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Are Lawyers In Touch With The Business?

May 23, 2011

A criticism that is sometimes levelled against the in-house law department ( and frequently against external law firms) is their ‘lack of commerciality’. In general, this appears to mean that they are out of touch with the needs of the business and fail to provide advice that is practical or in the form of a readily-applied solution.

Last week, IACCM co-sponsored a meeting between senior in-house counsel and senior executives to discuss the interface between business and the law. It is a topic of great interest to IACCM members. The relevance to our legal membership is obvious. For those in contract or commercial management, or in procurement, the relevance takes several forms. In some instances, they are tarred with the same brush as the lawyers through association (often direct association, since in about 30% of companies they report through the General Counsel). In others, they may find themselves in some conflict with the lawyers, either because they are frustrated by the legal approach, or because there is a lack of clarity in respective roles.

The meeting participants all agreed that a key challenge for their function and their business is complexity. We then asked them to rank the causes of that complexity in terms of direct relevance to their work. For the General Counsels, the dominant reply related to regulation – the quantity, the volume of associated documentation and the ambiguity of many of the rules being introduced. “Lawyers must avoid the trap of ‘we are responsible for compliance'”, observed one General Counsel. “We must embed the regulatory environment into the business rather than have it as an overlay, with continual reference back to the legal team. Otherwise we create tension with the business.”  

For the business managers, the source of complexity was mostly seen in today’s economic conditions and market volatility. They described the pressures to push commitments to the limit, to enter market sectors where they have no previous experience, to move faster in response to opportunities. These conditions frequently demand rapid decisions which run counter to the risk evaluation capabilities of the legal department. And the lawyers can often feel under pressure to give their blessing to business decisions, rather than  simply offering legal advice.

The meeting looked at the impact of different organizational models on the level of integration between the business and the lawyers. In general, it appears that a center-led model (with lawyers firmly attached to the business units) is the most likely to reduce tension. It is also important for the legal group to grasp the benefits of empowerment, sharing information to allow decision-making and ensuring greater awareness of risks. Organizations with these characteristics appear to achieve greater visibility of risks at an earlier stage, allowing more intelligent intervention by the legal team and giving them more time to produce practical answers and advice.

Another key aspect, especially with regard to contracts, is to have clarity in the roles and authority of the various stakeholders – and that means the contract process needs to be defined. A big problem with this is that a majority of General Counsel do not see it as the law department’s role to oversee process definition and it is often far from clear who will take this responsibility. It is also the case that lawyers resist taking on the role, but then obstruct others when they try.

The discussion forum will lead to a more comprehensive paper, setting out the findings and recommendations in detail. It was a helpful session that identified the gaps between the priorities of the lawyer and those of the business / commercial executives. As with all relationships, success depends on the quality of communication and understanding between the parties. It was clear from the meeting that the general accusation ‘lawyers are not commercial in their thinking’ is incorrect. But it is fair to say that some law departments are not adequately connected to the business needs and have failed to build collaborative internal systems, procedures and relationships. An area of study for IACCM will be the extent to which  those companies are in turn seen by their trading partners as ‘difficult to do business with’.

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