Law Firm General Counsel: The Paradox of Institutional Success?
Elizabeth Chambliss
April, 2008
I.
Introduction
I have been tracking the emergence and structural evolution of the law firm general
counsel position in large, US law firms.1 This evolution can be divided into three stages:
1.
The emergence of specialized, individual responsibility from what typically
had been a collective, committee function in most firms;
2.
The recognition of the specialist’s duties as a lawyer for the firm and the
increasing use of the title “law firm general counsel” in the press and large law
firms; and
3.
Increasing convergence around a full-time, professional model for law firm
general counsel and the increasing separation of this position from the position of
partners in the firm.
I am going to talk primarily about the third stage, the professional model, and its
implications for the scope and effectiveness of professional self-regulation by firms. I am
going to focus on what some have argued to be the drawbacks of professional
management in this area: (1) first, that appointing a professional to be responsible for
ethics and/or risk management will undermine other lawyers’ felt responsibility for such
matters;2 and (2) that professional firm counsel—that is, full-time firm counsel who do
not engage in outside practice—will have limited access to and authority over equity
partners.3
One might refer to these potential drawbacks as the paradox of institutional success:
firms’ investment in self-regulation grows (good!) to the point of supporting specialists
(even better!), who eventually become so specialized that they lose their access and
authority in the firm.
1
See generally Elizabeth Chambliss & David B. Wilkins, The Emerging Role of Ethics Advisors, General
Counsel, and Other Compliance Specialists in Large Law Firms, 44 ARIZ. L. REV. 559 (2002); Elizabeth
Chambliss, The Professionalization of Law Firm In-House Counsel, 84 N.C. L. REV. 1515, 1515 (2006).
2
See Margaret Raymond, The Professionalization of Ethics, 33 FORDHAM URB. L.J. 153, 159-60 (2005);
Anthony V. Alfieri, The Fall of Legal Ethics and the Rise of Risk Management, 94 GEO. L.J. 1909, 193940 (2006).
3
See Douglas R. Richmond, Essential Principles for Law Firm General Counsel, 53 KAN. L. REV. 805,
812 (2005) (arguing that law firm general counsel should be equity partners).
I am going to argue that neither of these drawbacks is a necessary consequence of the
increasingly rationalized structure of risk management in large law firms. There is a
tendency toward structural determinism in the literature on law firm regulation that is not
borne out by research. So far, the professionalization of ethics and risk management in
large law firms appears to have had mainly positive effects.4
That being said, the growing separation between general counsel and partners poses a
specific set of challenges for firm counsel and firms. Maintaining access to sensitive
ethical and strategic matters, in particular, is likely to be a continuing challenge.
I will conclude by identifying various strategies that professional firm counsel use to
maintain their access and authority with partners, and considering the implications of
these strategies for the regulation of new organizational forms.
I.
The Three Stages of Professional Development
A.
The Emergence of Specialists (1900-2000)
The first stage, which began in the early 1990s in first-mover firms, involved the
emergence of individual ethics and liability specialists within partnerships, in place of
what typically had been a rotating, committee function. Several factors contributed to this
development:
1.
Functional Efficiency – As law firms grew and professional regulation
became increasingly complex, the work of ethics and conflicts committees
became more complicated, time-consuming, and important, such that it
made sense for the same partner to run the committee for many years.
Over time, these partners developed specialized expertise.
2.
Role of Insurers, Especially ALAS – Meanwhile, insurers such as
ALAS began to pay more attention to law firms’ internal controls and to
offer loss prevention counseling. ALAS also required law firms to
designate a “loss prevention partner” to attend loss prevention conferences
and communicate about claims. Many in-house ethics and liability
specialists began as ALAS loss prevention partners.
During this early period, there was little standardization in the scope, structure, or title
of the in-house advising role. Instead the role developed gradually and idiosyncratically
within firms. The main commonalities, at least in larger firms, were: (1) the increasingly
centralized management of ethics and professional liability issues, especially conflicts;
and (2) the rapid expansion of a specialized in-house advising role within firms.
4
Chambliss, supra note 1, at 1523-25 (presenting and summarizing research findings to date).
B.
The Formalization of Lawyer-Client Relationship (2000-2005)
The second stage, which may be located roughly between 2000 and 2005, involved
the formalization of the specialist’s role as a lawyer (and the firm as the client), and a
growing convergence around the title “law firm general counsel.”
1.
Expansion/Demands of Job – These developments were prompted in
part by the continuing expansion of the in-house role. Once in-house
specialists were identified, firms’ reliance on them increased, and
specialists began to complain about uncompensated service to the firm.
2.
In-Firm Privilege – Firms also became concerned about the scope of
the attorney-client privilege for communications between in-house counsel
and other lawyers in the firm.5 In response to two cases denying the
privilege in 2002, firms took steps to formally establish a lawyer-client
relationship between the in-house advisor and the firm, including in some
cases formal structural separation between firm counsel and partners.
3.
Management Consultants – Around the same time, law firm
management consultants, such as Altman Weil and Hildebrandt, began to
administer surveys and sponsor conferences for lawyers who serve as firm
counsel. This led to increasing awareness among firms about what other
firms were doing, and increasing convergence around the title “law firm
general counsel.”
C.
The Professionalization of Law Firm General Counsel (2004-?)
By 2004, we see the emergence of a “professional” model for law firm general
counsel: that is, the treatment of the position as a full-time position with its own
professional identity and networks, distinct from that of practicing partners. By 2006,
over one third of law firm general counsel in top US law firms were full-time in that
role.6
In 2004, we also see the first examples of outside hiring, with Shearman & Sterling
hiring John Shutkin from KPMG International, and Akin Gump hiring Rick Goshorn
from Acterna, an optical equipment maker. The hiring of career in-house counsel from
other industries marked an important step in the professionalization of the position and its
institutionalization within firms.
5
6
See Elizabeth Chambliss, The Scope of In-Firm Privilege, 80 NOTRE DAME L. REV. 1721 (2005).
Altman Weil, Inc., Results of Confidential "Flash" Survey on Law Firm General Counsel 3 (2006),
http://www.altmanweil.com/dir_docs/resource/d0f1e347-e90b-40ae-9b92-808a7eff6ffd_document.pdf
[hereinafter Flash Survey].
The professionalization of law firm general counsel is still ongoing. It is an open
question whether we will see full convergence around a full-time, professional model
even among large law firms in same market.7 Large firm partners traditionally have
resisted professional managers. The conventional wisdom is that “lawyers want to be
managed by a lawyer”8—meaning lawyers actively engaged in private practice or not
long removed. Thus, while long-term partners may be able to trade on their pre-existing
authority after they give up outside practice, it is hard to find long-term partners who are
willing to take on a full-time, in-house role. Meanwhile, it is unclear whether general
counsel hired from outside the firm can be effective.
Nevertheless, a significant percentage of large US law firms have appointed full-time
general counsel and it is a likely model for global firms.9 What are the implications of the
professional model for the scope and effectiveness of professional self-regulation?
II.
Potential Drawbacks of the Professional Model
My previous work has focused mainly on the benefits of firms’ increasing investment
in ethical infrastructure and specialized personnel. I want to focus here on what some
have argued to be the drawbacks of the professional model, in particular the argument
that professional management will undermine ethical accountability within firms.
A.
Individual Accountability
Some argue that firms’ reliance on specialists and the “professionalization of ethics”
more generally will undermine other lawyers’ involvement and interest in ethical matters.
This line of argument assumes a necessary trade-off between centralized management, on
the one hand, and individual accountability, on the other.
7
Consider the following exchange I had with the full-time general counsel for 500-plus lawyer firm:
Q. Do you see a convergence around a full-time model for law firm general counsel among the
firms in your market?
A. That’s what I want you to tell me!
Telephone interview, April 8, 2008.
8
Tom Schoenberg, Getting Down to Business, LEGAL TIMES, Oct. 19, 1998, at S56 (quoting Michael
Nannes, then deputy managing partner of D.C.'s Dickstein Shapiro Morin & Oshinsky).
9
Mary Mullally, Analysis: The Adviser to the Advisers, LEGAL WEEK, May 8, 2004, available at
http://www.legalweek.com/ViewItem.asp?id=20987 2 (reporting that “UK firms are increasingly
appointing one dedicated person, usually a partner, to oversee risk and compliance issues on a full time
basis”).
1.
For instance, Margaret Raymond argues that firms’ investment in in-house
ethics specialists will cause “pressured and overwhelmed lawyers” to “lack
ownership of ethics principles.” According to Raymond:
The internal focus on ethics specialists ... suggests that ethics is just another
area of specialization, one in which someone else is developing expertise so
you don't have to. This runs the risk of shuttling the consideration of ethics to
the designated individuals, taking ethical issues out of mainstream discourse.10
2.
Likewise, Anthony Alfieri argues that firms’ increasing investment in
professional risk management will “induce moral apathy” among lawyers, “by
shifting responsibility for hard normative judgments to others inside the firm.”11
3.
Royston Greenwood characterizes the move toward professional management
in large law firms as part of a broader, undesirable move from “trustee” to
“expert” professionalism.12
This line of argument tends to draw on unrealistic comparisons between an idealized,
collegial law firm and an actual, more or less bureaucratic large law firm.13 For instance,
Margaret Raymond’s concern that specialists will “tak[e] ethical issues out of mainstream
discourse,” implies that ethical issues currently are part of mainstream discourse in large
law firms. It further assumes that specialized management can only hurt, not help,
mainstream efforts.
Yet, empirical research suggests the opposite on both counts. Most research reports
that the level of ethical awareness and accountability in large law firms is very low,
which suggests that specialized management attention might be useful. And there is little
foundation for assuming that lawyers will respond to the presence of specialist by
shirking. On the contrary, many firm counsel report begin bombarded with questions
from “pressured and overwhelmed” lawyers who are delighted to have a immediate
resource when ethical questions arise. As one full-time firm counsel reports:
People call me at home, and everything is an emergency. I was going to wallpaper my
office with those little yellow message slips, all of them say “it's an emergency,
please call me within the next five minutes.” I could work 24 hours a day ...14
10
Raymond, supra note 2, at 159-60.
11
Alfieri, supra note 2, at 1139.
12
Royston Greenwood, Your Ethics: Redefining Professionalism: The Impact of Management Change, in
LAURA EMPSON, ED., MANAGING THE MODERN LAW FIRM 192 (2007).
13
See Elizabeth Chambliss, The Nirvana Fallacy in Law Firm Regulation Debates, 33 FORDHAM URB. L.J.
119, 122-23 (2005).
14
Chambliss, supra note 1, at 1565.
This is not to suggest that individual lawyers’ values and conduct are not important.
Specialists do not solve the problem of individual accountability any more than they
create it, and some issues are more amenable to centralized management than others.
Checking for conflicts of interest is properly a centralized function in large, multi-office
law firms; but individual cooperation with firm conflicts checking procedures is also
essential.
But the assumption that professional risk management necessarily will undermine
individual accountability appears to be largely ideological. Most evidence suggests that
firms’ increasing investment in the professionalization of ethics and/or risk management
adds to, rather than detracts from, individual ethical awareness and compliance. Anthony
Davis recently published an excellent paper (from a previous symposium on legal ethics
here at Georgetown) describing in concrete terms how the work of firm counsel
contributes to individual ethical awareness and the profitability of the firm.15 As he
concludes, “the relationship between [individual] ethics and risk management is entirely
complementary.”
B.
Authority and Access
Another argument about the limits of the professional model is more sympathetic and
largely comes from within. This version focuses on the limits of firm counsels’ authority
over sensitive ethical and strategic issues in the firm. The concern is that full-time firm
counsel will not be respected by powerful partners.
1.
For instance, many part-time firm counsel (and former part-time firm
counsel) are skeptical that full-time firm counsel with no equity stake in
the firm can effectively say no to equity partners on questions of client
intake. As one part-timer put it:
I have no idea how much I cost the firm in the course of a year by
telling them we can't take on matters - I think the judgment is
accepted more readily because it is coming from somebody who is
an active partner in the firm.16
2.
Moreover, while most firm counsel can point to examples of full-time firm
counsel who are effective, the first generation of full-time firm counsel for
the most part “grew up” in their firms and were long-time partners before
giving up outside practice. Thus, this group may not be a fair test of the
full-time professional, model.
15
Anthony E. Davis, Legal Ethics and Risk Management: Complementary Visions of Lawyer Regulation,
21 GEO. J.L. ETHICS 95, 113 (2008).
16
Chambliss, supra note 1, at 1550 (quoting a part-time firm counsel from a 550-lawyer firm).
3.
Finally, some wonder whether professional firm counsel will have access
to sensitive ethical and strategic issues in the first place. In many respects,
speaking in terms of firm counsel’s “authority” is misleading. Most firm
counsel are highly deferential to partners and report that their primary
challenge is persuading partners to come forward with issues that arise. As
one firm counsel confesses:
I'm never sure whether any of the major conflict issues or ethical
issues are brought to my attention.... I find that I spend a lot of time
with some partners and virtually no time with others and it can't be that
the ones I don't spend any time with don't have any ethical problems.17
The question is whether different structural arrangements—part-time, full-time,
partner, employee—affect firm counsels’ authority and access in systematic ways. I am
agnostic on this question and think it deserving of systematic research. I suspect,
however, that some of the concern about the part-time/full-time distinction is also
ideological. In practice, full-time firm counsel, including those hired from outside of the
firm, report a variety of effective strategies for maintaining access and authority.
1. For instance, some full-time firm counsel use the threat of liability to get
partners’ attention. One full-time firm counsel hired from outside of his
firm compiled a ten-year history of claims and their cost and presented the
information to partners. Another said: “You have to be very open. I'm
surprised the number of times I talk about cases where the firm has been
sued and people will say, ‘you mean, we've been sued?’ Being open about
it really increases everyone's sensitivity.”18
2. Firm counsel also point to the benefits of external professional networks,
made of loss prevention consultants and other firm counsel. Many fulltime firm counsel refer to these networks when suggesting certain policies
or courses of action and report that partners tend to be attentive to what
other firms are doing.
3. Firm counsel hired from outside of their firms report that it takes time and
effort to build a clientele within the firm, just as it does in outside practice,
but that over time, they have been successful and see their access and
credibility expanding. Thus while full-timers and outside hires may face
different obstacles than part-time firm counsel, their access to and
authority over issues also tends to increase over time.
17
Id. at 1564.
18
Id. at 1558.
4. Finally, firm counsel are unanimous that the most important determinant
of their effectiveness is not the structure of their positions but the presence
(or absence) of strong management support. As one full-time firm counsel
put it:
Leadership matters. It sounds like a cliché but it is true. If you have
support at the top, from management, you’ve got it, and if you don’t,
you don’t. And some guys with big books are team players and that
really changes things… If Cal Ripken is the first to practice and helps
pick up the bats, it is hard to be a prima donna on that team.19
III.
Implications for New Organizational Forms
Much of the prior debate about non-lawyer ownership in the US has focused on the
potential drawbacks for the profession’s core values and ethical accountability within
firms. This concern also is reflected in some of the papers for this conference. My
research suggests that some of this angst may be overdrawn or misplaced. Different
organizational forms and structures present specific, but seldom unique, challenges for
professional regulation and self-regulation by firms. Many problems associated with new
forms of practice are already present, and being addressed, with more of less success, in
existing forms.
Moreover, while non-lawyer ownership and alternative business structures may
intensify some of the challenges of self-regulation in large professional firms, they also
may bolster existing sources of authority and access for professional managers.
1. For instance, it may be that start-up concerns about management and
accountability in new organizational forms will increase support for
professional managers such as full-time general counsel. The mere fact of
self-conscious debate and planning about how to manage large law firms
would be an improvement in some firms where rationalized management is
still viewed with suspicion. Law firm general counsel whose position was the
product of a merger report that the effort to rationalize management of the
newly merged firm worked to strengthened the role of centralized
management generally.
2. The continuing growth and geographic expansion of firms likewise could
work to strengthen risk management and limit the disruptive potential of
powerful, rogue partners. According to the general counsel of a global firm
with thousands of lawyers, “a big advantage of our size is that there is not a
partner who is bigger than the firm, by a long shot. No one is going to
dominate our institutional structure. And that is comforting.”20
19
Telephone interview, April 8, 2008.
20
Id.
Thus, while it is important to be attentive to structural differences within firms, and
the potential effects of new structures and organizational forms, it is also important not to
make a fetish of traditional structures and forms. Research on the structural evolution of
the law firm general counsel position, as well as on the evolution of partnership21 and the
limited liability form,22 show that structure is only one of many important features of
regulatory design.
21
See Laura Empson, Your Partnership: Surviving and Thriving in a Changing World: The Special Nature
of Partnership, in LAURA EMPSON, ED., MANAGING THE MODERN LAW FIRM 10 (2007) (arguing that the
partnership ethos can survive a move away from the partnership form).
22
See Scott Baker & Kimberly D. Krawiec, The Economics of Limited Liability: An Empirical Study of
New York Law Firms, 2005 U. ILL. L. REV. 107, 110 (finding that the move from a general partnership to a
limited liability partnership had no significant effect on partners’ relationships with each other).