Memo to CEOs and GCs on “advance waivers”
On October 14, 2014, The Legal Intelligencer reported that General counsel were “increasingly seeing advance waiver clauses in engagement letters from large law firms.” They still are!
Advance waivers give notice to the client that the law firm they are seeking to engage represents many clients in many industries and some of those clients may have interests adverse to the new client, but, nevertheless, the new client agrees to waive any future conflict because the law firm promises to wall off any adverse matters from the new client’s matters.
A rather blunt rhetorical question immediately comes to mind, “What kind of fool agrees to such an advance waiver?”
Are outside counsel necessary?
The entire subject of advance waivers should immediately alert General Counsel to the need for reconsideration of the role which “outside counsel” should play in the operation and growth of a modern business enterprise. At the billing rates which large “full-service” law firms charge their business clients, the question is when and under what circumstances such large firms should be retained, and even whether the services of such firms are necessary at all.
The General Counsel of any large business enterprise is certainly the attorney most familiar with the legal needs of the company and is, or should be, the repository of the institutional legal history of the firm.
Just what are corporate lawyers and law departments supposed to do anyway?
The functional organization charts for all business enterprises have a number of common elements: business transactions; corporate management and regulatory compliance; real property management and transactions; intellectual property protection; legal issues associated with advertising, promotion, and marketing; insurance and risk management issues; general liability issues including litigation; products liability issues including litigation which might involve class actions; and the general need to monitor legislation, administrative agency regulation, and litigation which might affect the present or future operations of the company.
There is no reason why any of these basic business legal tasks should be outsourced. Outsourcing basic legal tasks from the office of the General Counsel in a large corporation is neither cost-effective nor does it provide a positive benefits-cost ratio. The overhead costs associated with maintaining any business function “in-house” will almost always be less than the overhead costs built into the billing rates for legal services provided by large time billing full-service law firms.
Profit centers, yes. But for whom?
General Counsel and Corporate Management must never forget that their business enterprise is nothing more than a “profit center” to a large full-service law firm. While it should be obvious that such a relationship is the antithesis of an attorney-client professional relationship, it is often overlooked.
Where the General Counsel in a large enterprise does not have sufficient expertise in-house to handle a particular matter, particularly litigation where the potential damages are not covered by insurance, then the general counsel should turn to an American Barrister in the case of litigation or some other independent specialist in the case of other matters with special skills are required. No conflicts should be tolerated and the barrister or other specialist should operate as “of counsel” to and be treated as a temporary part of the General Counsel office.
Chinese Walls do not prevent or even limit industrial espionage!
The idea of some kind of Chinese Wall as a way to avoid conflicts in a large full-service time billing law firm is no more effective than the present day Chinese Wall might be against modern airpower or even tanks and field artillery.
One need only think of central duplicating facilities and word processing in large law firms. I once asked a senior partner at a major intellectual property law firm whether the “key operator” of their large high-speed copying machines was a graduate student in electronic engineering or computer science at a nearby university? And then whether that student might be a foreign national? A stricken look on the face of the partner was the answer.
No business enterprise, particularly those engaged in international trade and commerce or whichc rely upon intellectual property and trade secrets or other proprietary information to operate should rely on some kind of Chinese Wall to protect their business and legal interests from unauthorized eyes and ears.
Circulating documents through a large “full service” law firm, even behind a Chinese Wall, is no less dangerous than the loose lips which sank ships during World War II.
Alternatives to full service outside law firms
There are literally thousands of unemployed and underemployed highly skilled attorneys ready, willing, and able to provide independent professional legal services without conflicts to large business enterprises whether as temporary contract employees or on a more established of counsel retainer basis. They will provide better service at lower cost than even the best of the large time billing full-service law firms.
The chief executive officers and the directors of every major corporation need to be sure that their company General Counsel has complete control and responsibility for all the legal matters which affect the company and its business operations.
If the General Counsel does not feel comfortable with that level of responsibility and accountability, then it is time for a new General Counsel.