Interview with Paul Lippe, OnRamp Systems

 

How the role of general counsel differs from a law firm lawyer

 

Interview with Paul Lippe, OnRamp Systems

Paul Lippe, CEO of OnRamp Systems, describes the lawyers' role and the difference between in-house and outside counsel, the relevance of the legal function to business and how a General Counsel can leave an innovation footprint.

Paul Lippe was interviewed by Bruno Mascello.

 

How would you describe a General Counsel's job?

When the first wave of General Counsel (GC) of the ‘70's and ‘80s were asked to define their job, they would frequently say something like "we're just like a law firm, only we just have one client."  Today, if you ask a sophisticated GC like FMC Technology's Jeff Carr, they would say something like "we're just like the rest of the business, only we have legal training and we focus more on risk and long-term returns."  Although we often hear of companies hiring prominent lawyers with government or law firm experience and trumpeting their credentials, as often as not we see that followed by continuing risk-based losses for the company and the GC's departure within 2-3 years.  Any GC who doesn't understand that their role is very different from a firm or government lawyer's is unlikely to be successful.

 

Jeff Carr has an excellent summary of the four things lawyers do.

-       Advocacy - representing the client's interests in relationship to external parties, most commonly litigation;

-       Counseling - advising the client on actions that favor long-term over short-term interests;

-       Content - providing information about legal issues; and

-       Process - moving information from one place to another to create legal work product, typically either generating or analyzing contracts, or working through discovery-based work in litigation or investigation

 

Obviously there exist differences between general counsel and law firm lawyers. Could you elaborate about what the key differences between the two kinds of lawyers are about?

The simple comparison in this table below will show the most common elements of the dichotomy.

 

 

Firm Lawyer

GC

 

 

 

Time-orientation

Reactive

Strategic

Cost Orientation

More spend = more quality

Save money

Specialization

Highly specialized

Generalist

Problem Orientation

One matter at a time

All matters, all times, all connected

Source of Authority

Expertise, ability to compel CEO, Board

Relationships, ability to persuade at all levels

Source of pride

Ethics

Effectiveness

Locus of production

Individual

Team

Information

Scarce

Abundant

On Stones

Leave no stone unturned

Look under the right stone

Primary knowledge

The Law

The Business

Temperament

Adversarial

Collaborative

Self-image

Expert

Learner

Commercial Success

Given

Always at risk

Likes

Complexity

Simple

 

An important recent example of how lawyers should perform their role is the recent VW emission scandal.  If you view lawyers as strictly reactive, then I guess it was "OK" if the VW lawyers (whether inside or inside) did nothing to prevent the manipulation of emissions tests, since "no one asked them."  But if you view lawyers as strategic (as I do), then you think either that some lawyers should have pro-actively asked the question of how the company was able to get such high performance and low emissions results, when those were generally viewed as being near impossible, or that they should have had good enough contacts in the engineering organization that someone would have told them what was going on.

 

In a recent article you also outlined "classes of activities" in which the nature of the lawyers' role will vary. Could you explain what kind of activities you had in mind?

I distinguish the following five classes of activities.

 

a.   Create legally defined assets.  This is the most straightforward task of lawyers, and generally falls within Jeff's process category.  Although this can sometime involve government processes (filing a patent), in general these activities are fundamentally commercial, and lawyers should align with commercial principals of simplicity, speed, alignment and efficient hand-offs.  Very little of the activity in this arena is truly about legal risk; e.g., making a concession in an indemnification cause is simply a form of pricing concession

 

b.   Manage legally mediated conflicts. If the company is subject to (i) litigation from another non-governmental party but under the supervision of a court, or (ii) investigation by a government entity, the GC has to balance their strong sense of advocacy with a strict adherence to the formalisms of the processes.  The sort of information stacking that would be OK when dealing with commercial counter-parties can be catastrophic when managing a judicially overseen process, because the company could be subject to severe sanctions (e.g., not being allowed to present a defense) for withholding or misrepresenting information.

 

c.   Shape competitive battlefield.  Perhaps the most interesting role for the GC (and one rarely engaged by firm lawyers any more) is to help shape the overall environment for the company's success.  This is a mix of law and regulation, partnering with other companies, and protecting and enhancing reputation.  To successfully shape the competitive battlefield, GCs must take a long-term view and integrate the perspectives of many stakeholders, again resisting lawyers' tendency to seek maximum short-term tactical advantage.

 

d.   Influence corporate governance and incentives and constraints.  In the world that was, the primary notion of a GC (or any lawyer's role) was as "advising" the CEO and then the CEO would integrate that advice into decisions (commands and constraints) that were imposed on the rest of the organization.  In today's world, CEOs seek to distribute decision-making as much as possible.  The legal department will generally have decision-making, not advisory, responsibility for any decision that has significant legal content, and it will be exceptionally rare for the business owner to explicitly over-rule (as opposed to challenge or escalate) a cautionary judgment from legal.  For other decisions, the role of the GC is to make sure that the incentives, constraints and information for individual decision-makers reflect an appropriate mix of legal/ethical and risk managing considerations.

 

e.   Provide information that leads to appropriate classification decisions.  This is the most fraught area.  In addition to developing, making and selling its products or services, the core process of a company is coming up with financial statements that provide transparency and perhaps insight to investors, and feedback to the firm.  Outside lawyers will invariably argue that they don't have enough information to provide the correct classification, and are engaged to be advocates for the firm's position, so it falls to the in-house lawyers to understand the business well enough to provide a true picture to whomever (audit firm) is making the classification.

 

What kind of role does "understanding the business" play for outside and in-house counsel?

It goes without saying that GCs must have a deep understanding of their business so they can provide context-specific insight.  References to ‘widgets' or hypotheticals are forbidden.  Acting as "devil's advocate," questioning all initiatives equally, is nearly as useless, since it abdicates responsibility for true judgment, differentiating risks and focus on real hotspots, and forces innovators to run a bureaucratic gauntlet instead of providing helpful assistance.  All description of choices must be fact-based and specific to the organization.  While most risk is hard to quantify, legal should be prepared to provide relative risk ratings.  We like to say that law is now "embedded" in the business, so complex and pervasive as to be part of every decision, not a discrete event that can be channeled to legal experts, so legal decision-making can't be readily separated from overall business decision-making.

 

Looking at a general counsel interested to leave an innovation footprint on the legal department, what kind of recommendations would you provide?

To foster innovation in their legal teams, I would in particular recommend GCs the following:

 

Be specific about nature of activity and the role of lawyers.  As described above and could expanded upon almost indefinitely, lawyers perform a range of roles in the enterprise - the notion that they all involve same precise theoretical law school mix of zealous advocacy, independent ethical judgment, and reactive issue spotting is a generation out of date.

 

Start with design.  Design Thinking means you start with the most desired result and work through to the simplest, most elegant way to achieve it.  Design is the most appropriate for lawyers, because its primary goal is not cost reduction but effectiveness, and it works on a single matter rather than requiring scale and repetition.

 

Support innovation; accept feedback.  GCs should actively encourage innovation among their team, which includes a recognition that some innovations will be unsuccessful.  GCs should make sure their teams are aware of innovative practices inside their companies and at other legal departments, constantly exploring which approaches are working elsewhere and could be applied in their world.

 

Avoid waste. The primary conversation for the legal function since the Financial Crisis has been around cost reduction.  Legal is a corporate function, and so any waste in legal undermines the company's internal credibility; legal also has an enforcement role, so whenever clients come into contact with legal and legal is being unfocused and inefficient, it undermines the credibility of the legal function.

 

Create and manage legal work product in a modern way. To manage risk and enable innovation, we need to deliver legal work in a different way - systematically and information-centric.  Great lawyers design systems that balance risk and improve transparency; mediocre lawyers play whack-a-mole, reacting to problems by creating fear and friction.  Legal should ensure that work product is transparent and ties to other systems.

 

Paul Lippe is CEO of OnRamp Systems. He was at various times General Counsel and Senior Vice President, Business Development and Corporate Marketing at Synopsys, an electronic design automation company.  Paul was also CEO of Stanford SKOLAR, a medical digital library and e-learning company spun off from Stanford Medical School. A graduate of Yale College and Harvard Law School, Paul speaks and writes regularly about the "New Normal" in law (see e.g. http://www.abajournal.com/legalrebels/new_normal/).  Prior to law school he was a special assistant to Senator Daniel P. Moynihan (D. NY) and was Chairman of the Colorado Air Quality Control Commission. 

 

 

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