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Johnson Controls GC Seeks Three-Way Law Partnerships

May 28, 2015, 4:57 PM

There are a number of myths that float down to law students about what life will be like in the legal profession. One of the more popular images is of a junior associate shut away in a dimly lit storage room, buried in boxes. Until recently, document review was one way in which a law student’s Big Law dream was also his or her nightmare.

It was a different kind of nightmare for clients. Where associates saw hours of tedium, and asked whether law school was really worth it, corporate clients saw dollar signs, and asked whether the associates were really worth it. If young lawyers felt underutilized, even silly, doing doc review, well, perhaps they had a point.

Luckily, at least for clients, times have changed. Today, there are a host of service providers who can review documents far more cheaply and efficiently than an overworked and disillusioned young lawyer.

Brian Cadwallader, Vice President, Secretary, and General Counsel at Johnson Controls , says these service providers are key to keeping legal costs down. “In many ways our goal is to stop lawyers from doing non-legal work,” Cadwallader said. “I don’t mind paying lawyers to do legal work. I just don’t want them to be spending their entire day reinventing the wheel or pushing paper around.”

At a company the size of Johnson Controls, which took in more than $40 billion in revenue in 2014 and has 170,000 employees globally, keeping legal costs down is a constant struggle.

Cadwallader said he tries to think of corporate legal practice as a three-way partnership: in-house lawyers manage the particular matter, outside lawyers provide special expertise, and third party service providers handle as much of the more menial work as possible.

Prior to taking over as GC at Johnson Controls, Cadwallader, a graduate of the St. Louis University School of Law , practiced law in-house for Cooper Industries , National Presto Industries , and International Paper .

In addition to discussing the advantages of low-cost discovery service providers, he recently spoke to Big Law Business about restructuring the Johnson Controls legal department, its projected growth, and whether corporations are putting enough pressure on firms to increase diversity.

Part I Excerpts:

If you have a 15-year inside lawyer and a 15-year firm lawyer, the inside lawyer costs, on an hourly basis, at least 50 per cent less than the firm lawyer. Why wouldn’t you bring what you can in-house?

Part of cost containment is saying to a law firm, “We don’t want nameless, faceless people on our files. We’re not going to pay an associate’s training wage just to thumb through documents or go through emails.”

I don’t get a lot of meetings like that. I get meetings on specific matters, but I don’t get a lot of meetings from outside law firms where they want to talk about our strategy.

We’ve gone through a process to restructure the legal department in the last year or so... We’ve centralized many of the traditional practice areas into what we’re calling “centers of excellence.”

I really wonder how well we’ve done as a profession managing our outside partners and giving them honest feedback about outcomes and performance. We’re changing our structure to get control of that.

Below is an edited transcript of the first installment of the interview.

[caption id="" align="alignleft” width="307"][Image "" (src=http://www.johnsoncontrols.com/content/dam/WWW/jci/corporate/our_leaders/Downloads/Brian%20Cadwallader%20_high%20res_1.jpg)]Courtesy of Johnson Controls[/caption]

Big Law Business: This is your first GC role. Have there been any surprises? Did you feel prepared?

Cadwallader: I owe a lot to people I worked for in the past. They made sure I had the opportunity to see what they did as GC, and in many cases even prepare what they were going to use. So I did feel prepared.

I actually wonder whether lawyers who rise to the level of GC in their early 40s, especially at very large, complex companies like Johnson Controls, really have the experience necessary to say grace over all the things a GC is required to do today.

So I feel very fortunate. I had some great mentors and leaders that pushed me to make sure I was prepared.

Big Law Business: Who were some of those mentors?

Cadwallader: Maura Smith and Bill Lytton at International Paper and Jerry Okarma here at Johnson Controls were instrumental in making sure that I had challenging opportunities.

I never really got bored at International Paper. Every time I thought I had something mastered, Bill and Maura were masterful at making sure my world changed enough that I had to go back to school and learn again.

I wonder how many lawyers take on new challenges throughout careers and make sure they’re always learning. The profession does offer that opportunity if you’re willing to step up.

Big Law Business: What are the primary litigation threats to Johnson Controls?

Cadwallader: We’re a fairly traditional manufacturing company, but we’re also truly global. Fifty per cent, or even slightly more than 50 per cent, of our revenue comes from outside the United States, so we have all the types of litigation you can imagine a global employer with about 170,000 employees would have.

We have an active employment law docket, active contract issues, and active environmental issues. But we also have a good team that’s on top of everything, so we really don’t have any dockets that cause us to worry about the future of the company.

Big Law Business: What firms are you doing the most work with, or what firms do you have the longest standing relationships with?

Cadwallader: Our longest standing relationship is with Foley & Lardner , which is the largest firm in the Milwaukee area. We’re a Milwaukee company, so our relationship goes back 100 years, probably back to the time Foley started.

We also have an important relationship with Reed Smith , primarily out of their Chicago office. We have a lot of regional and overseas firms, but that list is long. Eighty per cent of our spending is focused on maybe ten firms.

Big Law Business: What are some of traits you look for when hiring a firm?

Cadwallader: We’ve gone through a process to restructure the legal department in the last year or so, and a lot of the change is focused on making sure we do a better job of managing outside counsel, and hiring appropriately.

We’ve centralized many of the traditional practice areas into what we’re calling “centers of excellence”— for example, our litigation group would be one, our contract management group would be another — where people engage deeply in particular areas.

We have very experienced litigators here in the United States, and very experienced commercial lawyers around the world, focused in commercial centers. One of the reasons we did this is so we could breathe life into the hiring process. We want to hire firms against an objective set of standards, and then managing them effectively.

I think many in-house departments do a reasonable job picking firms, but I really wonder how well we’ve done as a profession managing our outside partners and giving them honest feedback about outcomes and performance. We’re changing our structure to get control of that.

So what do we look for? Of course we look for what other big corporate legal departments are looking for — Are lawyers in the right jurisdiction? Have they done this work before? What’s their success rate?

Another thing we stress with our partners is diversity. Not only do we want them to have diverse partners, but we want diverse talent to participate in our files, and even be lead lawyers on our files.

There are some non-traditional things we look for, as well. Increasingly, we’re building an in-house legal department capability, so we’re looking for firms that are willing to help us augment that structure, not replace that structure.

We don’t want to hand a file over to a law firm and walk away. We want to aggregate the subject matter in that file and ask, “What can we do better as outside counsel?” or “What can a low cost legal provider do better than a law firm or we can do?”

For example, in litigation, we would like to see three-way partnerships — we manage the file, the outside counsel has particular knowledge of a jurisdiction or a deep subject matter expertise in a particular type of litigation, and then a low-cost provider handles a part of the litigation file like discovery, which is the most expensive.

That’s our model going forward, and how we would like to run our big files.

Big Law Business: How much has your legal department actually grown, in terms of numbers of lawyers?

Cadwallader: My former boss, Jerry Okarma, would always remind me that when he first got here, probably 20 years ago, it was him and four other people. Today, excluding the compliance group, we have about 85 lawyers in the legal department. I don’t think that growth is necessarily unusual compared to other large corporations. It’s a typical curve you would see for most in house legal departments.

In the last few years we’ve only added maybe an additional 10, but that’s because people have left, or we’ve repurposed people. As we go into this new model, we’ve been able to find roles appropriate for our existing staff, and then to add specific technical skills in areas that are critical.

So we haven’t had to add lots of bodies, nor do I anticipate adding a lot more bodies. It’s hard to predict, but I think we’ll add maybe another 10 lawyers over the next few years, and those will probably be technical experts, more than anything else.

We don’t have to staff at 100 per cent capacity. We could staff at 80 or 85 per cent and use the resources of low cost providers. If we’re doing a document review, why do it in house or at a law firm?

Of course we’ll manage the document review, so we’ve got to have the technical expertise here to make sure we’re doing it appropriately. But we don’t want to be handing it off blindly to law firms and saying, “Go bill us endlessly on things like discovery.” Law firms need to help decide the scope and methods of discovery—obviously they have a professional role in that just as we do. But they don’t necessarily have to use their staff.

If you have a 15-year inside lawyer and a 15-year firm lawyer, the inside lawyer costs, on an hourly basis, at least 50 per cent less than the firm lawyer. Why wouldn’t you bring what you can in-house?

Low costs providers are probably another 50 per cent off of the in-house cost to get people with 12-15 years’ experience working on specific matters.

So that is a big driver for a lot of GC today — how do you continue to balance effectiveness and efficiency? You can no longer just go get the biggest law firm and spend whatever it takes. We’re asking, “How do we get the same result, or an even better result, but do it efficiently?”

Big Law Business: Some GC also talk about the need to bring in young talent and develop it in-house as a way to solve this problem. Is that something you’re doing?

Cadwallader: We do have some newer lawyers than we’ve had in the past, but we’ve gone through several cycles. I actually have a couple of fairly senior lawyers that were brought in 20 years ago and were developed in-house, and then Johnson Controls moved away from that for various reasons.

Big in-house departments shoulder part of the blame. We’re refusing to pay training wages, if you will, to young associates. You used to do a big piece of litigation, and there’d be dozens of associates spending hours going through documents, but you don’t even know who these people were.

Part of cost containment is saying to a law firm, “We don’t want nameless, faceless people on our files. We’re not going to pay an associate’s training wage just to thumb through documents or go through emails.”

So we’ve been part of the cause for big law not hiring as many young associates. Whereas, traditionally, we’ve hired associates out of law firms between seven and 12 years to staff up in house legal departments, those associates are just not available like they used to be.

So we have to figure out how to train young lawyers. That’s something we’re going to have to get better at.

Part II of the Brian Cadwallader series will include: Cadwallader’s disillusionment with alternative fee arrangements, the future of the billable hour and how law firms can better understand the business context of legal decisions.

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