The Evolving Role of Corporate Counsels - Essay Example

Introduction For as far back as one can go lawyers have acted as advisers to those engaged in business ventures. Whether in the early days of setting up a venture or at the maturity stage where competitors are doing all they can to take over in the marketplace, business people have had occasion to use the advise of lawyers. The relationship has always been an uneasy one, however, because even though lawyers have not been unknown to provide the kind of advice that can save many a businessperson from ruin, the high fees generally charged by lawyers can make having to consult them a not too pleasant activity. When business people have had definite need for the services of lawyers, traditionally they had to visit a lawyer, who may either be working solo or as part of a group of attorneys specializing in some area of the law. While this model of interaction between lawyers and business people continues to exist, it seems that there is a new dynamic happening in the world of business to which both those with an interest in the legal profession and business need to take note. This is the evolving role of lawyers as active members of management, and not just in the role of providing advice after strategy has been crafted, but rather as advisers who are intimately involved in strategic planning and for helping to position a business not only to avoid making costly mistakes but also to take advantage of any unique opportunities in its sphere of operations. The nature of this relationship is worthy of examination, however, because one of the hallmarks of the legal profession and its relationship with business is the belief that lawyers can give dispassionate advice. Statement of the problem The question of whether lawyers who are very much a part of the crafting of strategy can step back from that role in order to provide independent or objective advice is one of great importance. Rationale In the past, even companies that hired lawyers to work within the company kept the lawyers at arms length from the regular run of business. Even though the lawyers may have worked within a company their role was essentially as a separate group of advisers who had simply switched from serving many masters to serving a single one. In effect, problems that were presented for the consideration of lawyers would have felt somewhat removed from the attorney who would need require the officers of the company to explain exactly what they had been up to and what legal problems needed the attorney’s consideration. In recent years, however, rather than having to explain to in-house lawyers what problems the company might be facing, it is very likely that the lawyer would know exactly what is going on because he or she would have been attending all the strategy sessions of the company and be familiar with the details of what the company was doing and where it was headed. This would seem like a sensible idea because rather than having to explain matters to an in-house lawyer, which might mean even missing some critical details, the lawyers, who may have been in on the deals and strategies right from the beginning could provide just the advice the company needs when such advice is needed. More than just sitting in on meetings, however, in some companies the lawyers have actually taken on a strategic role, meaning that they are very much a part of the team that sets the direction and mission of the company, and decide on the alliances and strategies that would move the company forward toward its goals. There is a concern, however, that when lawyers have been a part of strategic planning from the beginning their involvement and their contribution may make it difficult for them to back off and provide dispassionate advice because it would seem as though they were criticizing themselves or give the impression that they did not have enough foresight. It is in the interest of companies, therefore, to consider this relationship carefully and to decide whether such an active participation of lawyers in strategy formulation can be a boon or a detriment. Literature Review In the Economist magazine article of March 20, 2004 entitled “Business: Where’s the Lawyer,” the point is made that it is ideal for every company to have its own in-house lawyer-statesman. Whereas some are only now beginning to pay attention to the role that lawyers can play in moving a company forward towards achieving its strategic goals, some companies have been doing just that for many years. General Electric, which is considered one of the best companies in the world, both while under the direction of Jack Welch and since Welch’s retirement, apparently benefited from the wisdom of an in-house lawyer whose influence reached deep into the Chief Executive’s office. But while the lawyer in question, Ben Heineman, spent almost 17 years in a position of incredible influence at General Electric, the Economist suggests that the ideal of the lawyer-statesman goes even further than that. As the article notes, “The ideal of the lawyer-statesman first emerged after second world war, along with the big modern corporation, Among his skills, the lawyer-statesman would supply practical wisdom, not just technical mastery; an understanding of long-term effects, not just how to achieve short-term advantage; and a deep concern (or, at least, the appearance of it) for the public interest as well as for the private good of his client” (Business: Where’s the lawyer?”. It is interesting that in those far away days, the lawyer did not necessarily have to be contracted to only one company but the role that those lawyers served involved more than just filling out forms or scrutinizing contracts. The Economist suggests that the decline in the reliance on companies on such lawyer-statesman stemmed in part from the increasing specialization in the law field, which made it difficult for lawyers to have the overarching knowledge and perspective necessary to fulfill the role of being involved in business strategy. In the wake of the Enron scandal and the passing of the Sarbanes-Oxley Act, there has probably never been a greater need for lawyers to be a part of a company if only to ensure that the company does not break any rules that might bring government regulators and prosecutors calling. The Economist also raises the very question that is the focus of this paper. As the article wonders, “Besides, especial with pressure growing from regulators for the general counsel to act as a sort of in-house cop, is it really possible to be both an independent counselor and a business partner, a lawyer and a member of the management team? Mr Heineman thinks it is not only possible, but essential. The general counsel should be involved in everything from creating a “culture of compliance and integrity” to engaging in public debate and fighting the current cynicism about business” (Business: Where’s the lawyer 90). Such active participation in a company by an in-house attorney raises a number of discomforting questions for Joseph Auerbach, who discusses the issue in the Harvard Business Review article “Can inside counsel wear two hats?” In this 2001 article, Auerbach first of all points out that while no one really knows how many in-house counsel there might be in America the number is substantial. That many of these lawyers may be involved in strategy is beyond question. As J.B. Fuqua, chairman and CEO of Fuqua Industries, Inc., told the American Bar Association corporate law section forum in April 1980, “The legal department in my company has a tremendous amount of influence on basic policy decisions.” And as Sidney Topol, chairman and president of Scientific-Atlanta, Inc., told the same forum: “We…bring our attorneys into our staff meetings, into our strategy meetings, and into our operating and financial meetings. Sometimes there are questions about why, but I think those questions are gone, because the law department had to understand the value system and the strategy of the company to be part of and participate in it. (Auerbach 80) Auerbach acknowledges that on the surface, it might seem the perfect fit, by having enthusiastic and articulate attorneys as part of the strategic planning group. It also seems economic to have lawyers involved in the development of the company since they do get involved anyway in seeing to matters relating to pricing, taxes, patents, securities regulation and the like. Auerbach believes, however, that it may be a mistake to have top management involve inside counsel in strategic planning “not if the company wants counsel to evaluate strategic plans objectively and, if necessary, tell senior executives that what they want to do is legally impermissible” (Auerbach 81). Auerbach takes this position because of his belief that lawyers need a certain remove from the decisions that they might be called upon to judge and to have them involved in taking those decisions in the first place removes any potential for complete objectivity should that become necessary at some point after the strategic plan has been formulated. In general, corporate strategy involves formulation and implementation. What Auerbach really questions is the in-house attorneys role in the formulation of strategy, not in implementation. This is because the formulation process, according to Auerbach, includes four aspects, namely: “market opportunity, corporate competence and resources, managers’ personal values and aspirations, and acknowledged obligations to segments of society other than shareholders. Strategy formulation requires participants to identify opportunities and threats in the corporation’s environment and to estimate risks and rewards in discernible alternatives; it requires appraisal of strengths and weaknesses and measurement of existing or available resources. The goal is to match opportunity and capability at an acceptable level of risk” (Auerbach 81). Following the development of a corporate plan it is essential that legal review be conducted on it. Generally, top executive would listen to counsel’s advice and make any changes necessary to the plan before implementation. Auerbach’s expresses his concern thus: “When corporate counsel participate in strategy formulation, this involves putting on a managerial hat that may be difficult to remove in the legal review stage. For when counsel has expressed satisfaction with the interim business decisions required at every step, he or she is, in fact, committed to defend the legal consequences of the plan. Objective examination is unlikely because it would require questioning the legal advice that counsel gave at key points in the planning process” (Auerbach 81). Another concern for Auerbach is that of accountability. The perception that lawyers are experts makes it very difficult for others to challenge them. Thus, “Those who wish to dispute ideas or actions find inside counsel, with their mystique, protected by an almost impenetrable shield. No effective mechanism – except retaining outside counsel at personal expense – exists for the disgruntled corporate officer who wants to challenge in-house counsel’s legal views” (Auerbach 82). The understanding that in-house lawyers have when they are involved in every phase of a business can come in handy when such details are necessary in challenging competitors or in mapping the strategic terrain for potential success. One such in-house lawyer who helped his company win big was Micheal L. Beatty, who was involved in Coastal Corporation challenge of its rival, Occidental Petroleum in a court of law. The award that Coastal obtained, more than $11 billion caught the attention of the media and the legal community because in-house counsel, in the minds of some, were more like second-class citizens, not those to be at the forefront of a major litigation. But as insiders at Coastal point out, “it entrusted the case to Mr Beatty because he was familiar with the complex regulatory web that governs the natural gas industry. Coastal’s president, James Paul, adds that many companies retain outside legal help for the wrong reason: “If something goes wrong, there’s somebody for them to blame” (Moffett 1). In the article “Put Your Corporate Counsel Where Your Business Is,” Keith D. Schulz supports the view that corporate lawyers can help prevent legal difficulties if they are allowed to participate more actively in the deliberations of the company rather than shunted to the sidelines. “Regular participation by attorneys in discussions and decision making at business units affected by regulatory considerations prevented some severe difficulties that could have developed had the attorneys not been involved” (Shulz 72). More than just helping companies keep up with compliance issues, it is suggested by Susan Samuelson, in her article entitled “The Entrepreneurial In-House Lawyer,” that lawyers could contribute to the growth of a company if they are given the proper position in the company in terms of involvement in planning. As Samuelson notes, “Many fast-growing firms in a rapidly changing business environment are benefiting from an entrepreneurial in-house lawyer. These lawyers act as strategists and counselors as well as managers of the company’s legal affairs. The entrepreneurial in-house lawyer performs 5 key functions: 1. business opportunity creator, 2. deal maker, 3. arbiter, 4. communicator, and 5. manager of the legal function, where the lawyer is concerned with both formulating legal strategy an supervising outside counsel…The executives also recommended that lawyers be involved as early as possible in all projects with legal implications. Two difficulties related to entrepreneurial in-house lawyers are…1. reporting relationships, and 2. performance evaluation” (Samuelson 59). Description of research paradigm/Justification Qualitative research has been advocated by such individuals as Peters and Waterman (1982) who believe that “the rationalist approach to management and analysis misses a great deal in understanding an organization” (pp. 29-30). Rather than focusing on numerical data, qualitative research involves the collection of rich information about a few people or organizations rather than collecting limited information about a large sample of individuals or organizations. Using qualitative research is likely to bring out views that may be lost when respondents are restricted to just ticking a few boxes based on the researcher’s perceptions of possible responses. On the other hand, much qualitative research is based on the belief that the people personally involved in a particular situation are best placed to analyze and describe it in their own words. They should be allowed to speak without the intermediary of the researcher – a sort of cinema verite or vox populi style of research” (Ticehurst & Veal 2000, p. 95). Among the benefits of using qualitative methods are the following: enabling the researcher to not only understand but also to explain the personal experiences of individuals involved in a situation or experience, the opportunity for the researcher to shape the research, the presentation of the information in narrative form rather than in a statistical form, thus making it interesting and accessible to those who are not interested in statistics. Furthermore, “qualitative researchers can use a combination of techniques or even invent methods to provide a broad understanding of a social situation; and qualitative methods tend to focus on human-interest issues that are meaningful to everyday managers” (Ticehurst & Veal 2000, p. 95). Methodology The method to be used for this research will involve sending a letter with a list of questions to the Chief Executive Officers of a random sample of companies from a list of companies known to make use of in-house counsel. Rather than sending a formal questionnaire this will be more of a checklist or a form of directed inquiry that invites responses within a particular framework, that is, in what respect in-house counsel are able to benefit the company through their participation in strategic planning, the specific areas for which in-house counsel are involved in the business, and information on any challenges that the company faces with regards to having legal counsel involved in the decision making process. Ethical issues/Limitations The lack of face-to-face contact with potential respondents could mean that opportunities for deeper probing into the issues at hand would be lost. After all, “the in-depth interviewer encourages the respondent to talk, asks supplementary questions and asks respondents to explain their answers. The in-depth interview is therefore less structured than a questionnaire-based interview” (Ticehurst & Veal 2000, p. 97). The approach to be used by this researcher might fall somewhere in between an in-depth interview and a survey that limits respondents to ticking particular boxes. Explanation of how data would be analyzed Summaries of the information gathered from respondents will be transferred to A4 sheets (one for each respondent); this will provide ample space for highlighting, using different coloured highlighters. Once appropriate categories are established the information will be retyped according to the categories identified. Since this will be a qualitative study the researcher would not have predefined categories or responses but would leave such categories to emerge out of the data. Conclusion The results can help companies that have not yet made the decision as to whether to actively engage attorneys in strategic planning to better evaluate whether they should take that step or not. It may also be that even though there are potential costs to having attorneys so intimately involved in planning, that the benefits outweigh any such problems. In other words, it is possible for attorneys to make errors of judgment some of the time because of their lack of objectivity stemming from their having been involved in the planning process. On the other hand, it could be that such participation and the lack of objectivity, notwithstanding the benefits that companies reap from such participation by attorneys make any drawbacks unworthy of serious consideration. Whatever the case might be it would be important for companies considering such moves to do so with a clear view of what the advantages and disadvantages are rather than deciding to involves attorneys in strategic planning, and crossing their fingers, hoping for the best. Bibliography “A New Corporate Powerhouse: The Legal Department.” Business Week, Issue 2837 (Apr 9, 1984):66. 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Samuelson, Susan. “The Entrepreneurial In-House Lawyer.” Sloan Management Review, Vol. 28 Issue 2 (Winter 1987):59. Shane, Alan R. “Making the Argument for Corporate Counsel.” The Bankers Magazine, Vol. 172 Issue 3 (May/Jun 1989):50. Ticehurst, G.W. & Veal, A.J. Business Research Methods: a managerial approach, NSW, Australia, Pearson: 2000. Vagts, Detlev F. “CEOs and their Lawyers: Tension Strains the Link.” Harvard Business Review, Vol. 59 Issue 2 (Mar/Apr 1981):6. Vosper, Robert. “The Playmaker.” Corporate Legal Times (August 2005):50-62. Read More