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By Tom Cushing

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About this blog: The Raucous Caucus shares the southpaw perspectives of this Boomer on the state of the nation, the world, and, sometimes, other stuff. I enjoy crafting it to keep current, and occasionally to rant on some issue I care about deeply...  (More)

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In-house Doghouse

Uploaded: May 27, 2014
Media depictions of attorneys tend to focus on slick trial lawyers, whose tailored suits can barely disguise their prominent dorsal fins. Plaintiff-side litigators, in particular, are said to fit that mold. So unpopular is that mental imagery that those barristers also serve as the whipping boys of political hacks for sins as diverse as the loss of American competitiveness and doctors departing their chosen profession.

This will not be a rant against such miss-characterizations – the comments last time alone exceeded my abuse editing quota for the month. And although every trade has its caricatures – the imperious doc, the nerdly accountant – there's a reason that lawyer jokes outnumber all others not denominated by hair-color (don't even ask about the rooster).

No, this blog will be about a much less celebrated role: the corporate in-house counsel – all 100,000 of them. For good or ill, these attorneys can exert -- or abdicate – tremendous influence over lives and finances, out of all proportion to their numbers. They have made news of late, by their actions -- or apparent inaction.

There are several good reasons for company lawyers. They are a relatively cheap source of expertise and labor on routine needs of the enterprise. Contracts, licenses, regular employment or tax advice, and claims handling can all flow through "Legal" to efficient effect. Outside or local counsel can be brought-in for spot needs or far-flung trials. I recall a matter in Bexar County, TX, which, like a good non-native son, I'd have pronounced "BECK-sahr." The jury might not have been impressed, since the locals called it "Bahr" County (strikes 1 and 2 – a mispronunciation, by a yankee).

More importantly, impact-wise, in-house counsel also provide preventive advice that can keep a company out of trouble it might not otherwise anticipate. Prevention reduces the risk associated with doing business. Although not always welcomed, such assistance sometimes extends beyond the strictly legalistic. The company that sells 'house wrap' to reduce air flow-through, for example, once wanted to trademark the name 'Comforsure' for it -- until its lawyer suggested that the wrapping might be confused for, ahem, a marital aid (I am not making that up).

A third crucial purpose involves the management of data risk. Companies generate massive amounts of information, much of it internal, and some of it unfortunately phrased when read for public consumption – as to a jury. Imagine their reaction to the term "crispy-critter," used as a verb, regarding the expected outcomes of vehicle explosions. Or consider the cynical math of a young engineer in the 1970s, who proudly advocated against fuel tank redesign as uneconomic when compared to the likely outcomes of product liability lawsuits. Thus, lawyers establish document management policies, police them against inevitable packrattage, and grudgingly produce them in response to claims by plaintiffs or government agents.

The normally defense-based data management function can also turn offensive, so to speak. Because attorney-client communications may be privileged against lawsuit disclosure, and attorney work-product is similarly not "discoverable" by the opposition, companies have been known to channel sensitive documents through their lawyers to be able to argue against their production in litigation. So proficient were Big Tobacco's in-house lawyers at this task that it took a paralegal's theft of internal evidence and the subsequent publication of it on the web to crumble the industry's wall of lies against liability for their legal poison.

Prevention and data management are tremendously valuable functions, done right. The cost of those functions done wrong, however, has been in the news of-late. The semi-final settlement tally in the class action "anti-poaching" conspiracy case against some of Silicon Valley's best-bred companies was fully $364 Million (one of the named plaintiffs has challenged that outcome as chump change to the wrongdoing titans of tech, so it may not be final – it IS much less than the $9B in (trebled) damages sought in the Complaint).

It will make interesting reading if/as/when the in-house lawyers' role in the this debacle is ever revealed. The new economy corporate model sometimes slots the head lawyer in under a VP, as of finance or business development. It may be that those General Counsels simply lacked access and influence to the CEO level where the plots were hatched "among friends" like Steve and Eric and Meg. The chief legal officer really needs to report directly to the CEO, and be a trusted guardian of the shareholders' legal interests.

Remarkably, however, those companies may have gotten-off easy. That settlement is, after all, only about $7,000/class member. It seems likely that the leveling effect of the conspiracy on tech wages was at least that much. If that's true, however, the outcome can better be attributed to their outside litigation lawyers' skills than to the insiders.

I do know that the high risk and likely illegality of those actions should have been clear to anyone who holds a nodding familiarity with competition law. I also know that there is rarely only one way to achieve a business goal (which is a good way to gauge the quality of your lawyers), and they vary by risk. I'm confident that better, lower risk options were available to limit those wage costs – without paying-out that kingly ransom.

Even worse, General Motors' in-house staff is under the gun for its role in suppressing product defect evidence. Here, we're not just talking about financial losses; these had numerous fatal effects. The company has hired august outside counsel to conduct an "unvarnished" investigation into how it could have obstructed the reporting of defect evidence that could have led to earlier recalls – and fewer fatalities.

Varnished or not, early returns on those gold-plated (at up to $900/hour – query: if you're going to charge that much, why not round-up to an even $1,000?) inquiries suggest that the legal staff will take the fall. A term – "silos" -- has been coined and spun to describe structural flaws that kept damaging information from relevant personnel. That organization chart will change. I'm guessing that the GC will be "retired," as well, and that a new head lawyer with relatively impeccable credentials will be brought in to "clean house."

That new gal or guy will have a big job. Remember the old saw about crises -- that when you're up to your, uh, waist in alligators, it's hard to remember that your goal was to drain the swamp? GM may have actually stocked its legal department with such reptiles.

As Erik Gordon, a professor at the Ross School of Business at the University of Michigan observed: "It could be the case that the [lawyers were hired because they're alligators, because the prior CEO said, 'Fill the swamp with alligators,' and they did. If that's the case, then you have to get rid of a lot of them because alligators bite."

Sharks? ... or 'gators? The in-house bar in general could use an image makeover of its own, and a new mascot, too. Howsabout Watch Dogs?

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