The Revolution that Put Power in the GC’s Hands (Review)

Book Review

[Image “The Inside Counsel Revolution Book Jacket” (src=https://bol.bna.com/wp-content/uploads/2016/04/The-Inside-Counsel-Revolution-Book-Jacket-e1460031643406.jpg)]The Inside Counsel Revolution

By Ben W. Heineman, Jr.

494 pages. Ankerwycke. $34.95.

Near the beginning of his book, Ben Heineman describes the massive bloodletting he implemented at General Electric’s corporate legal department, after arriving in 1987 as general counsel.

Within his first few years, 30 of the 33 lawyers who reported to him, or closely up to him, were gone.

In their place, Heineman sought out and hired the most talented lawyers available; in the beginning, this meant recruiting from outside law firms and government.

But times have changed since then. Eventually, law firms lost their status as the deepest pools of legal talent, and GCs began recruiting more from other corporate legal departments, and government, he writes.

“There has been a dramatic shift in power from outside law firms to inside legal departments as General Counsel and senior lawyers assert their leadership,” Heineman writes elsewhere in the book.

[Image “Ben Heineman_Headshot (1)” (src=https://bol.bna.com/wp-content/uploads/2016/04/Ben-Heineman_Headshot-1.jpg)]The transformation of the corporate legal department from a “backwater” into a premiere destination for ambitious lawyers to learn and grow their careers, in many ways forms the nub of what Heineman calls the Inside Counsel Revolution. He writes that the inside counsel movement began in the 1970s, and accelerated after Heineman — working on a mandate from his then-CEO Jack Welch — started cleaning house at GE.

“The influx of such extraordinary legal talent into a corporation sounded a thunderclap across the profession,” he writes, “and caused many lawyers in firms and in government to consider a position that had not been on the radar screen before: inside counsel.”

Few lawyers would question that the balance of power has shifted from outside law firms to in-house lawyers. In a 2015 survey of chief legal officers at 258 corporations, conducted by the law firm consultancy Altman Weil, more than half of the respondents said their budgets had increased overall, and that law firms are losing market share. Only 32 percent of the respondents said their outside counsel budgets had increased, compared to 44 percent that said they decreased their outside counsel budgets.

But none of that explains how the inside counsel movement started, which Heineman traces back to the 1970s and says started in earnest in the 1980s as a result of a series of causes:

• The economic “arrogance” of outside law firms, which started charging “ever higher fees purportedly based on the number of hours worked and invoiced with a single line stated for ‘services rendered.’”

• Second, as he and other GC’s asserted themselves, corporate law departments started attracting more ambitious lawyers, which fueled the movement toward more powerful in-house legal departments.

• Third, this caused more executives to reassess the role of their GC and expand its responsibilities.

• Fourth, the trends that incited it in the first place, such as globalization and an increasingly complex regulatory environment, increased the need for strong inside legal department.

• Fifth, the corporate scandals that started with Enron and Worldcom and have persisted have increased the need to build a culture of integrity.

But Heineman’s book is not a memoir of his time inside GE or a history of the inside counsel movement. Rather, he offers a set of prescriptions for how GCs can maximize their role in a corporation.

One of the principal problems for general counsel is that they occupy two roles that are in tension with each other, that of business partner to the CEO and also as guardian of the company’s legal interests. Heineman suggests the “lawyer-statesman” — a la Thomas Jefferson and former Secretary of State James Baker — is the practical ideal for which inside counsel should strive.

He further breaks this down into three roles. First, GCs must be “technical experts on law, policy and legal risk.” Second, lawyers must occupy the role of “wise counselors,” who advise on not only what is allowed under the law, but what is right for the corporation and society. Thirdly, lawyers must be leaders, tasked with managing huge departments.

The book explicates the unique role that a general counsel can play to help a corporation meet its highest performance and maintain integrity. He draws on recent history to call out lawyers who have fallen down, or commend his colleagues who in his view have effected tough decisions.

For instance, in 2010, Google’s General Counsel David Drummond indicated the company decided to pull out of China after its servers were hacked and its intellectual property stolen. This was a known threat at the time it entered the market in 2007, when the company was debating whether to accept government censorship of its search results.

About its decision to enter in 2007 and leave in 2010, he writes:

Google had to consider a variety of factors in China – legal, ethical, commercial, political and personnel … The point here is the analysis of a variety of factors that went far beyond law and posed a hard decision that ultimately the leaders of the company had to make … If the GC can help clearly expose the relevant factors and key trade-offs, and if there is no “right” answer, then the CEO or top business leaders must decide.

In that case, Heineman thinks Google’s lawyers made the right call. He also names plenty of instances in which lawyers fell down: At Enron, the stock options backdating scandal, Hewlett-Packard’s pretexting scandal and numerous others.

In most cases, the CEO or the board of directors, not the General Counsel, is the conscience of the company, according to Heineman. But in-house counsel bring a unique perspective and analysis that makes them a conscience, their views important and their role bigger than a bureaucratic function, he writes.

The book covers a broad range of other topics in its roughly 500 pages: It’s the “lawyer not the firm” that matters, Heineman opines. He also advises in-house counsel to develop close personal relationships with their outside counsel and what to do when the CEO is not being supportive.

One of his early quibbles in the book is with anyone who believes the legal profession is in a broad decline — a “simplistic” view:

Of course, there are greedy and supine lawyers. And trends reflecting pressures to make profits and wealth the singular overarching purpose of corporations and law firms are real — and disturbing. The need for change is genuine. But I deeply believe there is a strong opportunity, in the right circumstances, for the General Counsel to exemplify the ideal in practice, to play an important role in the corporation and in society — just as many broad-minded lawyers continue to do today in private law firms and in periods of public service.