to be more effective and more profitable. Equally, Legal has a similar role. You need to get into the decision making.

Practical Tips
: (i) In each situation, ask yourself "am I responsible to lead, advise or follow here?". If the answer is lead, make that explicit to your colleagues. (ii) If you find it difficult to put yourself in an explicitly decision making role, consider using the form of words "If I were you, I would ..." This has the benefit of providing a very clear recommendation, short of a decision.

7.
 
Never back off. In private practice, if a particular client doesn't listen to you, or they are difficult or chaotic, you can always look forward to acting for someone else. In extremis, you can refuse to continue to act (subject to the rules about disengaging from clients in the middle of a matter). In-house, you are stuck with your clients. Unless you or they leave the company, you are going to have to continue to deal with them. With luck, all your colleagues are "legally astute" but in reality that's unlikely. Nevertheless, you have a responsibility to deliver your role and you have to get it done, no matter how unresponsive or ungrateful your colleagues are. For this reason, you must adopt the motto "never back off". You need to adapt what you're doing, but you still need to find a way of reaching your objectives.


Practical Tips
: All lawyers are fond of the written word and it is often an ineffective way of influencing people. Do not underestimate all the other ways of exercising influence. They may seem less substantial and effective than a memo to you, but you are not the audience for what's coming out of your mouth. Physically locating yourself with difficult client groups, seconding team members into other departments, delivering training at their offsite meetings, understanding their rituals (e.g. a team that goes to a certain pub) and joining them are all things to consider. Your job is to get close to them and influence them positively. You won't be able to do that from behind a keyboard.

---------------------

Next time, I'm going to explore career paths for in-house lawyers. In particular, I'll explain why a good understanding of risk mitigation is important if you want that promotion. The post will be called “So, you want to be a General Counsel?”

Wednesday, 1 June 2011

BOGOF - pricing legal services

After a brief outing into the newsworthy world of injunctions, I'm going back to more workaday matters. Keeping control of departmental budgets and getting value for money from external lawyers.

This isn't a popular topic. I've seen plenty of negative comment about the recent article in the Economist on legal services ("A less gilded future" http://econ.st/lMdImV). I have reservations about the article too, but not because of the line which offended many "Ultimately, lawyering is becoming more of a business than a profession. Some lawyers decry this. Others welcome it. Few deny it." My issue with the article is that it deals badly with the second of two topics. After a lengthy discussion of fragility of the law firm business model and the cost of legal services, the final few paragraphs turn to creating business awareness in young lawyers, a topic which might have made for an interesting article in its own right, but is treated glibly. It's not often you get the feeling that Economist journalists have been told "I need another 250 words to pad this out", but I ran a word count on the offending final paragraphs. Exactly 250. That's suspicious.


Nevertheless, when a magazine aimed at around 1.5 million generalist readers, many of whom run the companies that pay the bills of big law firms, carries a prominent article about the cost of legal services and the law firm business model, anyone selling legal services to corporate clients ought to pay attention.


Lawyers in private practice like to say that there's a great deal of competition in the legal services market, but I struggle to agree. If you went into John Lewis and every television was identical and all of them were priced between £299 and £399, you'd hardly call that choice. That's the way the market for legal services looks to many clients. Hundreds of offerings, all at around the same quality at around the same price. 


Real choice might, to illustrate the point, be a law firm starting a "Value" range involving a no-frills service. I like to imagine how the marketing would go. "We take all our most ordinary associates and partners and offer them to you at half price. They're not the brightest crayons in the box but they're presentable enough. Perfect for that routine job you're not that fussed about". Or perhaps: "Buy one job from our Value team and get one for free" (the famous BOGOF). I would suggest "Buy now, pay nothing until next year" but, given the chaos in some law firms when it comes to DSO, that suggestion is hardly necessary. At the most extreme end, a firm recently sent me bills for work commissioned by my predecessor, completed three years ago. Needless to say, I declined to pay.


I'm not quite saying law firm pricing is like a cartel, but it strays in that direction. Nobody makes any significant move to break ranks and offer something genuinely new. There's also no ratchet downwards on fees. On the contrary, competitive PEP tables and events like the Howrey's collapse mean there are plenty of ratchets upwards on fees. Rather than whine about this, I think in-house counsel have a responsibility to start to find new ways to buy services. Law firms should be entitled to make a profit, but their clients are entitled to know they're managing their cost base properly. That means providing some tolerable pressure through more transparent pricing mechanisms.


I'm aware that some large companies and banks are already using online procurement tools to gain more meaningful price comparisons from the law firms that they use. But for smaller legal teams (my own is around 35 people), it's not likely to be cost effective to set up your own system from scratch. However, we recently tried a new tool called ProcureLaw (http://www.procurelaw.com). There's a video interview of me on their website explaining our initial experiences of the system, but I'll cover some key points here.


The concept of this kind of tool is very simple. A client asks its panel of firms to sign on to the system, which is hosted on the web. The client then issues an RFP, together with the criteria upon which it intends to choose a successful bidder. The firms ask any questions and then submit their responses. The tool doesn't allow any marketing wrapper to be placed around the responses, so the client can very easily make a like for like comparison. It's simple and quick for the client and I am sure the responses, whilst requiring some time to complete, are much less onerous for law firms than a full pitch at a beauty parade or in response to a panel review.


In our first trial of the tool, we published an RFP for an overhaul of our standard employment agreements in 15 countries. We had more than 30 responses, of which around 10 were comparable bids for the entire job (some firms only offered one country). We didn't chose the winner only on price, but I can tell you that the price we're being charged is four times lower than the most expensive quote and that the most expensive quote was from a law firm comparable in many ways to the winner. I could say there was a 400% difference, but I'm always suspicious of percentages. After all, "Jesus was betrayed by 8% of his disciples" is an accurate but fairly useless statement.


We selected a law firm we like and we're confident they will do a quality job. We are also confident we got a decent price. Not all legal work is susceptible to this kind of treatment, but some is. As for the price differential, this is like BP selling diesel for £1.30 per litre and Esso charging £5.20 over the road. It makes me wonder if law firms have any idea how to price their services accurately.

Wednesday, 25 May 2011

Free speech, football & how companies think

Time for a quick mid-week post.

In the past few days, Twitter has been on fire in the UK with questions about privacy, footballers and court injunctions. The Tweeps I follow are 
mostly lawyers in the UK and the US. This group of people has a particular angle on the current debate. Wherever they stand on the individual case in hand, most are horrified by the damage that's being done to the rule of law. So am I.

Just to get it out of the way, on the narrow case, 
I'm in the camp that declines to name the person in question for so long as the court order is in force. At the same time, I have a great deal of sympathy with those who think the judges in England are a long way past what Parliament envisaged when it enacted a right to privacy. I'm extremely uneasy about sacrificing the privacy of thousands of people on Twitter by revealing their identities to the well paid lawyers for a wealthy adulterer.

But nobody with any sense is reading this blog for my views on free speech, because there are hundreds of people better informed and better placed to comment. Nor should they be reading this blog for my views on football. I throw the sports section of the weekend papers away, unread.

If you're reading this blog, it should be because you're interested in the viewpoint of a decent sized company's General Counsel. Right now, in 2011, the really serious hard-headed pragmatists of the GC community are not much present on Twitter or on the blogosphere. There are lots of different types of lawyers and I don't have any views on the merits of any particular group. The relatively small tribe I belong to spends its time making very brutally realistic decisions about money (which we count in dollars), defending companies in front of regulators, hiring and firing people, counting all kinds of cost.

The aspect of the debate I feel qualified to comment on is "What will Twitter do?" I think it's worth providing some guidance on how (large) companies think in situations like this. Here are a few anchor points:

1. Companies want to be seen to obey the law. No company wants to be above the law and they will go to great lengths to stress this. They will try to obey the rules that apply to them.

2. Companies will avoid forming moral or social judgements about their customers. They don't want to pass judgement on the the class, race, nationality or views of their customers. They want to understand them, influence them, but not judge them.

3. Companies want to stay focused on the narrow goals in front of them. They don't want to be distracted into questions about conflicts of laws, who's right, whether democracy is best etc.

4. Companies take very seriously their responsibility to provide prosperity to their employees and their shareholders. Senior managers know their decisions affect thousands of people's livelihoods.

What does this mean for Twitter? Rule 1 means they will stress the need for everyone to be responsible and obey the law. Rule 3 says they will do precisely nothing about complying with English court judgements any more than they will Iranian ones. Rule 2 says they will on no account delete the accounts of the Tweeps who flout English court orders. Rule 4 says they will do nothing which damages their brand and allows someone else to replace them.

If you're a lawyer working in the field of free speech or privacy, don't for a moment believe that Twitter is bothered about such topics except insofar as they relate to Rules 4 and 1. If you want the attention of their legal department, go to the courts in California. If you plan to try to infringe Rule 4 and damage their commercial offering, for example by introducing a system to pre-approve tweets as a PR wrote in today's Guardian, expect a fight to the death.

Earlier today, when a European Twitter manager contradicted Rule 2 and passed judgement on the Tweeps, it was less than an hour before he issued a "clarification".

If you wanted a football analogy, large companies are like the German national side. It may not be pretty, but it's all about getting the result.

----------------------------------------------------
The day after this post was published, Legal Week ran the following: Twitter general counsel defends company's stance on fighting for its users' rights and hits back at BBC http://bit.ly/jswp1i

Thursday, 19 May 2011

Law, Business, Sex and Cookery

Right. This one is going to be a little different, more of a polemic. 

Before we get to talking about sex and cookery, let's discuss elitism and intellectual snobbery. Many of those reading this post are lawyers, and, judging by a continuing theme on twitter and in blogs, there are a good number of lawyers who believe that the law is an Olympian construct of the intellect, a triumph of ideas, far above the grubby world of business. This notwithstanding that many of history's eminent lawyers, starting with Cicero, were men on the make. 


I'm a big believer in the rule of law. 
But everyone has somebody who looks down at them. I did my undergraduate degree in the physical sciences, trying (only partly successfully) to get to grips with courses like Quantum Mechanics. My tutor was a genius. I got a decent degree but, at the end of the 4th year, my tutor's career advice was "be a lawyer". You could roughly translate that comment as "You're something of an intellectual dilettante. Some of your thinking is basically sound. You seem to enjoy an argument. You're very average at science. Why not leave it behind and go and hang out with the crowd doing law". 

I suppose my tutor would have approved of the route taken by Ludwig Wittgenstein, who studied aeronautical engineering before going off to dabble in philosophy. This is the school that believes that, if you want to spend your time debating the nature of language, it's best to train your mind first by getting to grips with something important, like fluid dynamics and the design of wings. Next time you want to know what's more important, the Tractatus or fluid dynamics, try looking out of the window on Easyjet on your way to Tuscany or Provence or wherever lawyers are supposed to spend their holidays. The thing that's keeping you and your fellow holiday makers up in the air isn't "Wovon man nicht sprechen kann, darüber muß man schweigen." I never understood why people thought that comment was so clever anyway.  


Many lawyers seem to take the same approximate approach to the teaching and practice of business as my former tutor in physics did to the teaching and practice of law. It's all relative (ho, ho, wouldn't Einstein be proud). As Ben Hoff tweeted, ironically, to me yesterday "Law and Business just don't mix. Everyone knows that". 


But people who really think that are missing the point. Even if law is something that physicists look down on, it is a construct of the intellect. I don't think business is the same category of thing at all. Business is like cooking or sex. It's a human appetite, some kind of atavistic drive that everyone has and everyone does, to a greater or lesser degree. Swapping and hoarding things is something the very youngest children do. You don't have to teach people to be businesslike, any more than you have to teach them to eat. They do it quite instinctively. They start doing it at birth and do it throughout their life, weighing the value of things around them and competing in almost everything they do. Human nature impels people towards being naturally businesslike.


Let's have a closer look at cooking (easier than a closer look at sex). I hope nobody reading this would dispute that the quality of cookery spans a huge spectrum from, say, beans on toast at some god-forsaken motorway service station to haute-cuisine at a great restaurant. They may grumble about the number of TV chefs, but nobody in the law faculty at a university takes the time and trouble to criticize people who teach and practice cookery as less worthwhile than teaching or practising law. Why would they? It's a different category of thing. People who spend their days debating the meaning of justice are perfectly capable of heading to the market to select ingredients before going home to make a killer soufflé


Some people care passionately about food, some less so. Some people are naturally good at cooking, some are not. But everyone can improve and, in the hands of some, cooking reaches the level of an art. 
The French shudder when they think of the approach of the British to cookery (although they're as out of date as those Brits who think the French wear berets). Jacques Chirac famously said about the Brits "You cannot trust people whose cuisine is so bad". 

The same holds for business. Some lawyers shudder at any attempt to encourage law students or practitioners to be better at business. But why? You don't need to forswear business in order to maintain your intellectual purity as a lawyer, any more than you need to 
take a vow of chastity. Being a lawyer is not the same as being a monk.

Being told "you're bad at business" is like being told "you're bad in bed". I have only one message for lawyers. Don't stand for this drivel. If you like cookery, cook. If you enjoy business, then throw yourself into it
. You may have natural aptitude, you may not. If you're prepared to learn from others who know more than you do, you'll improve. If you get really good, you might even make it into an art.

Sunday, 8 May 2011

Toyota's production system - even the doctors are using it

Having tried more than once, I can attest that it's difficult to persuade smart professionals, like lawyers, that they have something to learn from the production systems that companies such as Toyota have developed for manufacturing cars. After all, what could possibly be the connection between making cars and giving legal advice? 

A few of the people reading this post will be old enough to remember when cars were routinely unreliable, before the Japanese car industry's greatest gift to the world's motorists - reliability as standard. Nowadays, we take it for granted that our cars, whoever makes them, will start every morning and run without breaking down. But that wasn't always the case. The car industry is one of the biggest in the world and it succeeded in making a major transformation in quality. It's worth stopping to ask if there's anything we can learn.


You can read plenty of articles on the topic of "legal process engineering", but this post isn't about LPO or cost reduction. It's about something much more important than that. Instead, I want to ask what the mentality behind the Toyota Production System (TPS) could do to increase the quality of what we do as lawyers. 
Rather than dive into details about manufacturing, which will turn a lot of readers off, I think the best way to unlock this topic is by looking at healthcare. 

In 2005, Steven J Spears published an article in the Harvard Business Review entitled "Fixing Healthcare from the Inside, Today". You can find it at this link: http://bit.ly/miB9l7. HBR has a paywall, so it will be worth me summarizing the core idea:


"Every year, 98,000 people die in U.S. hospitals as a result of errors. And as many as 65 out of every 1,000 suffer injury or illness as a consequence of treatment. In the nation that leads the world in medical science, what explains these alarming statistics? It’s not that health care professionals lack intelligence, training, or compassion. Rather, operating under ambiguous, complex conditions, they work around problems to meet patients’ needs.


Problems’ root causes go unexamined. Result? The same problems crop up repeatedly—sometimes with tragic consequences. How can health care professionals radically improve patient care quality? Abandon work-arounds. Instead, apply the same operations-design principles that drive the renowned Toyota Production System (TPS): use small, rapid experiments to uncover and solve problems as they occur. Clarify who’s responsible for doing which procedures—and when and how. Foster a culture of continuous improvement by helping colleagues apply the experimental method to their own challenges. By improving their work while they’re actually doing it, health care practitioners can deliver extraordinary savings—in lives and dollars."


There are some really striking examples in this article. One of them concerns reducing infections when patients have a central line inserted. In several hospitals in Pittsburgh, doctors reduced deaths during a given period from these types of infections from 19 to 1. They achieved this by making small, almost trivial, improvements, such as replacing opaque wound dressings with transparent ones. The transparent dressing allows nurses to see at once if an infection is developing. 

Another example concerns moving the gloves inside the sterile surgery kit from the middle to the top of the pile intended for the doctor to use during a surgical procedure. Previously, after scrubbing up, the doctor would have to touch several items in the pile in order to remove and put on the sterile gloves. After the change, the gloves were always on the top of the pile, so the doctor could put them on before touching any other items.


These tiny changes saved people's lives. If they were made widely, thousands of people who currently die during treatment would live. Frightening, isn't it. Every single one of us has a vested interest in making sure this happens. Many people go through their lives without needing legal services, but the healthcare system has a near 100% capture rate, because all of us get sick at some point and, sorry to put it so bluntly, we're all going to die. Let's just hope that isn't because of an avoidable infection in a hospital.


One of the important points that comes through in the Spears article is that doctors are smart people, who care about their patients and try hard to do their jobs well. That description would apply equally to many lawyers. One key 
insight from the TPS is that, instead of relying on smart people to work around problems, you should remove the problems by analyzing what causes them and fixing them by making changes in what's "normal". The only thing that matters is the quality of the output to the customer and you analyze everything accordingly.

I don't think it's a sensible use of space in this blog to go into a lot of detail of the methodologies used in the TPS. If you're interested to read more, I'd recommend John Shook's book about value stream maps: http://amzn.to/lfoCei. The principles are easy to understand and you can start "trystorming" almost at once. Embedding the mentality more deeply is where the challenge lies. 
I've personally used the methodologies from the TPS to improve the quality of legal services delivered by teams I've managed. I don't think it's a panacea, but it is a powerful tool for some kinds of problems.

If doctors can make these kinds of improvements in the delivery of professional services by applying this kind of thinking, surely there must be something there for lawyers? I believe there is and I think it's about something more fundamental than the cost of our services. It's about the quality of them.

---------------------------------
Since this was published, Simon Lewis posted such a useful comment, that I am adding it to the main text:

Anthony Kearns' compelling article "What Law Firms Can Learn from Airlines and Hospitals: Risky Business" The AmLaw Daily July 6 2010 also explore some of the issues raised here. It concludes that "the adoption of these principles presents significant challenges given the way lawyers are trained and law firms are structured and managed." (http://bit.ly/8YvTwB)


---------------------------------

Next time, I am going to turn to cost. I'll describe an online procurement process we recently used for a multi-jurisdiction project and ask how can we answer the challenge in this week's Economist magazine about reducing the cost of legal services. http://www.economist.com/node/18651114

Monday, 11 April 2011

Lessons from dog food - if you're not doing segmentation, you're not doing marketing

What does "marketing" mean? My guess is that you'd get a lot of different answers to that question. Marketing is something we think we understand from general knowledge and from being the target of so much of it in our daily lives. We hardly need to have it explained to us. How true is that?

Once, while working for a previous employer, I was asked to conclude a contract with Cranfield University, to enable 20 members of the Marketing department to attend a two week residential course on strategic marketing. Somehow, in return for my help, I managed to extract a promise that I could attend the course. 
I wouldn't pretend for a minute that a two week course taught me marketing, but it did teach me that marketing is a serious discipline which has become highly professionalized and that there is much more to it than we experience as consumers. 

A large proportion of the course I took at Cranfield was based on the work of Professor Malcolm McDonald. You can read about this more fully in his current book - http://amzn.to/ea0FKU. As he puts it, "the central idea of marketing is of a matching between a company's capabilities and the wants of customers in order to achieve the objectives of both parties". The marketing process is then described as (i) defining markets (ii) quantifying the needs of customer groups (segments) (iii) determining the value propositions to meet these needs ... etc


A key part of this process is what's called "segmentation", which means grouping together customers based on their needs. To be meaningful, a "segment" has to reflect a genuine set of needs of a particular group of customers. A classification that groups customers together in a way which is not grounded on their underlying needs may be a legitimate way of organizing them, but isn't a real segment.


That's a dry and technical explanation, so let's explore the idea through something more accessible. How about dog food. 


Some dog food is sold as being suitable for small dogs. You've probably seen the commercials on TV. But small dogs cannot be a real segment. Why not? Well there's a first level, obvious answer. Dogs aren't consumers and they don't have any money, so who cares? Let's ask the right question. Can the owners of small dogs be a real segment? It's tempting to think that they might be, but the answer is no. Unless size is a proxy for something else, why would the size of a dog drive the needs of its owners? 


Let's propose an alternative suggestion for some real segments. Some dogs are working dogs, either on a farm, as sniffer dogs, as guards or as guide dogs. The owners of these kinds of dogs have a similar set of needs - the dog has a purpose and they will buy accordingly. Some dogs are family pets. The dog is a companion for family members, again something which will determine how the owner buys. Some dogs are fashion accessories - bought by the likes of Paris Hilton and those who want to project the same image. Some dogs are substitute children, on whom the owners will lavish money. No doubt there are other segments and perhaps each of the ones I've listed can be further sub-divided.


If you don't believe there's something to this set of proposed segments, ask yourself if a farmer in the Welsh hills would buy their sheep dog a Swarovski studded coat. I doubt it, but certainly there is a market for luxury coats for dogs. You just need to aim them at the right segment.


Whatever the product or service it is that an identified segment needs, you position and price the product or service accordingly. At this point, it's important to note that there are times when the price needs to be high or the product won't sell.  If you take your partner for a special celebration meal at a fancy restaurant, you don't want the waiter saying "I can cut you a great deal on the special". It's going to spoil the moment. I've heard the head of marketing at Prada explaining on TV that certain handbags won't sell if they are priced at less than $1,000. Some items need to be expensive to be worth having.


So, how does all this apply to lawyers? 
In an immortal quote, Neil Rose (@legalfutures) puts it like this: "solicitors are to marketing what Julian Clary is to cage fighting" (see http://bit.ly/fQ04oY). That may be a little strong, but it is certainly memorable. 

Law firms vary greatly in the sophistication of their approach to marketing, but nobody could describe the sector as marketing-led.
I think a lot of firms make the same kind of mistake as the sellers of the dog food for small dogs. They don't base their marketing on real segments.

As someone who spends large seven figure sums on legal services, I'm the target of a lot of marketing from law firms. Perhaps I'm in the segment of dog owners that wants a faux diamond coat in electric pink. Or perhaps I want an excellent whistle that can be heard across the valley. Judging by the rather random nature of the marketing I'm subjected to, I can tell you with certainty that, when it comes to understanding which segments I'm in, not many people in law firms are trying to find out.


Surely it's time for lawyers to get serious about marketing and professionalize their approach.

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Next time, I'm going to argue that manufacturing cars has something to teach smart professionals like lawyers. The post will be called: "Toyota's manufacturing system. Even the doctors are using it".