“Segmentation”: Fit Law Firm, In-House Staff, Other Legal Resources to the Risk / Opportunity Your Business Faces


The Point

I once asked Ben W. Heineman, Jr., legendary GE General Counsel under Jack Welch during the years I served as an executive at GE: “What’s the one key to managing resources in a company’s law function?”

Heineman’s unhesitating reply: “Segment! Segment! Segment!”

As he explains in his book, The Inside Counsel Revolution:

” … Law departments must prioritize and segment the work (his emphasis) from routine with low risk, to recurrent with moderate risk, to repeating cases with high risk, to one-off consequential cases, to one-off potentially catastrophic or transformative matters.”

This Matters to Your Business

Doesn’t everyone know this? No. Not in corporate Legal.

Too many in corporate Legal fail to analyze their matters in these terms, and then fail to use such distinctions to allocate work among law firms, in-house staff and other legal resources like alternative legal services providers (ALSPs).

Largely because of what they perceive to be the risk to their jobs.

For example, at a meeting of general counsel in Chicago, I spoke with the general counsel of a household name, publicly-traded corporation about the merits of law firms outside the AmLaw 100 and 200. He spoke enthusiastically about their legal sophistication, lean and cohesive teams, and lower all-in costs. “These boutique law firms are as good or better than” their Big Law counterparts, he observed.

Naïvely I replied: “That’s innovative of you, because many lack the nerve to make decisions like that — when did you start hiring such firms?”

“Oh, no, I’ve never actually hired one”. This general counsel then confided that if litigation or a major deal didn’t go as hoped, he would need the backstop of a Big Law firm name in the event his superiors questioned his judgment about the selection.

As our parents’ generation heard it decades ago: “No one ever got fired for hiring IBM.”

Because …

A report from American Lawyer Media says this may be changing in the current recessionary environment:

“Economic constraints coupled with more routine legal issues have put other providers (other smaller or boutique law firms and ALSPs [alternative legal services providers]) in the hunt for more legal work.

“We’ve heard after prior recessions that, while clients will likely rationalize legal spend to lower-cost providers in down times, that hasn’t always come to fruition. But there is evidence to suggest it may already be happening this economic cycle.

“The findings … suggest what the authors call a ‘re-segmentation’ of the market [for legal services].

In our personal lives most of us have learned how to size up medical needs. In recent years, my family and I have boarded a plane for a surgical center we chose on the other side of the continent. Other situations have warranted nothing more involved than a drive to the local pharmacy. Corporate Legal needs to adopt segmentation, and make similar common sense distinctions in its area of responsibility. 

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