Articles Posted in Liability Prevention

The message of this blog, and what I do for my clients, is based on a single guiding conviction:

American businesses large and small pay increasing (never decreasing) legal costs – and miss opportunities to prevent liability before it happens.

Because owners and executives let the legal industry and its business model call the shots on pay, work flows, and personnel. They let law firm and in-house attorneys make decisions in these areas that no general manager would tolerate anywhere else in the business.

Meanwhile, demands of the litigation and regulatory environments proliferate.

It’s not as though no one agrees with this view.

In fact, this view is the staple of lawyers’ conferences (for instance, here, here, and here) and publications (for instance here, here, and here).

The words are the staple … that is.

Any constructive action in response not so much.

On the law firm side, the most recent Altman Weil survey of law firm leaders reported: “In 69% of law firms, partners resist most change efforts”.

69% of law firms.

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Half a decade ago Harvard Law School’s Professor David Wilkins announced that the legal industry had entered “the Global Age of More for Less” (see this speech, and this journal article).

The response from all but a few attorneys: Crickets.

Seen in the light of their cost-plus business model, “more for less” just sounded to them like “less” money to pay for “more” time. With a “management” technique that consists of assigning bodies-to-tasks, the legal industry is blind to process efficiencies, competitive pricing, and other skills that anyone who works to a P&L has already mastered.

As a result, law firms and in-house counsel won’t acknowledge that the collision between the legal system’s skyrocketing demands and company budgets (that have more constructive uses than to pay attorneys) is unsustainable. Instead, the legal industry tells business clients that the best they can hope for is to minimize (what they tell us are) the inevitable increases in their legal and regulatory line items.

Casey Flaherty, an insightful lawyer who advises corporate law departments, describes attorneys’ prevailing mindset:

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When I left the practice of law to accept a corporate client’s invitation to run a division, what I had to un-learn as a (then former) lawyer was even more important than the new skills I acquired as a general manager.  

None of this is meant to criticize the legal profession. It’s meant to help business owners and executives to identify who’s good at doing what roles — and then assign duties accordingly.

Early in my transition from lawyer in corporate practice to general manager I was supervising the closing on a large transaction. A combination of lawyers, my company’s commercial officers, and our customer’s finance people were busily reviewing a borrower’s most recent financials, finalizing lending documents, and arguing about whether or not all conditions precedent to final execution were in place.

Our chief operating officer — my new boss — motioned me out of the conference room.

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LawGeex — an Israel-based tech company whose artificial intelligence (AI)-based document review software automates the process of identifying risky provisions in contracts — has announced the results of a peer-reviewed study that compared artificial intelligence to human lawyers in the review of standard business contracts called non-disclosure agreements (NDAs).  

The LawGeex AI platform achieved 94% accuracy compared to an average of 85% among 20 human lawyers.

And timing? The human lawyers took an average of 92 minutes to review all 5 of the NDAs involved — and the AI platform took 26 seconds.

Why is this important? Because the review and approval of low-value, high-volume, day-to-day business contracts is a core business task that historically has required manual review by qualified (human) lawyers. The typical Fortune 1000 corporation maintains 20,000 to 40,000 contracts at any given time. And 83% report dissatisfaction with their contract management processes.

As to the kind of contracts reviewed in the study — NDAs — they typically take one week or longer to get approved (an experience I often endured as an executive at GE and Whirlpool).

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As I said in Part I, too many individual judges and bureaucrats indulge their own preconceived, subjective legal and regulatory views in ways that create bad surprises.

Your best protection?

The sound judgment of a lawyer who’s immersed in the views of those who call the legal and regulatory shots likely to impact your business.    

A couple of examples:

EXAMPLE #1

Where an idiosyncratic court ruling might expose your business entity to liabilities that you expected to be protected against:

Form your business entity — corporation, LLC, etc. — under the laws of a state whose court system handles the relevant issues frequently — and that values predictability in its rules.

Example: Delaware.

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Part III

For routine, repetitive, or high-volume legal or regulatory compliance tasks, ask yourself which service provider brings the the right business processes — and perhaps the right technology — to the need presented.

Some of your company’s legal and regulatory needs call for a team and a process.

Not for a particular attorney.

And certainly not for an attorney who happens to be under-utilized or to have only partial aptitude for the task.

Unlike general management, the legal industry doesn’t usually break down routine, repetitive, or high-volume tasks according to Six Sigma, the Toyota Production System, etc.

As a friend put it when we were both first year associates in a prestigious Wall Street law firm: “We’re in a cottage industry!”

He didn’t mean that our work was small beer. After all — each lawsuit and transaction had lots of zeros after the dollar sign.

Instead my friend meant that lawyers at our firm were essentially individual artisans, sitting at work benches making shoes by hand, etc. sitting at our desks, proof-reading trust indentures, researching case law, etc.

Most tasks handled by large law firms, by small law firms, and by in-house legal departments are made-to-order. Lawyers’ work is usually marked by intellectual rigor in the thinking behind it — but not by management rigor in its execution.

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In Part I of this two-part series I introduced Crew Resource Management — CRM — the basic aviation safety protocol as an effective tool to stop corporate misconduct at its source.

Several years ago I represented a pilot in an NTSB investigation. Working with three airline captains to prepare the case — they introduced me to CRM.

The ten-fold reduction in major accidents that coincided with CRM’s adoption between 1979 and 2009 was impossible to argue with (see Part I).

And Captain Sully Sullenberger of US Air Flight 1549 had written: “It was our CRM training that enabled my crew … to land on the Hudson River … and then safely evacuate 150 passengers ….”

Both aviation and business involve human beings working together.

And aviation isn’t the only sector where intimidation discourages effective communication and stymies teamwork.

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Citing Wells Fargo & Co.’s “recent and widespread consumer abuses and other compliance breakdowns”, the Federal Reserve announced late last Friday that it, “would restrict the growth of the firm until it sufficiently improves its governance and controls”.

The Wall Street Journal called the Fed’s action “unprecedented”. Ian Katz of Capital Alpha said that it has, “put the fear of God into bank boardrooms across the country”.

As of this morning at least five Wall Street investment banks have shifted from bullish to downgrades on Wells Fargo & Co. following this news.

Serious consequences. And well-deserved.

But something less dramatic in this development may be even more significant for the business community.

The “I-didn’t-see-anything” defense to business misconduct may be under siege.

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While wrapping up Part I of this two-part series I learned through a friend about a sizable family business here in Chicago that has consistently sent its legal work to one of the most prestigious law firms in town — very capable lawyers — with whom I’ve worked directly.

For what seemed like a routine employment matter — these prominent attorneys had proposed litigation on a scale out of all proportion to the problem presented.

And the legal fees — the client’s executives feared — would similarly be on a scale out of all proportion to the problem they faced.

They needed an alternative — and met with a sophisticated sole practitioner who acts as outsourced general counsel to privately-held businesses between $10 million and $50 million in revenues. Continue reading

surgeonsIn 2009 the Mayo Clinic’s cardiac surgeons asked for two more operating rooms to meet growing demand for open-heart surgery, according to a June 2017 story in the Wall Street Journal (subscription required)

“No” – replied the Mayo Clinic’s CEO.

Then he asked them to redesign every aspect of heart surgery to find at least 20% in cost cuts.

Externally, he saw a perfect storm of reduced revenue and increased costs driven by an aging population. Internally – responding to the CEO’s mandate – his chief of cardiovascular surgery found disparities of up to 2X in average cost per operation (from $55,000 to $110,000) — “too much variability”.

This sparked changes in surgeon scheduling, new physician-developed protocols that empowered nurses to streamline post-operative care, and a 50% reduction in average operating room turnover times between surgeries. The clinic cited “millions of dollars” in savings, though it declined to say if it met the 20% target.

The clinic did go on the record to claim $900 million in savings over the past five years from such re-engineering projects.

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