Saturday, 29 January 2011

If your GC reports to the CFO, your company doesn't understand what Legal does

After my provocative blog about British lawyers, some of you were probably thinking of Clement Atlee's immortal comment that "a period of silence on your part would be welcome". However, after reading an interesting post from @BrettTechLawyer, in his guest appearance on @LegalBizzle's blog (here), I'm being lured out of my silence a little earlier than intended.

It certainly isn't my intention to question the value and the role of in-house counsel. On the contrary, I believe that in-house counsel are a crucial part of better decision making in companies. My contention is that many companies under use or misuse lawyers, both in-house and out-house. Rather than cast this as an in-house -v- out-house debate, it's more interesting to explore why that is and what we can do to change it.

For all lawyers, the most important fact, which they often poorly grasp, is that finance is the language of senior management. So, if you're an in-houser and you aren't fluent in finance, you aren't going to be promoted into the C-suite. If you don't know or care what your company's cost of capital is, whether and how it is driving margin accretion, how it hedges currency exposure, or what the IRR is on an investment case etc, you aren't going to be influential. In-house lawyers who are serious about becoming leaders in their business need to push themselves to become more financially literate and to understand in real depth how and where their company is making money.

When it comes to out-housers, in answer to the question posed by 
@TadOstrowski, I agree with @BrettTechLawyer.  A spell in-house makes a huge difference to an out-houser's understanding of how businesses actually work. On the other hand, I don't subscribe to the view that out-housers need to devote a great deal of energy to understanding my company's business all that deeply. The in-house team can do that far better than they ever will. Both in-housers and out-housers can give their views on the law and how to apply it. But the privileged insight that out-housers can provide, which the in-house team cannot, is what's happening across many companies, across an entire sector and in other sectors. One partner at Big Firm LLP once said to me (in the context of a former role) "I think your business is being commoditized". He went on to explain how he'd seen this a decade previously in a related sector. That's helpful and it's the kind of value the big accountancy and management consultancy firms routinely add.

Having identified finance as the language of senior management, it's important to go on to say that this shouldn't entitle the CFO / FD to a hegemonic position at the most senior executive level, although this remains the case in many companies, particularly in the UK, where the situation
might even be worsening. In many cases, all sorts of core functions are forced to report through the CFO, rather than to be present in person. If that's allowed to happen, the company's viewpoint will become one-dimensional and ultimately the business will be less successful. One key reason is that finance, or money, is boring but important. It isn't memorable or motivational.

People still remember President Kennedy's famous speech in May 1961, when he announced that "this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth". Which the Americans duly did, in an enormous national effort which spawned a huge wave of innovation and a great deal of prosperity. What people don't remember is that President Kennedy went on in the same speech to itemize, rather boringly, how much money he'd allocated to the project. Presumably he'd been consulting with the Secretary of the Treasury, but who remembers his/her name now? 

Nobody gets out of bed in the morning thinking "I must get into the office and drive up the earnings per share". Which is, incidentally, why the endless debate about PEP at law firms is so desiccating. No young lawyer in a law firm is really motivated by whether the equity partners are taking home £800k rather than £700k this year. Who cares, other than the people pocketing the money?

Legal, like HR, in-house and out-house, is a critical part of "decision support" in companies. Jack Welch, the legendary former CEO of GE, observed that it's very odd that HR, unlike Finance, often doesn't get a seat at the executive table. He makes the point that, if you owned a baseball team, you'd spend more time with the team coach than the team accountant. Actually, you'd probably spend time with both. The same goes for Legal. A leadership team that properly understands what Legal adds, is more robust, effective and capable than one that doesn't.

Maybe you find this convincing, maybe not. Either way, I admit I haven't addressed the question "So, what does Legal do exactly?" Next time, that's the topic.

Wednesday, 26 January 2011

Leadership, lawyers & the British

Some of the world's most famous and effective leaders have been lawyers: Abraham Lincoln; Gandhi; Margaret Thatcher; Bill Clinton; Tony Blair; Thomas Moore; Thomas Cromwell. Take your pick. Even if they aren't all equally admired by history, all of them were lawyers. Barack Obama is just one in a long line.  

So, a question. Why is it that, when it comes to the world of business, lawyers spend a lot of time agonizing about their role and trying to articulate clearly how they add value, instead of getting on and leading their organizations? Lincoln wasn't dithering about his role when he delivered his address at Gettysburg, promising that "government of the people, by the people, for the people, shall not perish from the earth"

These days, you could spend a whole year drifting from conference to conference listening to lawyers discussing the role of lawyers in the commercial setting. Meanwhile, in-housers smugly complain about out-housers refusing to address "commercial issues". All of this misses the point.  

After spending a lot of time working with lawyers around the world, I've concluded that all this agonizing is most pronounced in the UK. So, maybe we're trying to answer the wrong question. Maybe, the truth is that British lawyers are not anxious about their role in business because they're lawyers, but because they're British.

Does anyone in Britain really understand business anymore? We were once the world's most effective country when it came
 to making money. Nowadays, we can't even afford fighters for our aircraft carriers and you have to wonder if we've lost the urge.  

Think of the coverage of business in the mainstream UK media. In 2001, Jeff 
Randall famously became the corporation's first business editor, appointed by Greg Dyke, then BBC director-general, after the BBC failed to cover the Vodafone bid for Mannesmann, the largest takeover that Europe had ever seen. They simply missed it.

In those days, what passed for business coverage was a junior reporter standing outside Longbridge talking about job losses in the car industry. 
Arguably now, they still have the same problem. It's a senior reporter standing outside a bank. The story is the banks and nothing but the banks. You'd think nobody was employed in any other industry.

In the film Casino Royale, during a high-stakes game of cards, Felix Leiter, the American CIA agent, says to James Bond: "
Listen, I'm bleeding chips. I'm not going to last much longer. You have a better chance. I'll stake you. I'm saying I'll give you the money to keep going. Just one thing: you pull it off, the CIA bring him in."  Bond replies "What about the winnings?". To which Leiter says "Does it look like we need the money?" It's a cheap laugh, but only because the Yanks have the money and we don't.  

Does British business look a little limp to you? Is the performance from BP really the best we can do?

Extending the card game metaphor, I ought to declare my hand. I'm a British lawyer. 
So, here's a challenge for every angst ridden British lawyer. Are you anxious about your role? Are you a trusted business partner? Is your CEO listening to you? If not, is that because you're a lawyer or because you're just ... too British?

Those of you thinking I'm being deliberately controversial to launch a blog are right. But, to make a more serious point, next time I'm going to consider one of the structural problems with Legal in a lot of British companies. The subject will be "If your GC reports to the CFO, your company doesn't understand what Legal does."

Wednesday, 19 January 2011

Podcast on life as an In-House lawer

Series of podcasts by College of Law, mine on life as an in house lawyer. Interesting perspectives from others, far more illustrious than me.