Bet-the-Company vs. Just-Run-the Company: Legal Tasks Vary — And So Should Their Price

On bringing to Legal the same cost, staffing, and technology disciplines that apply everywhere else in the business enterprise — other than Legal — cooler heads have emerged. But they have not yet prevailed.

Many lawyers still blow litigation dangers and regulatory peril out of proportion to their real magnitude and immediacy.

Hit them in a particular mood, and they will advise executives — actually, they will threaten them — that cost efficiencies in the management of legal risk will court business catastrophe.

In my experience as an executive, such overreaction is more common in the legal profession’s interaction with business clients than less dramatic, practical judgment.

But there are some cooler heads out there, and they have ideas that are useful in differentiating between legal tasks. 

Just last week Bruce MacEwan, and his two partners in a consultancy to law firms called AdamSmith, Esq., began a series on what’s called “segmentation” of law firms.

Actually it’s a concept that applies not just to law firms, but to other providers of legal services that business has traditionally just given to their law firms or in-house departments and asked them to handle — such as law companies like Elevate, to take one example, that integrate process efficiencies and technologies into legal tasks, which law firms and in-house departments have for the most part not yet incorporated into their work.

I first focused on “segmentation” of legal resources in a conversation with GE’s iconic General Counsel, now retired, Ben W. Heineman, Jr.

Engaging him in a meeting relating to his classic treatise, The Inside Counsel Revolution: Resolving the Partner-Guardian Tension, I asked Heineman how companies could make better use of the purchasing power they should enjoy in dealing with the lawyers they hire.

He answered that better use of that purchasing power depended upon having a clear idea of what you want the law firm — or other legal service provider — to do for your business in the first place.

Is the task one of “bet-the-company”? For instance, does it consist in defending your patent rights to the single, proprietary technology on which your core line of business depends?

Or is it “just-run-the-company”? Perhaps about the few hundred slip-and-fall tort cases your national retail chain gets sued for each year?

Several smart legal thinkers have written and spoken about segmentation among law firms and other legal resources. Heineman arguably pioneered this earliest during his stewardship of GE’s law department between 1987 and 2003.

In his treatise cited above, he divides the segmentation task into two questions.

First, “what is the type of [legal] work?”

He offers five examples in ascending order of significance and difficulty:

The first:

“A single project involving expertise and judgment, but presenting limited complexity and risk, such as writing a handbook, creating form contracts, developing a compliance education and training program, or monitoring developments in evolving areas of the law.”

The last:

“The high-impact, potentially catastrophic or potentially transformative matter … in the somewhat hyperbolic ‘bet-the-company’ category …. Examples are the Siemens bribery scandal; the BP Deepwater Horizon explosion; the concerted enforcement actions against financial services firms; or the mega-merger than will completely reshape the company, like Comcast and Time Warner (which failed).”

Segmentation is the management response to the fact that legal tasks vary in significance and complexity. In the next post I move past Heineman’s first question about segmentation — what is the type of work — to his second question:

“What are the component tasks of that type of work?” And what legal resource is suited to that component task in terms of both its proficiencies … and its cost-efficiencies? 

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