As a lawyer who became a general manager when a corporate client invited me to run one of its divisions, I learned that each corporate function — each individual — had to be accountable to someone else in the organization.
Everyone except the law and regulatory compliance function. For them the legal industry’s business model — not the company’s owners or executives — calls the shots on pay, work flows, and personnel. Of course owners and executives get to gripe about tactical details like individual bills and next year’s in-house head count.
But (otherwise) demanding leaders who require accountability from every other part of the business are remarkably docile when it comes to this function. They let outside and inside attorneys make decisions about compensation, organization, and assignment of people that no general manager would tolerate anywhere else in the business.
With all of the cost-cutting and efficiency efforts that I’ve seen over the years — law and regulatory compliance remains “hands-off” to most owners and executives (see, for instance, posts about the wasteful pursuit of “Leverage”, Part I and Part II).
With no one beyond the circle of a company’s outside and in-house lawyers to effect sound management — lawyers in and for business enterprise run amok.
That’s why everyone needs an outside perspective.
In the early 1980’s Intel dominated in random access memory chips – “memories” – with 60% global market share. But in 1978 Japanese competitors had targeted this segment with both high quality and low prices. In the next decade they’d take their global market share from 30% to 60% — catching up with Intel — and then passing it.
In 1984 demand plunged and Intel’s order backlogs vanished. Management was sacrificing margin to preserve share in what was becoming a commodity business.
In Only the Paranoid Survive – Andrew Grove – then Intel’s president – listed the reasons why Intel did nothing for a full year: Numerous factories, thousands of employees – and “religious dogmas” within Intel about “memories as the backbone of our manufacturing and sales activity.”
Then, in mid-1985, Grove and Intel’s CEO – Gordon Moore – had a talk:
“Our mood was downbeat … I turned back to Gordon and I asked: ‘If we got kicked out and the board brought in a new CEO, what do you think he’d do?’
“Gordon answered without hesitation, ‘He would get us out of memories’. I stared at him, numb, then said, ‘Why shouldn’t you and I walk out the door, come back and do it ourselves?’”
That’s what Moore and Grove did.
A gutsy move – followed up by a successful new microprocessor strategy (“Intel Inside®”).
But long-term success came at the near-term costs of lost revenue, plant closures, and thousands laid off — with years of personal pain across the enterprise.
Success eventually came though. Chip and Dan Heath, who teach, respectively, at Stanford University’s and Duke University’s business schools, write:
“Since that decision in 1985, Intel has dominated the microprocessor market. If, on the day of Grove’s insight, you had invested $1,000 in Intel, by 2012 your investment would have been worth $47,000 (compared with $7,600 for the S&P 500).”
Grove attributed his and Moore’s decisiveness to what he called an “outsider” perspective — the viewpoint of someone who lacks the emotional attachment of an insider.
What was a gutsy move from the standpoint of insiders was more like a “Captain Obvious” move to those with a little distance from that wrenching choice — including Intel’s customers:
“In fact, when we informed them of the decision, some of them reacted with the comment, ‘It sure took you a long time.’ People who have no emotional stake in a decision can see what needs to be done sooner.”
In contrast to Andrew Grove and Gordon Moore, in-house counsel and their law firm counterparts don’t have to answer to anyone for how they pay their lawyers, how those lawyers organize their work on behalf of the business, and for legal personnel.
With persistently rising demands from the legal system, the legal industry does not cut costs but maintains them — raises them by single digit percentages each year in fact. And lawyers as an industry continue to emphasize a passive “let-me-know-when-there’s-a-problem” posture instead of systematic liability prevention.
Law and regulatory needs a management intervention from someone in the company. And owners and executives are the best positioned to provide that “outsider” perspective.