Role of a law firm general counsel

When I was first named general counsel of Baker & McKenzie, I was often asked why an organisation composed of lawyers would need someone to function as their attorney.
A simple answer, to paraphrase Shakespeare, is that lawyers should not function as their own lawyer. It is also comparable to why a business evolves from an entity that only uses outside counsel to hiring inside counsel.
In part, it is also explained by the evolution of professional management within law firms. If we have full-time managing partners, CFOs, COOs and CIOs, why not complete the corporate model? Just as an accounting firm has its own internal financial matters that may require a chief financial officer, so does a law firm with respect to legal matters. Of course, law firms have always utilised internal resources to handle many of their own legal matters, but it was dispersed among many. Ultimately, driven by the forces of efficiency, and a desire for centralised coordinated and proactive risk management that could measurably impact the bottom line, the concept took hold of consolidating most legal matters to a specific individual or groups of individuals. Certainly insurers’ demands and the corporate-governance environment following Enron pushed the movement over the top.
Law firms have always had to manage legal matters. They lease or own property, contract with vendors, manage employment matters, purchase insurance, sometimes have disputes with clients and internal disputes among partners. As mentioned above, these matters would traditionally be assigned to different attorneys within the firm or be handled by the managing partner. The idea of asking an experienced lawyer to concentrate internally in this area was virtually unheard of. In today’s legal environment and, particularly, as a firm increases in sise, so do the number of legal matters requiring legal input. The old model was at best inefficient. Moreover, having one person take overall responsibility for the various matters tends to ensure that there is a consistent and uniform approach to the evaluation and resolution process. Even where outside counsel or other internal counsel are involved, having someone with overall responsibility creates a more efficient communication stream to the firm’s management and executive committee. While there may be a size below which it does not make economic sense to have someone who functions solely as general counsel, I have come to conclude, whether full or part-time, that designating one person with the exclusive responsibility to look at internal issues from a legal perspective is healthy for any firm.
What legal issues and risks must a law firm manage? I have already alluded to the general commercial risks that require legal review, such as leases and other contracts. Mundane, but highly necessary, is a review of privacy issues and the legal aspects of technology management. Five areas in particular, however, have either developed or increased in significance so as to make it almost a necessity for a law firm of any significant size to have internal counsel and, often, more than one. These five areas can be grouped together as ethical, professional liability, employment, regulatory and governance. Lack of proper legal management in these areas can threaten the very ability of a firm to function.

Ethical issues
Ethical issues include managing conflicts, terms of engagement and engagement letters, client-intake review, licensing issues, and general ethical behaviour. The need for a lawyer or firm to evaluate and manage conflicts is not new, but what constitutes a conflict has become more complicated. Moreover, where a malpractice claim is related to a conflict, it is well documented that the potential severity of the exposure increases. Also, in an era of increased lawyer mobility, effective, early identification of potential conflicts involving matters brought by lateral hires can prevent disaster. Failure to properly manage this issue not only results in the potential for errors and omissions claims against the law firm but also tends to lose, not add, clients. Additionally, if disengagement (where necessary) is not implemented promptly, substantial time and expense could be incurred by the firm with little likelihood of ultimately being paid by the client.
Internal counsel can play a major role in establishing a clear practice that delineates client-engagement protocols, including client-intake evaluation (recognising undesirable clients in advance) and uniform client-engagement letters.
Also related to the conflict issue are such issues as general ethical behaviour, licensing issues that may result in allegations of improper practice of law, what constitutes the practice of law across borders (state or international), and the conduct of a multi-disciplinary practice. The normal demands of a modern law practice put most firms in contact with these issues on a regular basis. Someone internal with expertise in these areas is essential.

Professional liability
Historically, it was rare that a lawyer would be sued, much less found liable, for an alleged error of judgment. That climate has definitely changed. Apart from the fact that such matters can have direct financial and reputational consequences for the law firm, negative claim experience also impacts the premium charged and even availability of professional-liability insurance.
Mistakes can be made even with the best systems and quality of lawyers. However, two relatively new phenomena are now well-documented. First, bad clients will look to shift the blame for the consequences of commercially unsuccessful transactions to their lawyers and these same types of clients will often seek to engage lawyers who will use so-called ‘commercial experts’ to establish a basis to expand the duty of the legal advisers and find a deep pocket for the damages emerging from a failed deal.
Internal counsel can be an important force in establishing and monitoring employee internal audits by experienced auditors to identify and repair potential problem situations; and overseeing a core team to liaise with insurers and, where appropriate, outside counsel. This area cannot be left to ad hoc internal management. Insurers negatively evaluate or rate a firm that does not have internal counsel handling such matters and strong controls in place. It is also more likely that, knowing there is someone whose job it is to assist in such matters, the firm’s lawyers will turn to that person at an early point where remedial action can be considered and taken.

Employment
Another area where internal counsel can serve an important role is in the prevention of employment liability claims. While employment claims can relate to hiring and firing decisions, it more often relates to correctible environmental conditions. Internal counsel plays an extremely valuable role in establishing a credible, authorised procedure and identifying a person to whom to report problem situations who will investigate such matters. Indeed, the very presence of such a practice can help insulate the firm from liability. Moreover, it helps set a cultural tone that such practices are not tolerated and promotes a healthier workplace environment.

Regulatory
Aside from the well-documented duties imposed by Sarbanes-Oxley, there are a host of other regulatory duties that even potentially cover conflict (for example, EEOC filing requirements and privacy laws). Privacy management and the need to monitor employee conduct are two additional examples. This is particularly true where you have offices in different countries. While no one person has the expertise to perfectly reconcile all these issues, internal counsel can play a role of central point person to ensure that uniform decisions are made that best minimise risk. As is true when providing legal advice externally, there are often no clear answers, but a coordinated internal legal evaluation ensures that the best result, under the circumstances, is achieved.

Governance
Even for larger firms that have gone to a more corporate model, most ‘partner’ level attorneys have more rights in how their fate is determined than in the corporate world. A firm like mine has elaborate processes to ensure the rights of our principals and provide due process. Internal counsel can play a key role in being the most knowledgeable of firm rules and practices, and can advise firm management as to proper governance procedures.

Other points
Some other miscellaneous points are worth mentioning. Having a specified internal counsel helps lay the basis for a claim of attorney-client privilege regarding certain aspects of the firm’s internal investigation process. It is not certain or foolproof but clearly helps. Second, none of the above-described areas can be done alone and professionals, who have expertise in other disciplines, often need to be involved in the evaluation and resolution process. Internal counsel can also help implement proper training and best practices, and identify areas for a more intense and comprehensive training focus at all levels of the firm. I find myself spending more and more of my time in this area. This role also helps to better develop a culture of compliance and utilisation of best practices. Having a uniform method of dealing with subpoenas and bankruptcy notices is also helpful. Finally, most experienced internal counsel are well-trained to play the role of trusted advisor to other attorneys and management.

Organisational issues
Once you make the decision to designate someone as general counsel, the question arises as to who to select and how the role should be structured. Until fairly recently, the person has usually been an experienced partner of the firm, often with litigation background, who has expertise in several of the areas, has the lawyers’ respect and is viewed as being apolitical. Early on, most firms picked an existing partner primarily because they may have not seen it as a full-time job and did not want to ‘air their dirty laundry’ to a stranger. More recently, firms have gone outside; but, even then, the individual has displayed the same abilities in another law firm or other professional-services firm. I expect that trend to continue. Moreover, whether the person is full-time or not, much of the value is dissipated if the demands of client engagements prevent the effective performance of day-to-day internal general-counsel requirements. The value and importance goes far beyond ‘putting out fires’. The compensation arrangements obviously can greatly influence to what extent the individual is willing to dedicate to the position of internal counsel. The issue of term of office and whether the internal attorney should be considered part of the formal management should be considered. In my experience, most lawyer firms do not set a term and the internal attorney is not part of formal management. I support both concepts. Finally, the question of title arises. You will note I have not always used the term general counsel in this article. This title can have external and internal implications, some more perceptual in nature. If the desire is to limit the scope of responsibility, some other title might be appropriate. If not, the designation will result in expanding the role to cover unanticipated legal issues, which is probably a good thing.

The pros and cons
The biggest negative to being an internal lawyer is the need to give up all or much of an external practice. In my case, it essentially meant giving up why I became a lawyer, which was to litigate and go to court. Still, it is an unbelievably stimulating and exciting job, and enables me to practice in every area of law on a multinational level. Feeling the support and gratitude of your colleagues that your role makes a positive difference makes it all the more rewarding. ?

Edward J. Zulkey is general counsel at Baker & McKenzie International. He can be contacted at edward.j.zulkey@bakernet.com

Some keys to being an effective law-firm general counsel

Firm management must validate your role;
Stay away from pure management issues;
Protect confidences to greatest extent possible;
Don’t be afraid to say no;
Establish direct and open links to insurers;
It is an exciting job – enjoy it!