How A Law Department Becomes A Profit Center

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Published on 1/31/10

Law firm partners and corporate general counsel are all lawyers, but they practice law in very different worlds.

Whether the issue is hourly rates, cost-cutting, governance or other measures, corporate culture is focused on organizational performance and values. In many ways, GCs today are well positioned to make organizational performance contributions. They have a much larger budget for legal fees than ever before and increasingly are using it to "purchase" legal talent at wholesale (as an employee of the legal department) rather than retail (law firm associate or partner).

In many cases, GCs are increasing the internal emphasis on their legal departments as one way to control legal costs and impact organizational profitability. That gives them a greater degree of respect within their own organizations for cost decisions.

Such increased clout is the focus of a new report by The Forbes Institute on how a law department can make money for its company by proactively seeking out ways to provide services to the company's customers.

Two effective strategies for doing so are the emphasizing of assertion of rights (warranties and other claims) and preventing of wrongs (preventive law) as ways to protect clients.

In the assertion mode, the customer must be willing to engage the lawyer/in-house counsel to be alert to those opportunities. In the prevention mode, the client must likewise be willing to engage the lawyer to demonstrate the structuring or negotiating of customer relationships in ways that eliminate or minimize potential problems.

In both cases, customers must be willing to include the in-house lawyer in their business process. And, of course, the in-house lawyer must observe all the ethical requirements of the attorney-client relationship in any work done.

To me, the concept of a lawyer acting as a business person is fascinating. In my experience, if 1 percent of GCs in the world can fit this bill, it would be a percentage higher than I would expect, particularly because the concept of preventive law is a difficult one to "sell," despite the great need for it.

It would work best for the GC to persuade management that the lawyer is an essential part of the recovery process when the law department can claim credit for the flow of recovery money into the company.

Also, this scenario is rife with potential internal conflict. The CEO and CFO might like it, but many division leaders would not appreciate it if the attorneys assigned to them were not available because they were pursuing business with customers.

On the other hand, providing preventive law practices, such as suggesting to corporate leaders what they might do to reduce risk, is a role that the in-house lawyer with a progressive attitude is very qualified to assume. And to take the corporate savings/revenue enhancement right to the bottom line benefits everyone — except the company's outside law firms.

GCs have made it clear that they want more professionalism about fees, better communication between themselves and their firms, and less emphasis on increased profits per partner.

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