To Embed Or Not?

// To decentralize or not? That is the question that many general counsels are asking these days. Business peeps, CEOs, and the like are pushing for in-house lawyers to be, for lack of a better word, “embedded” in various departments that they advise and represent in matters. According to a survey by Axiom, many general counsels think that their legal departments are not structured in ways that meet the business needs of the entity.

Of the approximately 300 general counsels surveyed, most say they will be making structural changes in their legal departments to align with the needs of the various corporate units more closely. What will that mean? Almost two-thirds of the respondents favor a basically centralized legal department but with 15% of lawyers embedded in business units. Not an overwhelming response to the idea of decentralization. Only 3% want their departments completely centralized and a piddling 1% favor total decentralization.

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This is not a new issue: 30 years ago, the thought was that placing lawyers in business units could save time and money and prompt quicker responses from a legal team that was often seen as a bunch of “Dr. Nos,” or who hid behind lengthy legal analyses that did not provide the strategic legal guidance wanted and needed.

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Business people don’t understand ethical issues that lawyers labor under. (I’m not trying to be patronizing here, but that’s the reality.) Business people want quick answers to pressing issues, and I get that and got that when I was in-house. But the reality is that not every issue can be solved with a snap of the fingers or a department head saying “Don’t worry about that.” Good lawyers do and should worry. It’s in every lawyer’s DNA or should be. It’s our job to worry, not only about giving correct legal advice in a timely manner, but also about the ethical boundaries that limit and constrain what we do and how we do it. The business people may sleep well at night, but we don’t necessarily share that same restful sleep.

We have dual responsibilities that clients usually don’t understand. Yes, we are to provide zealous representation on behalf of the clients, but we are also officers of the court, and that responsibility carries with it a whole different set of responsibilities and obligations. If the client admits to perjury while testifying, her lawyer has certain obligations that may well supersede the attorney/client relationship. If the client insists on a trial strategy that creates a conflict between the two that cannot be resolved, the attorney must withdraw, without disclosing the nature of the conflict.

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What about loyalty? A business peep asks the embedded in-house to perform a task that she considers unethical. What should she do, especially if the business person tells her not to inform the general counsel? What if she is given an assignment that could result in substantial liability to the entity? What if she tells the business person that a course of conduct has a potential legal violation? Is she more loyal to the business unit than to the entity? Doesn’t she have the obligation, essentially a “greater good,” to advise the general counsel about the issue?

How many business people understand the cost of discovery and its disputes? How many business people understand what a dispositive motion is? How many business people know how to negotiate legal fees and the disputes that almost always arise? They don’t know the terminology; they are clueless about how long a matter should take and what it should cost. How to explain to a CEO why a matter cost so much if the business people don’t understand legal costs and the department head wants “no stone left unturned?” How many times has an in-house counsel, trying to resolve a matter, heard “You’re taking their side?” from the business people? Too many times to count.

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And if embedded in a business unit, do those lawyers have the necessary detachment and objectivity to push back against ideas that make no sense or that will create substantial legal risk, just to placate the business person who now will write that attorney’s review and make compensation recommendations?

One of the issues that in-house lawyers have always confronted are the silos of business units. Limited or no sharing of information, of ideas, of how to improve efficiencies. As an article in Legal Dive about the Axiom report points out, general counsel “feel that having legal operations under their control optimizes in-house and external spend, has the strongest corporate governance and universal legal operations standards, allows for great flexibility in the deployment of resources, best mitigates risk and enables greater efficiency across business units and geographies.” What about the risks that arise when embedded lawyers are advocates, rather than detached advisors?

Does a decentralized legal department make sense? As we lawyers like to say, “It depends.”

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Jill Switzer has been an active member of the State Bar of California for over 40 years. She remembers practicing law in a kinder, gentler time. She’s had a diverse legal career, including stints as a deputy district attorney, a solo practice, and several senior in-house gigs. She now mediates full-time, which gives her the opportunity to see dinosaurs, millennials, and those in-between interact — it’s not always civil. You can reach her by email at [email protected].

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Biglaw, In-House Counsel, Jill Switzer