Legal Profession Blog

Association of Media & Entertainment Counsel (AMEC) Honors Law Professor

And the only law professor to be so honored is . . . our colleague Nancy Rapoport.  (She of UNLV law school, Enron movie IMDB, and competitive ballroom dancing infamy.)  The Association of Media and Entertainment Counsel, which recognizes the achievements of in-house legal counsel in the entertainment industry, has nominated its 2008 Counsel of the Year awards.  Full list of nominees here.  You have to like that one of the categories is Dealmaker of the Year.  (Last year's winner was not the man who put together all the financing and talent pawns to resurrect Knight Rider, TV's only show this year where the pilot already jumped the shark.)  In the category of Public Service, the nominees are Nancy and Prof. David Sherwyn of Cornell's Hospitality School.  Congratulations to both, and let's hope that this category is not one of the awards they give off-camera at some half-filled hotel ballroom a week before they dole out the jazzy awards and inappropriate political speeches.  Though if so, she's one of the few who could use the ballroom for its intended purpose.  [Alan Childress]

Follow Up to Career Advice - In-House Prospects

Orin Kerr graciously linked from the Volokh Conspiracy over here to the litigation versus corporate career post.  I want to return the favor by linking back to a set of comments being posted over there.  The same over at Above the Law.  There are a number of thoughtful comments out there. 

One of the themes being discussed is whether it's easier to move in-house if you've been a transactional lawyer or a litigator in-house.  I don't have any idea what the data is on this, but my philosophy as a general counsel, unless I was hiring for a specific specialty, like a litigation supervisor, an HR lawyer, or a patent lawyer, was to look for the best available athlete, and I had a track record of hiring both transactional and litigation lawyers to be divisional or business group GCs.

Many leading GCs are or were former litigators, including Jeff Kindler, first at McDonald's and then Pfizer (and now CEO of Pfizer), Peter Kreindler at Honeywell, Don Kempf at Morgan Stanley, Paul McGrath at FMC Corp. and then American Standard, and the list could go on and on.  John Donofrio, the GC at Visteon, and Bob Armitage, the GC at Eli Lilly, are patent lawyers by background.

I think many of the comments reflect something I suggested before, which is how hard it is at the bottom of the heap to experience what it's like to be a senior lawyer in either specialty.  For example, the communication skills you learn as a litigator translate nicely into talking publicly to a board or in a negotiation.  A congenial personality works well in front of a jury as well as in a boardroom (the six or twelve lay people in either environment tend not to like assholes any more than anybody else).  One of my mentors at Dykema, now retired, Don Young (Harvard '63 I think) had a fearsome reputation both internally and externally (as a summer associate I drew a cartoon of an associate who looked like he had just put his finger in an electric socket; the caption had him saying to another lawyer, "Don Young just reviewed my research memo"), but in front of a jury he was the embodiment of Mr. Charm.  Fortunately, despite the fearsome reputation, he also had a sense of humor and an appreciation for chutzpah in young lawyers, much less summer associates who had yet to get an offer!

[Jeff Lipshaw]

In-House Counsel Rule

The Massachusetts Supreme Judicial Court has adopted a new provision, effective June 1, that allows for in-house counsel to represent a single organizational client in Massachusetts without admission to the Massachusetts bar. Attorneys who wish to practice pursuant to the rule must be in good standing in a jurisdiction and file an annual registration statement. (Mike Frisch)

Michael Clayton Finds His Ethics, as General Counsel Loses Hers

Posted by Alan Childress
After re-watching Michael Clayton yesterday, I realized that one could read its ethical barometer as saying that the outside Biglaw firm lawyers just want to do good, if only if it were not for the evil though angst-ridden General Counsel.  I promised Jeff Lipshaw today that I would note here that there are some remarkable similarities between the movie and Jeff's pre-professor career (with no parallels between his looks and Clooney's, or for that matter Tilda Swinton's).  He was, inter alia, General Counsel and VP at Great Lakes Chemical Company, which has a name as generic (and thus fake-sounding per Hollywood) as does U/North Agricultural.  He insists, and I tend to believe him, that he never hired a hitman (or even the politically correct hitperson) to knock off a senior partner of an outside-counsel NYC law firm.

Good to know.

Update:  Here is Columbia's Michael Dorf on the movie, also posted this weekend.  Dorf says the movie is 'unfair to lawyers' in part because the ethical dilemma that the senior partner had is a false one, readily resolved under current ethics and discovery rules.  There is a nice exchange in the comments.

Harvard Law Center on Profession Has Talk 2/4 On Being a Corporate Lawyer

Posted by Alan Childress
Right up Jeff's alley (not just figuratively but literally) is this talk from the Program on the Legal Profession at Harvard, Feb. 4, 2008:

Presentations

On Being a Corporate Lawyer A talk by John Coates PLP faculty memeber John Coates will deliver a lecture on the occasion of his appointment as the John F. Cogan Jr. Professor of Law and Economics. Monday, February 4, 2008 Harvard Law School The Caspersen Room 4:00 p.m. Reception immediately following, all are welcome.

Video Of Corporate Counsel Symposium

The Georgetown Journal of Legal Ethics and Center for the Study of the Legal Profession held a symposium last week on Corporate Compliance: The Role of Company Counsel. The symposium brought together both in-house and outside counsel in panel discussion of papers that are being prepared and were discussed by Professors  Sarah Duggin (Catholic), Sung Hui Kim (Southwestern) and Tanina Rostain (New York Law). The link here will provide access to the video of the symposium. (Mike Frisch)

Soft Drink Lawyers and Leadership

Posted by Jeff Lipshaw

I am reminded every day by the bumper sticker on a car parked along our street (between our house and the T station in Porter Square) that my new governor is Deval Patrick (left), the former general counsel of The Coca-Cola Company.  So I was impressed when I heard the other day that one of the possible replacements for Alberto Gonzales was Larry D. Thompson (right), currently the general counsel of Pepsico, Inc.

Both, I suspect, have impressive bona fides.  And there are plenty of other companies with minority GCs (DuPont and Deere, just to name two) so that can't be it.  (Note to self:  would I ask that question if they were both Jewish or both women?  Something to think about.)  One is a Democrat; one is a Republican, so that's not it.  I would not have thought that the food, drink, and entertainment industries had particular need for "political" lawyers (versus, say, a defense contractor).  Is this just a funny coincidence?  Or does the road to political power go through the cola wars?

The GC's Client from Hell

Posted by Jeff Lipshaw (cross-posted at PrawfsBlawg)

Yesterday I offered up some views on the Whole Foods/Wild Oats merger, particularly the Whole Foods CEO's ill-advised e-mails to board members.  It turns out the hypothetical conversation I posited would never have occurred.  It has now come to light that this guy is the client from hell.

Now I should note that I love Whole Foods.  I would have to, to pay the premium one pays there, particularly when the low fat ice cream selection stinks as badly as it does.  And I should also say that a general counsel calling his or her CEO a "client" is an undue formalism that would probably portend a disastrous relationship were the GC actually to see it merely as "lawyer-client" as opposed to "don-consigliori" or "friend-friend."  But I digress.

Oh my god.  He was on the freaking Yahoo chatboard.  Under a pseudonym it would take most of the  Yahoo chatboard psychos about ninety seconds to figure out.  (N.B.: the Yahoo chatboard is to publicly traded stocks what lawschooldiscussion.com is to law school admissions.) I once was the general counsel to a CEO with hyper-sensitivity to what was said on the board, and more than once I threw myself bodily across his computer keyboard to stop him from going online to respond to comments about him or the company.  Not only do you have the obvious securities disclosure issues; not only do you have the "gold medal in the Olympic ten meter stupid embarrassment" event; but you also have the issue whether the company has endorsed the chatboard as an authorized outlet for company discussion, thus, at least in theory, making the company liable for the various defamations of its executives and their families that occur on a daily basis.

Oy vey.

How to Practice Preventive Antitrust Law: Lessons from Whole Foods

Posted by Jeff Lipshaw (and cross-posted at PrawfsBlawg)

Gordon Smith has some commentary over at Conglomerate on the FTC's decision to challenge the Whole Foods-Wild Oats merger, and, trust me, the entire M&A antitrust bar has to be silently grinning with a soupcon of schadenfreude.   I should note this also raises the issue into which I waded several weeks ago at MoneyLaw and LPB - does the New York Times test mean don't write what you don't want published, or does it mean don't do what you don't want published.

The critical question is the definition of the relevant product market.  If it's all grocery stores and supermarkets, the deal goes through without much of a flurry.  But if the market is "organic and natural foods supermarkets and groceries" maybe it is concentrated enough to merit challenge under the FTC's Merger Guidelines.  The guidelines themselves (at least last time I looked) took a hypothetical market and tested whether a player could hold a non-transitory five percent price increase.  If it could not, then the market definition needed to be expanded.

I used to tell clients that their image of  FTC lawyers as impartial regulators interested in nothing more than truth and justice, but eager and ambitious litigator/prosecutors looking to put notches on their holsters.  These notches would lead to advancement in the agency or to lateral partnerships at Wall Street firms.  Some of my best friends advanced this way.   So that when you gilded the lily by overstating or misstating the reasons for an acquisition in some ill-chosen memorandum (usually written by the investment bankers), you were creating good old-fashioned understandable evidence. 

In this case, the Whole Foods CEO sent an e-mail to the board listing as the top two reasons for the acquisition: "Elimination of an acquisition opportunity for a conventional supermarket" and "Elimination of a rival."   Two reactions:  (1) Damn!  You can do all the training and prophylactic work you want with your business people, but CEOs still write these damn e-mails (which constitute 4(c) documents) without showing them to you, the general counsel; and (2) I could re-write the two reasons to say almost the same thing without the incendiary effect:  "Enhance our ability to compete against the more powerful and resource-laden supermarket chains who are bound, in view of the low barriers to entry, to provide the kinds of natural and organic products we do" and "Achieve cost, marketing, and sales synergies through rationalization of locations, more efficient advertising budgets, and other efficiency moves."

General Counseling 101:  If the CEO had sent the draft e-mail to me, we would have had the following conversation:

Lipshaw:  "The e-mail is fine if that's what you really mean, but I think you are using loose language and it comes out contrary to your intent."

CEO:  "Huh?"

Lipshaw:  "You have made it sound like you are trying to eliminate competition, when in fact you know that Kroger, Safeway, Meijer, and Winn-Dixie could crush us tomorrow in one fell swoop.  Marsh in Indianapolis is already taking share from us with their organic and natural section.  So "eliminating" Wild Oats wouldn't do a damn thing."

CEO:  "That's true."

Lipshaw:   "So why write it that way?  It's red meat to the FTC carnivore!  You don't need this puffing to persuade the board it's a good deal."

CEO:  "How would you do it?"

Lipshaw:  "Doesn't this sound more like why we are REALLY doing this deal?"  [Reads bullet points from above].

CEO:  "Yeah!  That's good.  Read again to me slowly so I can get it down."

Lipshaw:  "I will e-mail it to you.  And, by the way, thanks for originally sending me your draft labeled 'Subject to attorney-client privilege.  Review draft for legal review before distribution" just like I taught it to you."

CEO:  "Well, you've just earned your outrageous stock compensation for this year."

As I said, this story is the poster child for getting good legal counsel.

Generalists Versus Specialists

Posted by Jeff Lipshaw

I have recently been dipping my toe into an area that is new to me, and a colleague who I respect as much or more than anyone in the world offered the wise and well-meaning FWIW counsel that this may be something you don't want to try at home.  That may be par for the course in the funny hybrid that is legal academia, and a source of the prevalent (and by no means trivial) sense that "law and . . . " requires a deep level of expertise, if not an advanced degree, in the ". . ."  In this particular case, the warning was that the specialists in the particular field believed that attempts to generalize or analogize from the specialty were usually off-base, because you had to be a specialist truly to understand the point, and most non-specialists screwed it up. 

That is counsel worth taking to heart, but is it the end of the story?  It certainly bespeaks caution, and in my case it was a wake-up to respect the precision of the particular specialty.  But I started wondering about several things.

First, I drew on long practical experience to say "I have a natural distrust, born of many years of being a generalist dealing with specialists, of specialists telling me that only specialists can really understand the subject matter of the specialist, but being unable to tell me why because I'm not a specialist."  When you are the generalist sitting "atop" an acquisition, for example, it's often the case that you compromise the optimum position in a specialist's area, whether it is real estate, or environmental, or insurance.  But it's also possible really to hack up something if you don't understand it - I'm thinking in particular of transitional service agreements that are common when the buyer of a division needs the seller to provide a set of services to the business for a period after the closing.  I have seen instances where the generalists did not understand, for example, how the SAP contract allocates "seats", because of insufficient specialized knowledge, with the result that the buyer either ended up paying more to resolve the issue, or simply had no support service. 

Second, as to counseling businesses more generally, you can think of a Venn diagram with overlapping circles representing law and business, respectively.  My position was always that the lawyers were responsible for understanding the overlap and being able to explain it to the business people.  It didn't mean that a lawyer had to be an accountant or a manufacturing engineer, but it meant understanding enough of the cross-discipline to get the overlap right.  (Many litigators love being litigators because they have to become "experts" capable of communicating to fact-finders the essence of something as to which they are not experts over and over again.)

Third, I have written before on a Harvard Business Review article from the early 1990s by Womack and Jones, the authors of the classic industrial organization study The Machine that Changed the World, entitled The Myth of the Horizontal Organization.   As businesses within diversified corporations became more "empowered" and "decentralized" and "specialized," and the organization got "flatter," the question was who would be responsible for seeing the opportunities that lay between these specialties.  By and large, it couldn't be the specialists.

Fourth, there's no question that scientific theories take on an analogized popular meaning.  If you say something outside of quantum physics about the Heisenberg Uncertainty Principle, you are probably not talking about issues of particle momentum and position, but instead some kind of polarity in which being precise about one pole means that you cannot be precise about the other.  I don't know how nuclear physicists feel about that.  Do they just shake their heads and say - "what can you do?"  Relativity and Freudian psychology have produced similar effects.

But does that mean the analogies, or the popular sense of the scientific principle, are invalid?   Do you have to be an expert in both disciplines to be cross-disciplinary?  Am I wrong in saying the great 20th century philosophers of science were not scientists?  Do philosophers of science and scientists of philosophy (brain science?) have anything to say to each other?  Perhaps a dose of pragmatism is helpful here:  if the analogy is useful, regardless of its technical bona fides, then it is worth something.

The Apple GC, Speech Acts, and the Backdated Options

Posted by Jeff Lipshaw

There is a fascinating linguistic issue at work in the civil complaint just filed by the SEC against Nancy Heinen and Fred Anderson, the former general counsel and chief financial officer, respectively, of Apple, Inc. arising out of allegedly backdated options, which is a hot news story today.  I'm going to assume the allegations to be true for purposes of some observations as to what I would call standard practice, but not necessarily of legal liability.

1.  The hair on the back of my neck certainly went up when I read the allegations that Heinen had "altered company records" (Paragraph 1),  and "fabricated or falsified" company records, "including the creation of minutes for a non-existent Board of Directors meeting" (Paragraph 2).  So I flipped the pages looking for the particulars.

2.  The complaint is about two different grants.  The first was to the Apple Executive Team.  There is no question under these allegations that the selection of a January 17, 2001 date was backward-looking and designed to find a day that had a low closing price, but that would also fall on a day after some recent public announcements that might have raised an inside information issue.  But interestingly, on this one, I cannot find an allegation of a falsely dated document.  First, the complaint leaves out any allegation as to the dates on the actual grant document, simply referring to it as "option grant paperwork" that was undertaken in February.  Second, and more significantly, the complaint alleges that on February 1, 2001, "Heinen began the process of preparing false paperwork to submit to Apple's Board of Directors so that it could authorize the grant."  The very next allegation says that she directed the preparation of a "Unanimous Written Consent" with an effective date of January 17, 2001.  This is a little ambiguous, but it looks to me like the UWC was simply made "effective January 17, 2001."

That in itself, if I have the facts correct, is not a false statement.  The law has long recognized that you can do something "now for then" or nunc pro tunc.    Moreover, Section 141(f) of the Delaware GCL makes it clear that a unanimous consent is not the same thing as a meeting.  It is an action in lieu of the meeting.  And one can imagine benign circumstances in which the Board might well want its consent to have been effective retroactively.  Nothing in the Delaware GCL, as far as I can tell, bars that.  Certainly nothing in Section 141(f) does so.

The real problem here is the distinction between what Searles calls illocutionary and perlocutionary acts.   The statement of the effective date is an illocutionary act because it is asserting something to the listener.  Searle says:  "Correlated with the notion of illocutionary acts is the notion of the consequences or effects such acts have on the actions, thoughts, or beliefs, etc., of hearers."  So it is possible that an assertion, wholly true in itself, may have the effect by itself or in conjunction with other statement in particular circumstances, of meaning something else to the listener.   In other words, the speech act in context is perlocutionary. [See update below.]

At this moment, I'm agnostic (but leaning toward a view that there was deception) on the overall context.  But the mere creation of the UWC with an earlier effective date was not, in my view, irregular.

3.  But it does get worse.  The second grant was in October, 2001, and that is the one for Steve Jobs himself.  Here, Heinen created minutes of a Special Meeting of the Board as of an earlier date, where that meeting had not occurred.  That does raise the hair on the back of my neck.  I think I would have said, "I am not going to make up meetings of the Board of Directors of a public company that did not occur.  There is a device called the written consent that we use in lieu of a meeting when there was no meeting."  (I would also distinguish the following.  The discussion at a real meeting gets garbled.  I look around at the directors and say "I think you mean this for your action - I will straighten it out in the minutes."  There is no objection, and I do it.  I don't have a problem with that; minutes are not a transcript, they are minutes.) 

Now we are beyond a true illocutionary act that may be (intentionally or not) deceptive in its perlocutionary context.  The propositions within the illocutionary act are false.  There are references and predicates to things that did not occur.

It also looks like Heinen, without the consent of the Board, removed the reference in the minutes to discussion of option grants to Jobs at an earlier meeting.  This may be false in itself or false in the context; I can't tell from the complaint.

As with the Executive Team options, there is no allegation about the dating on the option grants themselves.  Obviously, there's an inference to be drawn if the option grant dates were accurate, but all the auditors got were either UWCs or meeting minutes suggesting that the option grants actually took place before they did.

So merely the UWC in itself wouldn't raise an issue for me.  But the use of the UWC in context with the auditors as a means of fudging the date of a grant, if as alleged, as well as the creation of minutes to a meeting that didn't occur, would bother the hell out of me as a lawyer and the certifying secretary.

UPDATE: One of Larry Solum's readers has rightly taken issue with my sloppy turn of phrase on perlocutionary acts.  She writes that I have misunderstood speech act theory regarding perlocutionary acts as follows:  "Assertions may of course elicit a range of perlocutionary effects, but the meaning of the assertion does not turn on these effects (an assertion that p that elicits fear in A does not mean something different vis-a-vis B, who reacts with joy). Nor can an assertion be understood "in context" as a perlocutionary act!"

Let me clarify.  The next sentence in Searle after the one quoted above is:  "For example, by arguing, I may persuade or convince someone, by warning him I may scare or alarm him, by making a request I may get him to do something, by informing him I may convince him (enlighten, edify, inspire him, get him to realize)."

My point was that the propositional act in the UWC was a referral to a board and an effective date and options and a predicate that they were approved.  The illocutionary act in the UWC is an assertion by someone in the company that options were approved effective January 17.  That meaning is what it is.  I think the perlocutionary act in this case is the convincing of an auditor by the making of the statement that the options were actually issued then.  Because that's how the listener hears the statement.  And then there is the second order question whether the speaker intended the deception.  But my point there was that there was nothing false in itself about the statement in the UWC.

I am thinking of the example of a trial lawyer who is cross-examining a witness about a letter the lawyer believes the witness sent but has not yet tracked down.  The lawyer picks up a sheet of paper that the witness cannot tell is blank and stares at it for several seconds.  "It's true, isn't it," says the lawyer, waving the paper, "that you sent a letter to Mrs. X on December 4."  There is no ambiguity whatsoever about the meaning of the assertion; the witness understands it just as the lawyer intended it to be understood.  The witness was prepared to lie in response, but thinks the blank piece of paper is the letter, and is frightened by the possibility of being impeached.  So she answers "yes, I did."  Isn't the frightening and/or deception of the witness by the assertion a perlocutionary act with a perlocutionary effect?  In later commentary, Searle refers to necessary "stage-setting" to be able to assess perlocutionary versus illocutionary acts, and it seems to me that has to be "context."  I think of the UWC in the same way.  There was no real issue as to either the clarity or the correctness of its propositional and illocutionary aspects.  But the way it was used induced a particular effect in the listeners.

I agree my original post was incorrect in stating "In other words, the speech act in context is perlocutionary" and in conflating the meaning of the assertion with the perlocutionary effect.  More precisely, the speech act is the speech act.  The perlocutionary act is the fact that by making the statement I may deceive the listener, and, indeed, the listener is deceived. 

The "Do We Need to Know..." Trilogy: Part 3 - The Skeptical Client

When I was the general counsel of a large publicly-held company, we had a chief executive officer, my primary advisee (not my primary client, mind you, that was the corporate entity), who I think truly believed that the law and lawyers were put in the world for no reason other than to place barriers or hurdles between where he was and where he wanted to be.  No surface answer was ever sufficient to satisfy him.  "Why can't we buy back stock now?"  "Why can't we sell stock in our public traded subsidiary?" "Why can't we sue X or Y for this?"  "Because that's the law" or "because I said so" was never enough.  And despite the fact that he wasn't a lawyer, his natural smarts and suspicious take on the whole game made the cross-examination as intense as any grilling to which a Kingsfield-like law professor could ever subject a student.

Before I would talk to him about a matter, particularly one as to which I knew he would not like my answer, I asked myself the question "what do I need to know?" and the answer was often that I needed to peel the artichoke all the way down to the heart.

[Jeff Lipshaw]

The NYT's Misapprehension of the Role of Law Firms in M&A Deals: Law Firms Don't Talk to Boards, Lawyers Do

Posted by Jeff Lipshaw

I was bemused by the shallow analysis in the "Dealbook" column by Andrew Ross Sorkin (right) in the New York Times business section this morning ("When Conflicts Arise, Lawyers May Be a Source").

It's not completely clear, but I think the point of this column is to suggest another reason why the well-publicized alleged conflicts of investment bankers firms (i.e. representing multiple parties; wanting M&A fees; simultaneously doing M&A work while doing "buy-hold-sell" analysis) should also be imputed to the Wall Street law firms with big M&A practices.

Here's Mr. Sorkin's hypothesis (I think).  A public company agrees to a private equity buyout arranged by an investment banker like Merrill Lynch or Citigroup.  The board meets over a period of time, in accord with its duties under Van Gorkom, Revlon, Unocal, and the myriad of Delaware cases that defines the board's obligation in connection with the sale of the company.  There are lengthy presentations by the company's management and the investment bankers.  The lawyers expound at length on the fiduciary obligations of the board, but it's all a show because they are going to say that it's okay to go forward with the deal.  Nobody on the company side, including the board members who continue to serve in the "post-Enron" "post-Sarbanes" environment, or the general counsel, really does any thinking at all, being content to be able to say that because they relied on the advice of their advisors, everything is copacetic.   And the lawyers from Wachtell, or Skadden, or Weil, or whomever, are saying go ahead because the big investment banking firms are their clients as well (in other transactions as to which there is no conflict under the PR rules, or as to which, by and large, there has been disclosure even if there is no technical conflict) and the investment banking firms want the lawyers to approve the deal.

Hooey.  I'm not saying that well-advised board can't make mistakes.  I also know almost nothing about the specifics of the Zell-Tribune deal that sparked the column.  I do know that one of the toughest calls for lawyers and boards is the issue of proving that the board maximized shareholder value in a Revlon situation (where the company is or will be in play) when the bid in front of you appears to be pre-emptive, and may even be conditioned on a "no-shop" agreement with some kind of fiduciary "out" if another bidder appears after announcement of the deal.  In the vernacular, you have a bird (and a quite tasty one, at that) in the hand, and sometimes the law looks like you have to let the bird go in order to prove that it's tasty (actually, the analogy at this point is backwards because you are letting the bird go to see if another bird thinks your hand is tasty, but what the hell, reporters don't need precision, so why should I?).

The one thing that I feel pretty sure about is that there wasn't a single mindless automaton sitting in the Tribune board meeting digesting all the information.  I know from my own experience as a public company general counsel that, in the midst of the consideration of a public company deal, I was on the phone almost endlessly, not with some noumenal entity like WeilSkaddenKirklandSidleyWachtell, but with a real human being with a name, whom, if I thought for one second had an interest other than complete, total, experienced, knowledgeable, nuanced, wise, loyal, cautious but realistic advice to the board (and the shareholders), I would have fired in a heartbeat.

As far as I can tell, there isn't a single fact cited in this column to suggest any GC would do otherwise.  Of course, no reporter has ever witnessed a vigorous board debate, so it can't have happened.

Nicholson on the Under-Representation of Women in Corporate GC Positions

Posted by Alan Childress

Lisa Nicholson (Louisville), right, has posted to SSRN her article, "Making In-Roads to Corporate General Counsel Positions: It's Only a Matter of Time?"  It is also on 65 Md. L. Rev. 625 (2006).  Here is the abstract:

There were 40,018 law graduates in the class of 2004, of which almost half were women. Many of these women, equipped with exceptional educational credentials, predictably have high hopes of ascending to the upper hierarchy of law practice. Unfortunately, their hopes of obtaining the fabled “corner office” may be dashed when they note who actually practices at the highest levels in those law firms and corporations. Indeed, by the end of 2004, women lawyers would only account for seventeen percent of law partners at the nation's major law firms and fourteen percent of the Fortune 500 general counsel.

This article focuses on the under-representation of women lawyers practicing in the upper levels of Fortune 500 corporations. Because law firm partners and senior associates are essential participants in any corporation's applicant pool for senior-level in-house positions, this article also addresses the promotional barriers encountered by women lawyers who practice at major law firms. To that end, Part I of this Article summarizes the reasons for the paucity of senior-level women lawyers at law firms and explains why corporations should be concerned. Part II proffers the beneficial impact of improving gender diversity throughout the upper ranks of corporate legal departments. In Part III, this article examines the assertion that in-house legal practice is better than law firm practice for women lawyers by questioning whether corporate legal departments do, in fact, provide better advancement opportunities, and work-life balance than law firms--particularly in light of the fact that those law firm pathologies have begun creeping in-house in recent years. Finally, Part IV provides solutions that may be implemented to address the limited gender diversity in the upper ranks of law practice at corporations.

ABA Ethics Opinion On Communicating With Inside Counsel to a Represented Corporation (It's OK), + More on Restrictive Covenants in Retirement Pacts

Posted by Alan Childress

This morning's ABA email newsletter YourABA, amid a flurry of articles [here in PDF] about the ABA's mid-year meeting in Miami, also links to summaries of two recent Ethics Opinions it has issued.  [The PDF above also includes this Eye on Ethics section.]  One opinion deals with the Model Rule 4.2 dilemma of prohibited communications with the opposing client where the lawyer wishes to communicate with in-house counsel to a corporation or organization that is otherwise represented by outside counsel.  The opinion, with related cautions about care in communicating with the client in this position and honoring a request not to communicate that way, finds that the contact is permissible.  It reasons that the policies of protecting clients from pressure and harmful admissions do not apply to the in-house counsel in that situation.  The formal opinion is linked here.

The other opinion deals with restrictive covenants in lawyer retirement agreements, related to a topic [when New Jersey ruled on a similar matter of non-competes] on which Jeff previously posted and analyzed here.  It appears that the ABA position is more generally approving of such agreements than had been New Jersey [see previous Law.com story on Jersey here], at least in the context of in-house counsel working for a competitor after leaving the company.  On a quick reading this morning, I'd say that the ABA opinion solves some of the "puzzlement" that Jeff expressed with the New Jersey ruling -- and shows a more realistic place for lawyers in the grand scheme of things as subject to employment contracts to some extent as real people are.  But there are obvious differences between the ABA focus on retirement agreements and qualifications that the retirement be real, as opposed to non-competes where the in-house lawyer contemplates further employment after leaving the company.

More on lawyers & CEOs

Posted by Nancy Rapoport.

Jeff Lipshaw hits the nail on the head (sorry about the Home Depot pun) in his post, More on Lawyers as Leaders.  In the Wall Street Journal article on lawyers & CEOs, I was happy about one particular omission.  I'm glad that Alan Murray, who wrote the column, didn't trot out the hoary old saw about how law schools teach law students to "think like lawyers," as if other professions didn't also teach ways to understand and dissect arguments, think logically, and argue convincingly.  I've written on this particular brand of arrogance before.  More below....

(By the way, I actually think it's possible to comply with regulations and do well in business--but the culture has to support the decision that compliance is a necessary part of doing business and not just something to circumvent.)

Mr. Murray also hit upon a very important point:  the general differences in risk tolerances between lawyers and businesspeople.  Law schools encourage risk-averse thinking:  lawyers are supposed to think of problems before they happen and then come up with ways to solve those problems.  But companies don't make money by being risk-averse.  They make money by taking risks.  By imprinting law students with risk-averseness, we encourage a culture with good points ("coloring within the lines," if you will) and bad points (misunderstanding what drives for-profit businesses).  Until we also teach law students to understand the ways that business people think, and the various pressures that they face--pressures about budgets, targets, market share, etc.--we're not training law students to give complete advice to their business client.  It's as if we're training our students to survive in one environment, say, the Arctic, and then sending them out to an entirely different environment, say, the desert.  Some of their skills are useful in both environments, but if they don't acquire additional skills, they'll die.

I grew up in deep East Texas, a subtropical environment full of greenery.  For a while, we had all-white squirrels that someone had brought in from elsewhere, but they all soon fell victim to predators because they couldn't adapt.  If the lawyers heading companies use their legal training and their understanding of what motivates business people, they can make very good CEOs, indeed.

More on Lawyers as Leaders

Posted by Jeff Lipshaw

Several days ago, Alan invited me to comment on Ben Heineman's lecture on lawyers as leaders.  I think it's particularly appropriate to do so in view of Alan Murray's column in the Wall Street Journal this morning "When Firms Turn to Lawyers."

The subject is the recent succession of two lawyers, both of whom happen to have been Ben Heineman proteges from GE, who have ascended to the top job in major corporations in recent weeks:  Frank Blake (right) replacing Bob Nardelli at The Home Depot, and Jeff Kindler replacing Hank McKinnell at Pfizer.  I think something has gotten buried or conflated by the circumstance that both of these lawyers have replaced CEOs whose severance packages have inflamed shareholder activists and business journalists.

Murray's thesis is that these companies have turned to lawyers because they are in trouble:  "Lawyers are trained to foresee risk, making them well-suited for times of trouble.  Perhaps more important, they understand what it means to be a fiduciary, acting in trust on someone else's behalf.  Messrs. Nardelli and McKinnell clearly failed to grasp that basic tenet of leadership."

I think the comment is, in some ways, a cheap shot, but not at Nardelli and McKinnell. (I am less outraged than many by the severance packages, but that is another subject for another time.)

It's something of an insult to Blake and Kindler to suggest they would take the reins of two huge corporations with their primary skills being their ability to bail water out of the sinking corporate canoe.  Indeed, the boards of the respective companies must have thought so much of their abilities that it would counteract the natural presumption, embodied in Murray's piece, that something is sorely amiss for a LAWYER to attain a position of leadership.  A personal note:  back in 1994 or so, when we were looking to institute major six sigma productivity changes within AlliedSignal Automotive, a senior executive was to be the "champion" (that's corporate lingo for a person who doesn't really do the work, but who acts as visionary, spokesperson, cheerleader and barrier-remover).  I volunteered, and was told by our division president, who had previously been the corporation's chief financial officer, that the business would think it odd and troubling that a non-operational type like him had appointed not only a non-operational type like me, but a LAWYER no less, to this critical position.  But he did appreciate my cojones.

More below the fold.

Here's where I endorse Ben Heineman's lecture.  His was the vision of the modern in-house law department; before Ben Heineman got to GE, in-house lawyers were, generally, a disrespected and uninspired crew. There is something of a lineage between Heineman and me.  Jack Welch hired Ben Heineman.  When Larry Bossidy, Jack Welch's best friend and the Vice-Chairman of GE left in 1991 to take over AlliedSignal, he replicated what Welch had done:  he hired a great lawyer with varied experience like Heineman, about whom I have blogged here before:  Peter Kreindler.  In 1992, Peter hired me.  So, as a matter of expectation or possibility for what lawyers can do as leaders, this is, to me, like reading the hymnal. 

But what Heineman gets, and Murray does not, are the additional following attributes, nay, professional skills, that a lawyer just might bring to the table:

- An ability to cut to the core of arguments, particularly those being made to the CEO by the leaders of the various business units, that are pleas for the allocation of the corporation's investment capital (my characterization of annual strategic planning sessions).

- An ability to communicate and persuade

- A hands-on style of leadership

Having said all that, there is often some kernel of truth at the core of a stereotype.  The image of lawyers as backward-looking, ass-covering, word-smithing, risk-averse, non-value generating, fine-distinction-drawing deal killers, who spend most of their time trying to separate the pepper from the fly poop, and the rest of the time saying "no you can't do that" to their clients, probably has some empirical  basis.  That's why we don't naturally think of lawyers as entrepreneurs, something I have begun to think and write about more recently.

New DaimlerChrysler GC

DaimlerChrysler has announced that its long time general counsel, Bill O'Brien, is retiring, and his successor will be Gerd Becht, who is described over at Law.com as follows:

Becht, who is German, spent much of his career with multinational companies, including 13 years at General Motors Europe AG, three years at Banque Paribas and eight years at AEG Aktiengesellschaft. Going to DaimlerChrysler made sense: "If you look at my résumé, there's a strong emphasis on international legal education and business alignment."

Alan Childress is our resident scholar on comparative legal professions, and my observations are anecdotal, but I would have been shocked to have seen this fifteen years ago when I was heavily involved in negotiating deals with German companies.  My impression then was that continental lawyers were more academically inclined than business-oriented, removed from the business people themselves, and viewed by their clients essentially as scriveners, not counselors.  While there were exceptions (the general counsel of Robert Bosch GmbH, Dieter Berg, was a dynamite lawyer under anybody's standards), Becht's view of cross-cultural and cross-functional linkage was certainly not the norm in European legal circles.

In the meantime, oh Lord, won't you buy me a Mercedes-Benz?

[Jeff Lipshaw]

Cancer Causes Smoking: The Post Hoc Error and Real People's Reputations

Posted by Alan Childress

Jeff did not ask for elaboration on today's post on Amtrak billing, but here is my $ two one-hundredths (where's the cents sign on this thing?).  I enjoy a good correlation error. I always thought the CEOs of tobacco companies should be arguing that cancer causes smoking.  At least surely there is some expert on retainer who would prove that even if smoking correlates with cancer, that's not proof of causation--maybe the same gene that causes cancer carries a desire to smoke!  My favorite pop culture example of Post Hoc, Ergo Propter Hoc error (in a West Wing season-one episode of the same name, quoted below the fold):  Jeb Bartlet did not lose Texas just because he made a joke about big hats.

I think Jeff's caution or insight is especially important because we are dealing with real humans here who have public reputations:  the fired in-house lawyers who are now being treated as if they are part of a clean-up from an "ethics scandal" when, to me, no one has yet shown any specific ethical breach like overbilling.   

It is quite possible they were let go as part of a routine management change.  I think it more likely this is connected to the swirling ethics concerns and rumors, but I don't assume it is because they did anything wrong.  I assume, so far and until some proof otherwise, appearing to clean house is the politically (and public relationsally) expedient thing to do right now.  The GCs may be sacrificial lambs, scapegoats, or other animal offerings to a nationally enquiring press and Congress.

In the original reports, such as those we linked here, the basic accusations seemed like many things were being presented as scandalous when they may not be--and many look exactly like how lawyers work in the non-choochoo world.  One instance of that may be Jeff's detailed example of "block billing," which may be at its worst a breach of some billing arrangement in the retainer, and possibly federal regulations of billing specificity--if Amtrak is subject to the government-client ones, but they were negotiating about that all along.  But it does not by itself mean overcharging. Indeed, if I were going to overbill this particular client, I would be fastidious about following their procedural requirements and just specify a lot of made-up work--I would not fall into the lapse of writing my time the way I do all the other clients.  [My if-I-were-overbilling conceit with apologies to O.J.]

That's Jeff's example, and it is a good one I think, because my own experience in billing clients with two big [reputable] law firms is in line with his:  we usually did block billing and everyone was fine with it as long as the time was real.  I'd add that we had occasional banking or insurance clients who wanted more specificity and line-itemization (maybe more often than Jeff's 99% suggests), and we tried to comply.  But the inevitable lapses were never seen as unethical or sneaky; they led to calls for reminders to be clearer and of course to client renegotiations--perhaps even excuses but hey we asked for it--about write-offs.  The only scandal would be a possible write-off of actually-earned time and some client-relations hiccups.

My own example of the possibly-false scandal in the original reports is their suggestion of something awry from the fact that some of the in-house counsel came from the very law firms that were now doing Amtrak work.  Imagine that!  How cozy!!  I am shocked, shocked to find that--you get it.  Not only is that uber-typical in the trackless world (yet here it was presented as if it is by itself a conflict of interest and unethical). But indeed the changing-roles relationship has its own built-in checks:  Jeff has previously argued, in different words and citing an empirical article that supports the point, that there is no more virulent anti-smoker than a reformed smoker. 

Without more, these Amtrak lawyers don't deserve to be treated as if there is something inherently wrong with the fact that they left a law firm to go in-house to the firm's corporate client--and then eventually accepted and paid some time sheets that did not separately itemize each legal task but instead grouped them with the same level of billing detail as if they had been on separate lines.

Vintage Aaron Sorkin, adapted from an unoffical continuity site here, my favorite line underlined:

A few minutes later C.J., who's trying to put out a fire caused by a joke the President told, tells him:

"Sir this may be a good time to talk about your sense of humor."
"I've got an intelligence briefing, a security briefing, and a 90 minute budget meeting all scheduled for the same 45 minutes. You sure this is a good time to talk about my sense of humor?
"...It's just that this isn't the first time it's happened."
"...She's talking about Texas, Sir," Toby says.
"...USA Today asks you why you don't spend more time campaigning in Texas and you say 'cause you don't look good in funny hats.' "
"It was 'big hats'," Sam corrects her. . . .
"...The point is we got whomped in Texas," she says.
"We got whomped in Texas twice," Josh adds.
"We got whomped in the primary and we got whomped in November."
"I think I was there."
"And it was avoidable. Sir."
"C.J., on your tombstone, it's going to read, Post Hoc, Ergo Propter Hoc."
"Okay, but none of my visitors are going to be able to understand my tombstone."
"Twenty-seven lawyers in the room, anybody know Post Hoc, Ergo Propter Hoc," he asks. When no one answers, he calls on Josh like the professor he claims he has been. Josh fumbles with the little Latin he knows. The President calls out "Next!" but he gets no volunteers so he calls on the one person he knows would know. Leo hasn't volunteered, but when called on he translates:
"After it, therefore because of it."
"...It means," the President lectures, "one thing follows the other, therefore it was caused by the other. But it's not always true; in fact it's hardly ever true."

Amtrak Changes: Post Hoc Ergo Propter Hoc?

I commented on the so-called "block billing" matter a couple weeks ago:  the congressional investigation of the possibility that Amtrak was paying legal bills that looked a lot like 99.9998% of the legal bills sent to major corporations.  Law.com is now reporting that the new CEO at Amtrak has replaced the general counsel along with most of the rest of the senior management team.  "New Amtrak President Alex Kummant engineered a major management restructuring Monday, firing five top officials and naming Eleanor Acheson [right], assistant attorney general for policy development under President Bill Clinton, as the passenger rail's general counsel."

Of course, the news stories have linked the two.  Note the Law.com headline: 

Amtrak Fires Five in Midst of Congressional Probe

That points out the need, particularly in our information age, not to believe everything you read.  I can't help but think the linkage to block billing is a case of the post hoc ergo propter hoc fallacy.  And the response from Amtrak seems plausible to me:

Amtrak spokesman Cliff Black says the changes were not a response to the inspector general's report on its legal department. "I can't associate it directly with the report. Corporate reorganizations are common under new CEOs. This is no different than that of any other large corporation under new leadership."

What is more interesting are the career bona fides of this new general counsel for a major business corporation.  According to Law.com, Acheson headed the Justice Department office responsible for reviewing federal judgeship nominees under Clinton, and since then has been a government affairs lawyer for a prominent public interest group.  Worthy pursuits all, and I'm sure Acheson is a crackerjack lawyer, but this hire suggests the critical legal job at Amtrak is about lobbying, not business.

[Jeff Lipshaw]