Team of rivals? Toward a new model of the corporate attorney-client relationship

Fordham Law Review

Volumn 78, Issue 5, 2010, Pages 2067-2136

  Wilkins, David B ^a  

^a HARVARD LAW SCHOOL   (United States)

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EID: 77952733440     PISSN: 0015704X     EISSN: None     Source Type: Journal    
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References (383)

1. See Monroe H. Freedman, Henry Lord Brougham, Written by Himself, 19 GEO. J. LEGAL ETHICS 1213, 1215 (2006)
2. (quoting 2 THE TRIAL OF QUEEN CAROLINE 3 (1821)).
3. Id. (discussing the many admiring references to Brougham's quote).
4. William Simon was among the first to mount this critique, see generally William H. Simon, The Ideology of Advocacy: Procedural Justice and Professional Ethics, 1978 WIS. L. REV. 29, but there have now been many others.
5. See generally DAVID LUBAN, LAWYERS AND JUSTICE: AN ETHICAL STUDY (1988);
6. DEBORAH L. RHODE, IN THE INTERESTS OF JUSTICE: REFORMING THE LEGAL PROFESSION (2000);
7. Robert W. Gordon, The Independence of Lawyers, 68 B.U. L. REV. 1 (1988).
8. See generally David B. Wilkins, Making Context Count: Regulating Lawyers After Kaye, Scholer, 66 S. CAL. L. REV. 1145 (1993).
9. For the classic argument that the criminal defense context may be ethically distinct from the other work lawyers do, see Richard Wasserstrom, Lawyers as Professionals: Some Moral Issues, 5 HUM. RTS. 1, 6 (1975).
10. The unfolding controversy over the role that lawyers for both Bank of America and Merrill Lynch played in the failure to disclose to the shareholders of either company the billions of dollars in bonuses that Merrill intended to pay out prior to the merger of the two institutions may very well be just the opening salvo in this line of attack. See SEC Actions, http://www.secactions. com/?p=1430 (Aug. 25, 2009, 3:36 EST) (reporting that "[according to the SEC, it was the advice of the lawyers that resulted in the shareholders of both companies not being told about the billions of dollars in bonuses approved for Merrill employees when they voted on the acquisition of the broker by the bank").
11. If the blistering opinion by Judge Jed Rakoff rejecting the proposed settlement in the Bank of America/Merrill Lynch bonus case is any indication, the corporate bar could be in for a very bumpy ride indeed. See Zachery Kouwe, Judge Rejects a Settlement over Bonuses, N.Y. TIMES, Sept. 15, 2009, at Al (reporting that "[g]iving voice to the anger and frustration of many ordinary Americans, Judge Jed S. Rakoff issued a scathing ruling" rejecting the settlement).
12. On February 21, 2010, Judge Rakoff approved a $150 million settlement, but nevertheless criticized the settlement heavily. See SEC v. Bank of Am. Corp., Nos. 09 Civ. 6829, 10 Civ. 0215, slip op. at 14 (S.D.N.Y. Feb. 22, 2010) ("While better than nothing, this is half-baked justice at best.").
13. Freedman, supra note 1, at 1215.
14. See L. Ray Patterson, Legal Ethics and the Lawyer's Duty of Loyalty, 29 EMORY L.J. 909, 913-14 (1980) (characterizing the attorney-client relationship as primarily constituted by agency law).
15. See Randolph E. Paul, The Lawyer as a Tax Adviser, 25 ROCKY MTN. L. REV. 412, 418 (1953) (arguing that "[t]he job entrusted to [the tax lawyer] by his client is to use all his learning and ability to protect his client's rights" and that the lawyer's "notions of policy, and his personal view of what the law should be, are irrelevant").
16. Indeed, since lawyers are not only "agents" but also "fiduciaries," their obligation to pursue the interests of their client-principals is arguably even stronger than agents who represent clients in more arms-length contexts. For an account of the heightened obligations of fiduciaries who purport to act for their principals in situations of trust and confidence, see Tamar Frankel, Fiduciary Law, 71 CAL. L. REV. 795, 797-802 (1983).
17. Jeremy Bentham's "auto-icon" is in fact his own mummified remains, which are housed in a large plate-glass case in the Thane Library of Medical Sciences, University College London. For a full discussion of the creation of Bentham's auto-icon, see C. F. A. Marmoy, The "Auto-Icon" of Jeremy Bentham at University College, London, 2 MED. HIST. 77, 77-86 (1958), available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1034365/ pdf7medhist00183-0005.pdf. Bentham remained thoughtfully silent with respect to my thesis so he bears no responsibility for what follows.
18. 7 JEREMY BENTHAM, The Rationale of Judicial Evidence, in THE WORKS OF JEREMY BENTHAM 473-75, 477, 479 (John Bowring ed., London, Simpkin, Marshall & Co. 1843).
19. See generally David B. Wilkins, Do Clients Have Ethical Obligations to Lawyers? Some Lessons from the Diversity Wars, 11 GEO. J. LEGAL ETHICS 855 (1998).
20. For a general background on keiretsu, see Ronald J. Gilson & Mark J. Roe, Understanding the Japanese Keiretsu: Overlaps Between Corporate Governance and Industrial Organization, 102 YALE L.J. 871 (1993).
21. For an excellent description and analysis of the characteristics of these increasingly important relationships, see Ronald J. Gilson, Charles F. Sabel & Robert E. Scott, Contracting for Innovation: Vertical Disintegration and Interfirm Collaboration, 109 COLUM. L. REV. 431 (2009). I return to Gilson et al.'s analysis of the characterization of these relationships below.
22. See generally Ranjay Gulati & Maxim Sytch, Dependence Asymmetry and Joint Dependence in Interorganizational Relationships: Effects of Embeddedness on a Manufacturer's Performance in Procurement Relationships, 52 ADMIN. SCI. Q. 32 (2007) (discussing the difference between the "logic of power" and the "logic of embeddedness").
23. See Susan R. Helper & Mari Sako, Supplier Relations in Japan and the United States: Are They Converging?, MIT SLOAN MGMT. REV., Spring 1995, at 77, 77-84 (discussing the difference between "voice" and "exit" strategies in customer-supplier relationships in the automobile industry).
24. For the classic formulation of the difference between voice and exit, see ALBERT O. HIRSCHMAN, EXIT, VOICE, AND LOYALTY: RESPONSES TO DECLINES IN FIRMS, ORGANIZATIONS, AND STATES (1970).
25. Reinier Kraakman was the first to apply the term "gatekeeper" to describe this aspect of the lawyer's role and, more importantly, to explore the factors that influence whether lawyers will be able to play this role effectively. See Reinier H. Kraakman, Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy, 2 J.L. ECON. & ORG. 53 (1986);
26. see also JOHN C. COFFEE, JR., GATEKEEPERS: THE PROFESSIONS AND CORPORATE GOVERNANCE (2006). The idea that lawyers should be "officers of the court" with responsibilities to the public purposes of the law, however, is as old as the profession itself.
27. See generally, e.g., Eugene R. Gaetke, Lawyers as Officers of the Court, 42 VAND. L. REV. 39 (1989).
28. See Gaetke, supra note 16, at 41-43.
29. As Robert Gordon emphasizes, this ideal was inherited from the traditions of the English bar and has been a part of the legal profession's self-understanding since the 18th century. See generally Robert W. Gordon, "The Ideal and the Actual in the Law": Fantasies and Practices of New York City Lawyers, 1870-1910, in THE NEW HIGH PRIESTS: LAWYERS IN POST-CIVIL WAR AMERICA 51, 51-74 (Gerard W. Gawalt ed., 1984).
30. The following statement in the old Model Code typifies this view: "The duty of a lawyer, both to his client and to the legal system, is to represent his client zealously within the bounds of the law." See MODEL CODE OF PROF'L RESPONSIBILITY EC 7-1 (1982) (footnotes omitted). The Model Rules adopted in 1983 take a much more nuanced view of this connection. Although claiming that "[a] lawyer's responsibilities as a representative of clients, an officer of the legal system and a public citizen are usually harmonious," the rules also concede that "[i]n the nature of law practice ⋯ conflicting responsibilities are encountered" among the lawyer's various duties "while [also] earning a satisfactory living."
31. See MODEL RULES OF PROF'L CONDUCT pmbl. (1983).
32. See COFFEE, supra note 16, at 202-16;
33. Lewis D. Lowenfels, Expanding Public Responsibilities of Securities Lawyers: An Analysis of the New Trend in Standard of Care and Priorities of Duties, 74 COLUM. L. REV. 412 (1974);
34. L. Ray Patterson, The Limits of the Lawyer's Discretion and the Law of Legal Ethics: National Student Marketing Revisited, 1979 DUKE L.J. 1251.
35. See COFFEE, supra note 16, at 213-15.
36. See id. at 4 & n.9 (criticizing Judge Frank H. Easterbrook for assuming that reputational concerns will automatically make gatekeepers such as lawyers conform to public norms).
37. For an example of a strategy that relies on changing the norms of legal practice, see William H. Simon, Ethical Discretion in Lawyering, 101 HARV. L. REV. 1083 (1988).
38. See also Gordon, supra note 3.
39. My own prior work has tended to emphasize enforcement. See generally, e.g., David B. Wilkins, Who Should Regulate Lawyers?, 105 HARV. L. REV. 799 (1992) (arguing for promoting public-regarding gatekeeping by increasing enforcement of existing public duties).
40. David Luban has been one such exception. See LUBAN, supra note 3, at 324-26 (arguing that the relationship between public interest lawyers and their clients is better understood as one between "political comrades" than one of agency).
41. See, e.g., Link v. Wabash R.R. Co., 370 U.S. 626, 634 (1962) ("[E]ach party is deemed bound by the acts of his lawyer-agent and is considered to have 'notice of all facts, notice of which can be charged upon the attorney.'"
42. (quoting Smith v. Ayer, 101 U.S. 320, 326(1879))).
43. See ANTHONY T. KRONMAN, THE LOST LAWYER: FAILING IDEALS OF THE LEGAL PROFESSION 15 (1993).
44. Id.
45. See ERWIN O. SMIGEL, THE WALL STREET LAWYER: PROFESSIONAL ORGANIZATION MAN? 343-44 (1964).
46. For the connection between this account of lawyer professionalism and the noblesse oblige traditions of the early Whig party, see Gordon, supra note 17.
47. The scare quotes around "Golden Age," as Marc Galanter wryly notes, are to remind us that the period in question was only golden for those with the right race, gender, and religion to be admitted to the club. See Marc Galanter, Lawyers in the Mist: The Golden Age of Legal Nostalgia, 100 DICK. L. REV. 549, 555 & n.28 (1996). I have made a similar critique of Kronman.
48. See David B. Wilkins, Practical Wisdom for Practicing Lawyers: Separating Ideals from Ideology in Legal Ethics, 108 HARV. L. REV. 458 (1995) (book review).
49. See Gordon, supra note 17 (acknowledging that lawyers have probably never lived up to their stated ideals about professional independence, but citing examples in which the bar promoted projects that were not in the short-term interests of their corporate clientele).
50. See generally, e.g., Stephen L. Pepper, The Lawyer's Amoral Ethical Role: A Defense, A Problem, and Some Possibilities, 1986 AM. B. FOUND. RES. J. 613.
51. Gordon, supra note 3, at 22-23.
52. See Wilkins, supra note 11, at 855-56.
53. See L. Ray Patterson, The Function of a Code of Legal Ethics, 35 U. MIAMI L. REV. 695, 699-700 (1981) (arguing that the Model Code implies "that lawyers have only duties (not rights) in relation to clients, and that clients have only rights (not duties) in relation to lawyers"). Patterson goes on to argue against this understanding.
54. Id.
55. MODEL RULES OF PROF'L CONDUCT pmbl. (1983).
56. See Wilkins, supra note 11, at 855-56 (discussing the limited duties that client-principals owe to their lawyer-agents).
57. It is important to note that each of these periods is more complex than these simple synopses suggest. Specifically, in each period particular companies and law firms deviated from the general tendencies I describe in some, or in some cases all, of their respective attorney-client relationships. This is particularly true, as I note below, of what I have characterized as the "divorce" period in which even ardent advocates of breaking apart the bilateral monopolies that characterized the earlier period also recognized the value of "partnering" with their most important outside firms on their most important matters. Notwithstanding this important gloss, however, most knowledgeable observers would concede that the overall ethos of this period was to move toward a spot-contracting model of the attorney-client relationship characterized by the mantra that "we hire lawyers not firms."
58. Gordon, supra note 17, at 59
59. (citing 1 ROBERT T. SWAINE, THE CRAVATH FIRM AND ITS PREDECESSORS 1819-1947, at 369-71 (1948);
60. HENRY W. TAFT, A CENTURY AND A HALF OF THE NEW YORK BAR 191-201 (1938)).
61. See MARC GALANTER & THOMAS PALAY, TOURNAMENT OF LAWYERS: THE TRANSFORMATION OF THE BIG LAW FIRM 34 (1991) (describing the enduring relationship between companies and firms during the "Golden Age" and quoting clients as stating that "outside counsel has been with us for many, many years" or that they "have never given any thought to hiring another" firm).
62. See generally Ronald J. Gilson, The Devolution of the Legal Profession: A Demand Side Perspective, 49 MD. L. REV. 869 (1990).
63. Id.
64. GALANTER & PALAY, supra note 37, at 34-36.
65. See generally Gordon, supra note 3.
66. See SMIGEL, supra note 27, at 343-44 (arguing that as the law governing corporate conduct "proliferated and increased in importance" corporate clients increasingly valued firms with the experience to interpret the new legal order).
67. Id. at 107-08 (describing how "chosen" associates "are treated like heirs" and groomed to take over the firm's important client relationships).
68. Id. at 52 (describing how law firms regarded the "practice of law in the early years in the nature of an internship" and promised to provide young associates with both "broad general experience" as well as specific grounding in the problems of particular clients).
69. Gilson, supra note 38, at 899.
70. SMIGEL, supra note 27, at 344.
71. See generally, e.g., Pepper, supra note 29 (advocating this position). The constraint that a lawyer may not "counsel⋯ or assist a client, in conduct that the lawyer knows is criminal or fraudulent" comes from MODEL RULES OF PROF'L CONDUCT R. 1.2(d) (1983). Revealingly, Stephen Pepper argues that in order to maximize the autonomy of client-principals, lawyers should be required to construe even this standard constraint narrowly by giving clients access to the lawyer's "legal realist" understanding of the law as little more than the price of the sanction discounted by the probability of enforcement. Pepper, supra note 29, at 624-28.
72. SMIGEL, supra note 27, at 343.
73. See GALANTER & PALAY, supra note 37, at 52-59.
74. See Robert Eli Rosen, The Inside Counsel Movement, Professional Judgment and Organizational Representation, 64 IND. L.J. 479, 483-84 (1989).
75. See Gilson, supra note 38, at 903.
76. The banner headline over the cover story in Corporate Counsel magazine in which Heineman describes his role during this period captures this pride of place: "In the Beginning." See Ben W. Heineman, Jr., In the Beginning, CORP. COUNS., Apr. 2006, at 84, 84-89. In the interest of full disclosure, Heineman is a Senior Distinguished Fellow at the Harvard Law School Program on the Legal Profession. It is precisely because of this affiliation that I am particularly grateful for his graciousness in response to my decision to use him as the stylized exemplar of the tendency among general counsel during this period to move toward a more spot-contracting model of the attorney-client relationship. As Heineman has made clear in our conversations about this project, GE always believed in partnering with its outside counsel on important matters and that most of the company's relationships with its primary outside firms were both collegial and productive. I have no doubt that this is true, as it undoubtedly was for many other companies and firms. However, as Heineman also concedes, the locus of these relationships was at the level of the "matter" and not the "firm"-and that the company's primary goal was to secure the best lawyer for the work regardless of where that lawyer was housed, whether inside GE's legal department or in a firm that the company may or may not have used before. It is this emphasis on finding the best "horse for the course" that I believe characterizes the dominant ethos of this period.
77. As Heineman emphasized in an e-mail communication to me, business leaders play a crucial role in determining the nature and scope of a company's relationship to its lawyers - both inside counsel and outside firms. "Inside counsel really are much, much more concerned about their relationship with the Business than they are with outside counsel," he notes. The fact that Welch wanted lawyers who were intimately familiar with GE's culture and practices provided the key motivation for growing the company's in-house capacity. See E-mail from Ben W. Heineman, Jr. to author (Apr. 16, 2009) (on file with author). I return below to why business leaders might also want their outside counsel to have this kind of familiarity and how this is affecting the creation of a new relationship between companies and firms.
78. See generally Mary C. Daly, The Cultural, Ethical, and Legal Challenges in Lawyering for a Global Organization: The Role of the General Counsel, 46 EMORY L.J. 1057 (1997).
79. See, e.g., ROBERT L. NELSON, PARTNERS WITH POWER: THE SOCIAL TRANSFORMATION OF THE LARGE LAW FIRM 57-59 (1988);
80. Abram Chayes & Antonia H. Chayes, Corporate Counsel and the Elite Law Firm, 37 STAN. L. REV. 277, 278 (1985).
81. See Anthony Lin, Like Any Vendor, Law Firms Are Asked To Compete for Business on the Web, N.Y. L.J., Nov. 6, 2003, at 1.
82. See, e.g., Daniel J. DiLucchio, 'We Hire the Lawyer, Not the Law Firm'- Really?, LEGAL INTELLIGENCER, Jan. 29, 2009, http://www.law.com/jsp/pa/ PubArticlePA.jsp?id=1202427822427&slreturn=l&hbxlogin=l (noting that "[t]his statement has been used for years, and will probably continue to be used" since "[t]his is what the general counsel want you to believe"). As DiLucchio's use of "Really?" at the end of his title implies, he is skeptical about whether this oft-repeated claim is in fact true. I return to his skepticism below.
83. For a catalogue of these familiar changes during the period between 1975 and 1995, see JOHN P. HEINZ ET AL., URBAN LAWYERS: THE NEW SOCIAL STRUCTURE OF THE BAR (2005).
84. See KRONMAN, supra note 25, at 271-314.
85. For an extended discussion of the changing incentives for associates and partners during this period, see David B. Wilkins & G. Mitu Gulati, Reconceiving the Tournament of Lawyers: Tracking, Seeding, and Information Control in the Internal Labor Markets of Elite Law Firms, 84 VA. L. REV. 1581 (1998).
86. See Wilkins, supra note 22, at 824-25.
87. Rosen, supra note 50, at 479 (noting corporate counsel were once referred to as "house counsel," "tame," and "kept lawyers");
88. see also Chayes & Chayes, supra note 55, at 277 (noting that in-house counsel was typically a "relatively minor management figure, stereotypically a lawyer from the corporation's principal outside law firm who had not quite made the grade as partner").
89. Not surprisingly, Ben Heineman has been the most vocal and articulate spokesperson for this view. See Ben W. Heineman, Jr., Caught in the Middle, CORP. COUNS., Apr. 2007, at 84, 84-89 (arguing that general counsel must be both "partners" and "guardians").
90. See Deborah A. DeMott, The Discrete Roles of General Counsel, 74 FORDHAM L. REV. 955,960-61 (2005).
91. See NELSON, supra note 55, at 58.
92. See KRONMAN, supra note 25, at 283-84 (speculating that in-house lawyers may be able to carry on the lawyer-statesman ideal that outside counsel are no longer capable of performing).
93. See Gina Passarella, Corporate Law Departments Hiring More and Spending More, LEGAL INTELLIGENCER, Sept. 27, 2006, http://www.law.com/jsp/ihc/ PubArticleIHC.jsp?id=1159261524562 (reporting a survey by the consulting firm Alrman & Weil finding an average growth in outside legal expenses of 5.5% among responding companies notwithstanding a 19% increase in hiring in-house lawyers).
94. Janet L. Conley, GCs 'Can't Get No Satisfaction' from Outside Counsel, GC S., Mar. 2006, http://www.law.com/jsp/PubArticle.jsp?id=900005449198 (reporting a senior consultant from BTI as stating that "[satisfaction with outside law firms is 'particularly low' right now").
95. See John Gibeaut, The Outside Looking In, 90 A.B.A. J. 46, 49 (2004).
96. John E. Dull & David J. Gould, DuPont's Legal Experiment, IP WORLDWIDE, NOV. 25, 2002, http://www.law.com/jsp/article.jsp?id=900005533284.
97. Id.
98. Id.
99. Id.
100. Id.
101. See Libby Sander, In-House and Outside Counsel: Building a Solid Relationship, Cm. LAW., Mar. 2006, at 29
102. (citing several examples of convergence, including Allstate reducing its outside firms from 300-400 to 13 firms that would handle 80% to 90% of the company's work). Even those skeptical of the value of convergence concede that it is a growing trend among companies.
103. See Rees W. Morrison, Put Eggs in One Basket?, LEGAL TIMES (Wash., D.C.), Mar. 20, 2006, at 42 (acknowledging that "[f]or law departments in the past decade, convergence-that is, consolidating the number of outside firms used in order to save money - has been all the rage"). I will return to some of Morrison's criticisms below, but it is worth noting that even he advises a company to "concentrate" its legal spending by "lavish[ing] 80 percent of its outside-counsel budget on 10 percent of its law firms").
104. Id. For present purposes, the difference between " concentration" and "convergence" is largely semantic with respect to the firms getting the 80%.
105. In 2006, a group of scholars affiliated with the Harvard Law School Center on Lawyers and the Professional Services Industry conducted a study of how large, publicly traded companies purchase legal services. Our data includes (1) detailed interviews with forty-three general counsel of Standard & Poor's (S&P) 500 corporations and (2) a survey sent to CLOs of all S&P 500 companies as of December 31, 2006, which elicited a 28% response rate (n=139), for a total sample (interview and survey) of 166 companies, representing a third of the entire S&P 500. The survey respondents' companies accounted for between 30% to 40% of the S&P 500's revenues, assets, and employees. After comparing both interview and survey respondents and nonrespondents on a variety of metrics, we determined that in most respects the two subsamples were similar, although respondents tended to be larger and have higher demand for legal services than did nonrespondents. For a complete description of the study and a summary of its major findings, see Michele DeStefano Beardslee, John C. Coates, IV, Ashish Nanda & David B. Wilkins, Hiring Teams from Rivals: Theory and Evidence on the Evolving Relationship in the Corporate Legal Market (June 22, 2009) (unpublished manuscript, on file with author).
106. Id. at 21-22.
107. Although 40% of the firms in our sample decreased the number of law firms accounting for 80% of the companies' total legal spending between 2003 and 2006, just under 30% increased the number of firms in this category. The remaining 30% of respondents remained essentially unchanged. See id. I return to the reasons why many companies may resist further converging their outside counsel relationships below.
108. Eriq Gardner, Pfizer Litigators Endure Beast of a Beauty Contest, CORP. COUNS., Oct. 31, 2005, http://www.law.com/jsp/law/sfb/lawArticleSFB.jsp?id= 900005440167.
109. Gina Passarella, What's To Become of Wyeth Counsel After Pfizer Deal, LEGAL INTELLIGENCER, Jan. 28, 2009, at 1 (reporting Pfizer consolidation).
110. Confidential Interview with General Counsel (Apr. 1, 2008). Of course, companies care about the overall size of the fee as well. As another GC dryly noted, he had no interest in "buying every new partner at the firm a Jaguar." Confidential Interview with No. 7, General Counsel, Investment Bank (Nov. 2, 2006).
111. Passarella, supra note 80 (describing how Pfizer has begun giving all of its work in a given area to a single firm in return for a fixed fee).
112. Indeed, in our survey we specifically asked general counsel to discuss how they assigned "important" legal work where price was not the overarching determination. Nevertheless, convergence remained an important theme.
113. As we will see, in most cases "preferential access" does not mean a guarantee, particularly for "bet the company" cases or transactions as to which the company reserves the right to seek out the "best" firm.
114. Conley, supra note 68 (discussing survey).
115. Id.
116. see also Robert Eli Rosen, "We're All Consultants Now": How Change in Client Organizational Strategies Influences Change in the Organization of Corporate Legal Services, 44 ARIZ. L. REV. 637, 671-72 (2002)
117. (quoting a variety of law firm websites with slogans that promise to put "Clients First").
118. Conley, supra note 68. Although this is obviously still only a minority of respondents, as BTI suggests many of the other answers commonly provided by GCs - e.g., responsiveness, following directions, even developing an early strategy for resolving disputes - can fairly be viewed as connected to the client's overall desire to have lawyers who understand how legal issues and disputes fit into the client's overall business strategy.
119. Id.
120. As one typical respondent put it, "they must understand our business and be able to work well with our business people. I generally select people that the business people trust. We might try different firms on different projects and the one that becomes the most trusted advisor is the one that I will use on an ongoing basis." Confidential Interview with No. 2, General Counsel, Investment Bank (Oct. 4, 2008).
121. See Rosen, supra note 86, at 665-66.
122. See Richard Lloyd, Firm Commitment: How Tyco and Other Major Corporations Are Redefining the Client-Law Firm Relationship in Europe, FOCUS EUR., Summer 2008, at 28, 28-32.
123. Id. at 32.
124. Id.
125. Marc Galanter & William Henderson, The Elastic Tournament: A Second Transformation of the Big Law Firm, 60 STAN. L. REV. 1867, 1882 (2008).
126. SMIGEL, supra note 27, at 34 n.9.
127. The NLJ 250, NAT'L L.J., Nov. 13, 2006, at S3.
128. Lindsay Fortado, Steady Global Gains, NAT'L L.J., Jan. 23, 2006, at 1.
129. See lite Global 100, AM. LAW., Oct. 2007, at SI.
130. See June D. Bell & Aric Press, Law Firm Leaders Have Mergers on the Mind, LAW FIRM INC., Feb. 12, 2007, http://www.law.com/jsp/article.jsp?id= 1170928976695 (discussing the "merger momentum" in large law firms).
131. See Galanter & Henderson, supra note 94, at 1882
132. (citing increased demand as the reason why law firms have grown so dramatically over the last three decades).
133. See, e.g., David Temporal, Beyond Client Care, AM. LAW., July 2001, at 65 (noting that "[a]t many firms, it is typical to see the top 50 clients generate between 45 and 60 percent of the firm's income").
134. The following description is taken primarily from Ashish Nanda & Lauren Prusiner, Linklaters (A): Seeking Clear Blue Water 1 (Harvard Law Sch. Ctr. on Lawyers & the Prof 1 Servs. Indus., Case Study No. 08-01, 2007). Some of the information discussed is from the (B) and (C) cases that are not yet publicly available.
135. Michael D. Goldhaber, Touched by an Angel, AM. LAW., Oct. 2007, at 116, 118 (reporting that the firm's forty biggest clients and another forty preferred global clients account for fifty-two percent of the firm's billing).
136. Id. at 118-19 (reporting that "partners who do not serve the lucrative cross-border needs of priority clients are superfluous" and documenting that "125 partners left or retired in the last four years").
137. This also helps to explain why firms have increasingly sought to acquire new clients by buying lawyers (and sometimes firms) with large books of business.
138. Dull & Gould, supra note 70.
139. See Rosen, supra note 86, at 672 (noting that consultants now advise law firms to organize themselves "around industries rather than practice areas");
140. Peter D. Zeughauser, Optimal Organization, AM. LAW., Mar. 2001, at 63 (noting the growth in "client relationship partners" in "forward looking" law firms).
141. See Rosen, supra note 86, at 676 (noting that "[l]aw firms also sell added value through improved corporate processes by selling training");
142. see also Ross DAWSON, DEVELOPING KNOWLEDGE-BASED CLIENT RELATIONSHIPS: THE FUTURE OF PROFESSIONAL SERVICES 53 (2000) ("It is increasingly common for corporate counsel to specifically request knowledge transfer from their legal firms.").
143. The practice began in the U.K. as a way for U.K. and European companies with relatively small general counsel offices to expand their internal legal capabilities without having to invest the resources in hiring lawyers full time. As the process became institutionalized, however, both companies and firms recognized that it was also a good way to build institutional knowledge and trust.
144. See Gina Passarella, Loaning Out Lawyers To Get a Bigger Piece of the Corporate Pie, LEGAL INTELLIGENCER, Oct. 26, 2006, http://www.law.com/jsp/cc/ PubArticleCC.jsp?id=11617671191737 (describing the use of secondment programs by U.S. law firms to deepen their relationship with their best clients in an effort to increase business).
145. Sheri Qualters, Citigroup Lawyers Toil at Law Firms, NAT'L L.J., Oct. 9, 2006, at 8 (describing a joint hiring program between Citigroup and three of its primary law firms).
146. Confidential Interview, General Counsel, Brokerage Company.
147. Rosen, supra note 86, at 670
148. (quoting DAWSON, supra note 108, at 162).
149. Id. at 641. Rosen also argues that these changes have transformed in-house counsel offices as well. I return to these observations below.
150. Id.
151. Id. at 643-47.
152. Id. at 643.
153. Id. at 649
154. (quoting Paul DiMaggio, Introduction: Making Sense of the Contemporary Firm and Prefiguring Its Future, in THE TWENTY-FIRST-CENTURY FIRM: CHANGING ECONOMIC ORGANIZATION IN INTERNATIONAL PERSPECTIVE 3, 4 (Paul DiMaggio ed., 2001));
155. see also JOSEPH L. BADARACCO, JR., THE KNOWLEDGE LINK: HOW FIRMS COMPETE THROUGH STRATEGIC ALLIANCES 107-28 (1991). I return to Badaracco's analysis below.
156. Rosen, supra note 50, at 484-90.
157. Rosen, supra note 86, at 670.
158. John C. Coates, IV, CLO Turnover (unpublished research, on file with author).
159. Id.
160. See HEINZ ET AL., supra note 58.
161. See Rosen, supra note 86, at 642.
162. See Conley, supra note 68 (reporting that some "companies are spending more than ever on outside counsel following budget cuts that have forced GCs to slash their in-house staffs by 40 percent over the past five years").
163. See In-House Tech Survey, CORP. COUNS., Mar. 2007, at 78, 78-81. Although accurate numbers are difficult to come by, this survey of Fortune 500 companies found that almost 30% had fewer than 25 in-house lawyers while only about one quarter had departments over 100 - and fewer than 5% with megadepartments of 500 or more. As this indicates, in this regard as in so many others, GE is an outlier.
164. For a discussion of some of the potential differences, see Beardslee et al., supra note 76.
165. Conflict of interest rules partially protect against this problem. See MODEL RULES OF PROF'L CONDUCT R. 1.7 (1983). However, much of what a company may be afraid of losing may not be covered by such rules.
166. See generally John S. Dzienkowski, Positional Conflicts of Interest, 71 TEX. L. REV. 457 (1993).
167. See generally Claudia Loebbecke, The Future of Innovation ⋯ the Benefits of Being Realistic, in THE FUTURE OF INNOVATION (Bettina Von Stamm & Anna Triflova eds., 2009) (discussing cooptition).
168. See Gilson et al., supra note 13, at 447 (observing that "an interesting set of firms engages in a process of iterative co-design, in which suppliers contribute to the redefinition of interface specifications for new products by building on their experience in manufacturing existing models" and that these methods are today a familiar part of the new economy).
169. See generally BADARACCO, supra note 118.
170. See Richard W. Painter, The Moral Interdependence of Corporate Lawyers and Their Clients, 67 S. CAL. L. REV. 507, 520-53 (1994).
171. The following account is taken from Jeffrey H. Dyer, How Chrysler Created an American Keiretsu, HARV. BUS. REV., July-Aug. 1996, at 42, 42-56.
172. For a description of the Japanese models that Chrysler attempted to copy, see Mari Sako, Supplier Development at Honda, Nissan, and Toyota: Comparative Case Studies of Organizational Capability Enhancement, 13 INDUS. & CORP. CHANGE 281 (2004).
173. Dyer, supra note 132, at 43.
174. Id. at 53
175. (quoting Chrysler president Robert Lutz).
176. Id. at 43 (noting that "[t]he cost of developing a new vehicle has plunged an estimated 20% to 40%" at the same time that the company "has managed to produce one consumer hit after another" and "profit per vehicle has jumped from an average of $250 in the 1980s to ⋯ $2,110 in 1994").
177. On the difference between the logics of power and embeddedness, and how the former can paradoxically diminish the putatively stronger party's ability to extract value from an exchange relationship, see Gulati & Sytch, supra note 14, at 59-60. As a Chrysler manager interviewed by the researchers summarized the difference between the company's orientation before and after the new initiative, "The thinking used to be here that we'd like to see a supplier totally dependent on us and then we'd have the thumb over them. Now we recognize that neither extreme is good," Id. at 60 (internal quotation marks omitted).
178. See Dyer, supra note 132, at 55;
179. Helper & Sako, supra note 15, at 79-80 (cataloging measures taken by U.S. auto companies to give voice to their suppliers).
180. See Gulati & Sytch, supra note 14. As the authors demonstrate, Ford
181. See also Helper & Sako, supra note 15, at 80-82 (demonstrating the correlation between voice relationships and improved performance).
182. The account below is taken primarily from a series of discussions with Tyco's Trevor Faure in connection with a forthcoming case study I am writing on the Tyco/Eversheds relationship as well as Faure's recently published book on the SMARTER Model. TREVOR FAURE, THE SMARTER LEGAL MODEL: MORE FROM LESS (2010).
183. See Lloyd, supra note 91, at 31.
184. Id.
185. The Lawyer Awards, LAWYER, June 25, 2008, http://www.thelawyer.com/the- lawyer-awards-freshfields-scoopes-law-firm-of-year/133555.article.
186. Indeed, Faure will soon be spreading the gospel himself. In February 2009, Faure left Tyco to become the worldwide general counsel for Ernst & Young. I return to the implications of this move below.
187. Rosen, supra note 86, at 677.
188. Most of what follows comes from Clayton Christensen's excellent case study on the company. See Clayton M. Christensen & Scott D. Anthony, eLawForum: Transforming Legal Services, INNOSIGHT (Innosight, LLC, Watertown, Mass.), Jan. 31, 2003, at 1, available at http://www.innosight.com/documents/ elawforum.pdf.
189. The relationship between Unocal and the D.C. litigation firm Howrey is a case in point. After an eight-round bidding process conducted by eLawForum, Unocal hired Howrey to handle all of its environmental litigation for five years for a fixed fee paid quarterly and a variety of incentives. See Heather Smith, The Fix Is In, AM. LAW., NOV. 2005, at 54.
190. Howrey was not the lowest bidder for the work. Instead, the firm, which had represented the oil company on insurance and commercial cases but not on environmental litigation, impressed the company's general counsel with its "business-minded" approach that allowed the firm to tell the company "how they and we would make money" on the deal. Id. at 57 (internal quotation marks omitted).
191. Clients typically promise to provide the firm with accurate and complete information about cases and outcomes in a timely fashion. For their part, firms promise not to "bait and switch" by ensuring that partners who say they will work on the client's matters actually do so. See id. at 58;
192. Christensen & Anthony, supra note 144.
193. For example, in the Unocal/Howrey deal, the two parties will split any savings that Howrey generates by bringing in matters under the company's cost targets and will receive a performance bonus for every twenty cases that it resolves under the firm's historic cost of $500,000 per case. See Smith, supra note 145, at 57. A similar deal negotiated through eLawForum between Tyco International and Shook, Hardy & Bacon includes six different opportunities for the firm to be paid a bonus for achieving certain results. Id. at 58.
194. For example, Legal OnRamp is an invitation-only social networking site that connects in-house legal departments to outside lawyers. See Anna Oberthur, Virtual Connections: Lawyer-Only Sites Help Boost Online Networking, CAL. LAW., Mar. 2008, http://www.callawyer.com/story.cfm?pubdt=NaN&eid=892326&evid= 1.
195. See Smith, supra note 145, at 58.
196. Id. at 60
197. (quoting the relationship partner for Morgan Lewis about its fixed-fee contract with Cisco Systems to handle all the company's litigation for two years).
198. See id. at 58 (noting that all of the contracts arranged by eLawForum she reviewed "include provisions allowing the clients to end the arrangements if they're unhappy with the work").
199. See Beardslee et al., supra note 76, at 29;
200. see also Rees W. Morrison, The Truth Behind Those 'Firings,' LEGAL TIMES (Wash., D.C.), Mar. 19, 2007, at 44.
201. As Charles F. Sabel and Jonathan Zeitlin conclude about the ubiquity of such relationships generally, "Under the name of Japanese production methods (a misnomer, because they have become common knowledge in manufacturing and design), these methods are today a familiar part of the new economy." Charles F. Sabel & Jonathan Zeitlin, Neither Modularity nor Relational Contracting: Inter-firm Collaboration in the New Economy, 5 ENTERPRISE & SOC'Y 388, 397 (2004).
202. Indeed, when I called eLawForum's founder to discuss some of the issues in this paper, he professed great surprise that anyone would think his site had anything to do with professionalism or ethics. In this respect these entrepreneurs are quite different from the leaders of the Inside Counsel Movement, who Rosen describes as quite self-consciously engaged in a project to increase their professional standing by reorienting the normative understanding of the lawyer's role. See generally Rosen, supra note 50.
203. I made this point fifteen years ago with respect to corporate clients' ability to prevent what I then described as "agency delicts." See Wilkins, supra note 22. Given the growth in the number and sophistication of in-house counsel since then, this conclusion should be even more true today.
204. For the classic formulation of this concern, see Marc Galanter, Why the "Haves" Come Out Ahead: Speculations on the Limits of Legal Change, 9 LAW & SOC'Y REV. 95 (1974).
205. Ben W. Heineman, Jr., Bigger Isn 't Better, AM. LAW., NOV. 2008, at 71.
206. Among Heineman's objections are that global firms have an inflated cost structure that requires them to "bill until September" in order to be profitable and that these firms will inevitably have a large "mediocre middle" and little or no common culture that should make companies skeptical of the firm's quality claims - particularly across specialties and geographies. Id. at 72.
207. Id.
208. Id.
209. See RICHARD SUSSKIND, THE END OF LAWYERS? RETHINKING THE NATURE OF LEGAL SERVICES 28-36 (2008).
210. See Sander, supra note 75
211. (quoting Hildebrandt International consultant Joel F. Henning).
212. Although this work is not guaranteed, Faure recently reported to me that Eversheds is now getting a significant percentage of this high-end work.
213. See SUSSKIND, supra note 161.
214. The same analysis applies to the criticism that high turnover rates and poor internal control systems at many large law firms may limit the benefit that companies can expect to reap from convergence. To the extent that companies are worried about these problems-which, I should make clear, I believe that they should be - they have the resources at their disposal to require firms to take appropriate steps to limit the damage. I return to these controls below.
215. To the extent that firms create dedicated "client service teams" to handle a given company's matters across the entire range of the strategic partnership, the client will be able to minimize the lost value of the arrangement if its "team" moves en masse to another firm in the event that the primary firm fails. Indeed, this may be one reason why, as I indicate below, our survey suggests that companies are increasingly looking toward the "team" or "group" as the important focus of their relationship with their primary outside firms. Nevertheless, even if an entire client team moves to a new firm - an occurrence, needless to say, that is surely not a given in the wake of a law firm failure - there are still likely to be costs associated with reestablishing the strategic partnership in the new firm.
216. See Wilkins & Gulati, supra note 60, at 1608-11.
217. As one general counsel flatly told us, "We finally told all our firms that we would not pay for first-year associates."
218. See Ben W. Heineman, Jr. & David B. Wilkins, The Lost Generation?, CORP. COUNS., Mar. 2008, at 104.
219. As I have also argued, this lack of training has a particularly devastating impact on black and other minority lawyers. See David B. Wilkins & G. Mitu Gulati, Why Are There So Few Black Lawyers in Corporate Law Firms? An Institutional Analysis, 84 CAL. L. REV. 493,564-84 (1996).
220. See generally RONTT DINOVTTZER ET AL., AM. BAR. FOUND. & NALP FOUND, FOR LAW CAREER RESEARCH & EDUC, AFTER THE JD: FIRST RESULTS OF A NATIONAL STUDY OF LEGAL CAREERS (2004)
221. [hereinafter DINOVITZER ET AL., AFTER THE JD I] (reporting that junior associates in large law firms were dissatisfied with the training and mentoring that they received and that dissatisfaction in these areas is highly correlated with a lawyer's intention to leave his or her current employer within two years). We are in the process of analyzing the data from the study's second wave (examining respondents' careers after seven or eight years in practice) but preliminary results appear to confirm this finding. See generally RONIT DINOVITZER ET AL., AM. BAR. FOUND. & NALP FOUND, FOR LAW CAREER RESEARCH & EDUC, AFTER THE JD II: SECOND/RESULTS FROM A NATIONAL STUDY OF LEGAL CAREERS (2009) [hereinafter DINOVITZER ET AL, AFTER THE JD II].
222. Firms can try to ameliorate this danger by seeding their most promising associates, but as many partners will now concede - albeit candidly - it is becoming increasingly difficult to deliver on their promise of good training for even their most valued associates. See Wilkins & Gulati, supra note 60, at 1611-13.
223. Indeed, in a particular irony it is likely that many of the associates who leave firms will wind up working in the law departments of the very kind of companies that refused to train them in the first place. Although general counsel will certainly reply that they will be able to weed out those who have actually been trained at the point where they seek to hire these law firm refugees, the difficulty of gaining access to the private information about a given recruit's quality held by firms - information that neither the recruit nor the firm (or the headhunter) has any incentive to disclose - should make companies less than sanguine about their ability to make accurate judgments ex post.
224. David Kiley, Billions for Auto Suppliers' Bailout, Bus. WK., Mar. 19, 2009, http://ww.bustoessweek.com/lifestyle/content/mar2009/bw20090319-960219.htm (reporting that "[t]he Obama Administration on Mar. 19 created a $5 billion fund that guarantees payments to struggling auto suppliers, especially those tied to providing parts to General Motors (GM) and Chrysler that are facing the possibility of bankruptcy").
225. See Milton C. Regan, Jr., Taxes and Death: The Rise and Demise of Jenkens & Gilchrist (2008) (unpublished manuscript, on file with author).
226. See generally Tanina Rostain, Sheltering Lawyers: The Organized Tax Bar and the Tax Shelter Industry, 23 YALE J. ON REG. 77 (2006).
227. See Tax Shelter Users Reach $75 Million Settlement with Firms That Gave Bad Advice (Jan. 13, 2005), http://www.lawcash.com/attorney/3229/ernst- young-international-lawsuit.asp.
228. KPMG avoided indictment in 2005 for similar reasons for conduct that was even more egregious. See Robert Schmidt & Otis Bilodeau, KPMG May Avoid Indictment As U.S. Pushes Settlement, BLOOMBERG.COM, Aug. 4, 2005, http://www.bloomberg.com/apps/news?pid=10000103&refer=us&sid= aAysChTpuW6E
229. (quoting several Justice Department officials as saying that they would not indict the firm for fear of "eliminat[ing] thousands of jobs and reduc[ing] the number of major accounting firms to three").
230. As one general counsel stated in a remark typical of what we heard from many others, "We used [another firm] because [our main firm] had a conflict. We were pissed. We'd expect from our major providers that when taking on a matter if it's crystal clear we're going to need help too that they don't take the matter ⋯. [H]opefully someone from our law firms would call us and tell us and ask us if we want to engage them before they accept with a competition." Confidential Interview with No. 1, General Counsel, Investment Bank (Oct. 5, 2006);
231. see also Heineman, supra note 157, at 73 (noting the importance of firms not being on the other side of the client in sensitive policy-level disputes).
232. For a general discussion of the increasing importance of business or positional conflicts, see Dzienkowski, supra note 128.
233. See Beardslee et al., supra note 76, at 25.
234. See Sam Shulz, Wal-Mart Puts Foot Down on Rising Legal Fees, LAW360, NOV. 2, 2007, http://www.law360.com/articles/39210.
235. See Aric Press, A Long Time Coming, AM. LAW., Dec. 2008, at 96 (reporting on the Association of Corporate Counsel initiative);
236. see also Michelle Madsen, Wal-Mart Memo Slams Associate Pay-Hikes, LEGAL WK., NOV. 9, 2007, http://www.law.com/jsp/PubArticle.jsp?id=900005495581 (reporting that Wal-Mart was refusing to pay increased rates based on higher associate salaries).
237. See Beardslee et al., supra note 76.
238. Our survey does not allow us to tell in which direction the causation arrow points.
239. Elizabeth Chambliss and I first articulated this position in 2002. See generally Elizabeth Chambliss & David B. Wilkins, The Emerging Role of Ethics Advisors, General Counsel, and Other Compliance Specialists in Large Law Firms, 44 ARIZ. L. REV. 559 (2002). Chambliss has gone on to become the most articulate defender of this position.
240. See, e.g., Elizabeth Chambliss, The Professionalization of Law Firm In-House Counsel, 84 N.C. L. REV. 1515, 1552-72 (2006);
241. Elizabeth Chambliss, New Sources of Managerial Authority (2009) (unpublished manuscript, on file with author).
242. See Christine Parker & S. Mark, Regulating Law Firm Ethical Infrastructure: An Empirical Assessment of the Potential for Management Based Regulation of Legal Practice (2009) (unpublished manuscript, on file with author) (testing Chambliss and Wilkins's claims about the value of internal compliance procedures in a sample of Australian law firms and finding a statistically significant correlation between procedures adopted and avoiding certain kinds of misconduct).
243. Lincoln Sav. & Loan Ass'n v. Wall, 743 F. Supp. 901, 920 (D.D.C. 1989).
244. See Kraakman, supra note 16.
245. See William H. Simon, The Market for Bad Legal Advice: Academic Professional Responsibility Consulting as an Example, 60 STAN. L. REV. 1555, 1556-58 (2008). Although there has been heated criticism of Simon's contentions about the conduct of academic ethics advisers, no one has seriously challenged his basic claim that clients often demand that their lawyers bless transactions with little or no legal merit.
246. See generally Gordon, supra note 3.
247. See id. at 34;
248. see also Robert L. Nelson, Ideology, Practice, and Professional Autonomy: Social Values and Client Relationships in the Large Law Firm, 37 STAN. L. REV. 503 (1985) (discussing how corporate lawyers have beliefs similar to their clients).
249. But see Gordon, supra note 17;
250. William H. Simon, Babbit v. Brandeis: The Decline of the Professional Ideal, 37 STAN. L. REV. 565 (1985).
251. See Rosen, supra note 86.
252. I discuss the difference between these two meanings of "independence" in Wilkins, supra note 22, at 853-73.
253. See generally Robert L. Nelson & Laura Beth Nielsen, Cops, Counsel, and Entrepreneurs: Constructing the Role of Inside Counsel in Large Corporations, 34 LAW & Soc'Y REV. 457 (2000).
254. Rosen, supra note 86, at 671-75.
255. See, e.g., KRONMAN, supra note 25.
256. See id. at 271-314. Many contemporary commentators continue to echo this sentiment. See, e.g., COFFEE, supra note 16, at 194-95 (noting that the relationship between law firms and their corporate clients is now "less intimate, ongoing or fully informed than is the relationship between the same corporation and its outside auditor").
257. See COFFEE, supra note 16, at 226;
258. see also DENNIS F. THOMPSON, POLITICAL ETHICS AND PUBLIC OFFICE 40-65 (1987) (describing the difficulties created by situations in which there are "many hands"). As I explain below, this is precisely what Charles Keating did in the famous Lincoln Savings & Loan case that gave rise to Judge Sporkin's lament about "where were the lawyers?" that began this section.
259. See supra note 185 and accompanying text.
260. COFFEE, supra note 16, at 230.
261. See Steve Hoare, Comeback Kid, LAWYER, May 26, 2009, http://www. thelawyer.com/comeback-kid/132978.article.
262. Significantly, prevention also benefits the self-interest of general counsels who are constantly trying to get management to see that their value lies primarily in reducing the company's exposure to risk.
263. See COFFEE, supra note 16 (describing GCs as being good at prevention even though they are not really independent).
264. See David Crawford & Mike Esterl, Siemens Pays Record Fine in Probe: $800 Million Settlement Will End U.S. Bribery Case for German Conglomerate, WALL ST. J., Dec. 16, 2008, at B2.
265. It is possible that firms may try to reduce lawsuits by helping employees to hide misconduct rather than by eliminating it. This is, however, a risky strategy for both the firm and the company since if the misconduct is eventually detected, the potential exposure could increase dramatically because of the perceived cover-up.
266. See BENJAMIN GOMES-CASSERES, THE ALLIANCE REVOLUTION: THE NEW SHAPE OF BUSINESS RIVALRY 95 (1996) (arguing that alliance partners must "walk a fine line between rivalry and collaboration").
267. Id. at 35.
268. Ben Heineman has been one of the most ardent and articulate defenders of this view. See BEN W. HEINEMAN, JR., HIGH PERFORMANCE WITH HIGH INTEGRITY 1 (2008) ("[C]ontemporary corporations should strive to fuse high performance with high integrity-the twin goals of capitalism.").
269. See Jennifer Reingold, Jim Collins: How Great Companies Turn Crisis into Opportunity, FORTUNE, Feb. 2, 2009, at 48, 50
270. (quoting Collins as arguing that what distinguishes companies that succeed is that they have core values that explain "why it is important that [the companies continue to] exist[]" and that "[t]he more challenged you are, the more you have to have your values"). Collins goes on to give the example of Proctor & Gamble during the depression: "One of the things that was very distinctive about P&G ⋯ was that they said a customer will always be able to depend on the fact that a product is what we say it is - we will always build our reputation on quality. When they were under pressure to start cutting corners or use cheaper ingredients, they just didn't do that." Id. It is important to note that Collins is, as the article describes, a highly respected "management guru" whose books Built to Last and Good to Great have sold more copies than any others in the genre. Id. at 49. As a result, whether or not his diagnosis of what makes companies succeed in difficult times is in fact true, it is likely to be very influential among business leaders.
271. As a particularly effusive advocate of this view put it, [Large law firms provide] an exceptional opportunity to acquire a liberal education in modern government and society. Such partnerships are likely in the future, as they have in the past, to prepare and offer for public service men exceptionally qualified to serve. The very nature of such a partnership permits a man to do more, not less civic work, and permits him, as a true officer of the court and responsible citizen, more readily to enter public service for various periods and to serve society to his full professional capacity. ARTHUR H. DEAN, WILLIAM NELSON CROMWELL 1854-1948: AN AMERICAN PIONEER IN CORPORATION, COMPARATIVE AND INTERNATIONAL LAW 86 (1957).
272. See DINOVITZER ET AL., AFTER THE JD I, supra note 170 (reporting that the primary reason reported by respondents for why they went to law school was to have a "satisfying career" as opposed to high salaries or prestige).
273. I have elsewhere called this the paradox of professional distinctiveness. In order to compete both with each other and with other professionals, law firms are under tremendous pressure to become more "business-like." But if they become too much like any other business then those seeking only money will rationally move to alternative careers with shorter qualification standards and potentially much higher returns. See generally David B. Wilkins, Partner, Shmartner! EEOC v, Sidley Austin Brown & Wood, 120 HARV. L. REV. 1264 (2007). Of course, whether alternative careers such as investment banking will remain more lucrative than practicing law after the current economic collapse remains to be seen.
274. See Nate Raymond, Former UBS Banker, Tired of Bonus Politics, Heading to Linklaters, AMLAW DAILY, Apr. 2009, http://amlawdaily.typepad.com/amlawdaily/ 2009/04/former-ubs-banker-tired-of-bonus-politics-joins-linklaters.html (describing the decision by a former Cravath partner who left that firm in 2005 to join UBS to leave the investment bank in 2009 and join the U.K. law firm Linklaters).
275. See Painter, supra note 131, at 520-53 (noting the substantial power that outside firms have in structuring the internal dynamics of their corporate clients).
276. See Heineman, supra note 63.
277. See Rosen, supra note 86, at 658 (noting that because inside lawyers work on business teams, legal work is done in a "managerial frame" creating a danger that these lawyers will view themselves as just another consultant who "add[s] value" and not as "a carrier of independent professional judgment").
278. Indeed, in the eyes of many, corporate firms have been the principal beneficiaries of this legitimacy. See KRONMAN, supra note 25, at 273 (arguing that "[f]or a hundred years the large corporate firm has been the principal standard-bearer of the lawyer-statesman ideal in the sphere of private practice").
279. Hoare, supra note 197.
280. 347 U.S. 483 (1954).
281. See LUBAN, supra note 3, at 252-56 (arguing that "Equal Justice Under Law" is the legal profession's core legitimating ideal).
282. See, e.g., Kellie Schmitt, Corporate Diversity Demands Put Pressure on Outside Counsel, RECORDER (S.F.), Dec. 28, 2006, http://www.law.com/jsp/ PubArticle.jsp?id=900005470357. Needless to say, one can certainly question how effective - or even sincere - many of these efforts have been. I return to the issue of effectiveness below. But as damning as this evidence is, it remains clear that companies - and increasingly firms - believe it is important to be seen as being committed to this issue. Firms that are not seen as committed risk losing legitimacy with core constituencies.
283. David B. Wilkins, From "Separate Is Inherently Unequal" to "Diversity Is Good for Business": The Rise of Market-Based Diversity Arguments and the Fate of the Black Corporate Bar, 117 , HARV. L. REV. 1548 (2004);
284. see also Beardslee et al., supra note 76, at 29.
285. See Wilkins, supra note 216, at 1575. Our research on corporate counsel bears this out. Although many general counsels told us that diversity was important to them in our qualitative interviews, in the survey itself this factor was ranked by most GCs as "unimportant" when making important legal purchasing decisions.
286. Rosen, supra note 86, at 649.
287. Id. at 660.
288. Anthony V. Alfieri, The Fall of Legal Ethics and the Rise of Risk Management, 94 GEO. L.J. 1909, 1939 (2006);
289. see also Milton C. Regan, Jr., Risky Business, 94 GEO. L.J. 1957,1966 (2006) (arguing that "conceptualizing ethics as a matter of avoiding liability can influence [personal] dispositions, attitudes, and motives, and, therefore, how someone exercises her discretion");
290. William H. Simon, The Ethics Teacher's Bittersweet Revenge: Virtue and Risk Management, 94 GEO. L.J. 1985 (2006).
291. Simon, supra note 220, at 1987.
292. See Anthony E. Davis, Legal Ethics and Risk Management: Complementary Visions of Lawyer Regulation, 21 GEO. J. LEGAL ETHICS 95, 96 (2008) (arguing that "far from 'undermin[ing] the aspirational tradition of legal professionalism,' as suggested by Professor Alfieri, risk management is actually about institutionalizing precisely those values, and giving them concrete form" (alteration in original)
293. (quoting Alfieri, supra note 220, at 1939));
294. see also Chambliss & Wilkins, supra note 183.
295. For an excellent description of the contractual problems caused by these new forms of alliances and the complex ways that customers and suppliers attempt to work around these problems, see generally Gilson et al., supra note 13.
296. See GOMES-CASSERES, supra note 201, at 34-35;
297. see also Gulati & Sytch, supra note 14, at 41 (arguing that "relationships characterized by high joint dependence foster a culture of 'mutual reliance' in which exchange partners exhibit a decreased proclivity for opportunistic behavior"
298. (citing OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM: FIRMS, MARKETS, RELATIONAL CONTRACTING 190(1985))).
299. The Tyco/Eversheds deal, for example, was scheduled to run for two years, but because significant problems arose in the first year, in part because neither party had fully anticipated the difficulty of shifting all of the company's work in such a short space of time, the parties renegotiated important aspects of the deal after the first year. See Lloyd, supra note 91, at 31.
300. See generally Ranjay Gulati, Does Familiarity Breed Trust? The Implications of Repeated Ties for Contractual Choice in Alliances, 38 ACAD. MGMT. J. 85 (1995).
301. As Gilson underscores, to maintain these relationships requires a complex combination of normative and structural elements that are "more formal than 'relationships,' but designed to facilitate learning among collaborating peers by means much less formal than hierarchical ordering." Gilson et al., supra note 13, at 446.
302. The classic text on the relationship between norms and their enforcement is Duncan Kennedy, Form and Substance in Private Law Adjudication, 89 HARV. L. REV. 1685 (1976).
303. For my application of Kennedy's insight about the relationship between the content of a norm and its enforcement to legal ethics, see Wilkins, supra note 22, at 809-12 (discussing the connection between "content" and "compliance" arguments in legal ethics).
304. See also David B. Wilkins, Legal Realism for Lawyers, 104 HARV. L. REV. 468,481 (1990).
305. I use the qualifier "legitimate" advisedly. There is a long history of lawyers speaking as if "professional independence" is a good unto itself. See, e.g., KRONMAN, supra note 25, at 109-62 (arguing that the ideal that lawyers should be "statesmen" who are sympathetic but ultimately detached from the aims of their clients is ultimately grounded in the professional moral development of lawyers themselves). But while the legal profession cannot survive unless those who enter into it find their careers satisfying - a nonfrivolous question in today's profession - the content of professional norms cannot rest solely (or even largely) on what is good for lawyers. See Wilkins, supra note 27, at 472 (making this point with respect to Kronman's book). Given that the bar has often used the ideal of professional independence as a sword to defeat the kinds of external regulation that might actually give corporate lawyers the incentive to resist the improper demands of their powerful clients, we should be particularly careful about uncritically accepting arguments of this kind as a reason not to explore the types of ethical and regulatory alternatives described below. On the bar's use of independence arguments to restrict public participation in the development of ethical norms, see Deborah L. Rhode, Why the ABA Bothers: A Functional Perspective on Professional Codes, 59 TEX. L. REV. 689, 690-92 (1981).
306. For a more detailed analysis of how external enforcement can promote independence from clients, see Wilkins, supra note 22, at 863-73.
307. See, e.g., MONROE H. FREEDMAN & ABBE SMITH, UNDERSTANDING LAWYERS' ETHICS § 5.01, at 129 (3d ed. 2004) (arguing that legal ethics is premised on the clients' need to be able to trust their fate to their lawyer).
308. See JOHN P. HEINZ & EDWARD O. LAUMANN, CHICAGO LAWYERS: THE SOCIAL STRUCTURE OF THE BAR 380 (1982) (characterizing the corporate sector of the bar as a "patronage-type occupation⋯ where corporate clients to a large degree dictate the nature of the work done").
309. Note, for example, the competing positions taken by the American Bar Association and the American Corporate Counsel Association on the issue of multidisciplinary practice in the late 1990s. See ANDREW L. KAUFMAN & DAVID B. WILKINS, PROBLEMS IN PROFESSIONAL RESPONSIBILITY FOR A CHANGING PROFESSION 651-66 (4th ed. 2002) (discussing this debate).
310. Compare Smith, supra note 145, at 58-60
311. (quoting Cisco's general counsel as lamenting that the firms the company used before moving to its current preferred provider relationship "shed crocodile tears when they heard we got sued"), with Nathan Koppel & Ashby Jones, "Billable Hour" Under Attack: In Recession, Companies Push Law Firms for Flat-Fee Contracts, WALL ST. J., Aug. 24, 2009, at A1 (noting that the shift by some companies to flat fees "could further squeeze earnings at top law firms" and quoting a partner complaining that "'a client can't expect to have the absolute best team of [trial] lawyers from a firm, and have the lawyers give up all the other work they could be doing on a regular-fee basis, to work 18 hours a day for months of time on a flat-fee engagement'").
312. One final anecdote: my colleagues at Harvard Law School and I were considering designing a joint executive education program for lawyers from both law firms and general counsel offices but abandoned the idea when too many general counsels indicated that they would not come to such an event.
313. See GOMES-CASSERES, supra note 201, at 87.
314. Jack Coffee cites exactly this problem as the reason for dismissing legal ethics as a plausible foundation for establishing an effective gatekeeping role for corporate counsel: Because legal ethics at its core views the attorney as a client-serving professional who is not permitted to dominate the relationship (and because market conditions make it unlikely that lawyers could do so today), legal ethics does not hold out a practical remedy for gatekeeper failure. One must therefore look beyond legal ethics and the moral exhortations it provides to find a realistic means to empower the attorney as gatekeeper. COFFEE, supra note 16, at 229. The fact that the move toward strategic alliances between lawyers and firms alters the market conditions that inhibit gatekeeping implies that a move away from the client-serving agency model might actually produce real results.
315. See MODEL RULES OF PROF'L CONDUCT R. 116 cmt. (1983) (noting that a client has an unqualified right to fire his or her lawyer "at any time, with or without cause").
316. See Henry, Walden & Davis v. Goodman, 741 S.W.2d 233, 236 (Ark. 1987) ("The relationship between the attorney and his client must be based upon the utmost trust and confidence ⋯. The exercise of the right to discharge an attorney with or without cause does not constitute a breach of contract because it is a basic term of the contract implied by law into it by reason of the nature of the attorney-client relationship⋯.").
317. See generally William H. Simon, The Kaye Scholer Affair: The Lawyer's Duty of Candor and the Bar's Temptations of Evasion and Apology, 23 LAW & Soc. INQUIRY 243 (1998).
318. For my own take on the case, see Wilkins, supra note 4.
319. See Wilkins, supra note 4, at 1208 n.-256
320. (quoting an internal Kaye, Scholer memorandum).
321. See MODEL RULES OF PROF'L CONDUCT R. 1.6 (1983) (providing that a lawyer may only breach confidentiality to prevent a future crime involving death or serious bodily harm, or in a dispute with the client or in a proceeding involving the lawyer's representation of the client);
322. see also PHILIP B. HEYMANN & LANCE LIEBMAN, THE SOCIAL RESPONSIBILITIES OF LAWYERS: CASE STUDIES 193-95 (1988) (describing the infamous OPM Leasing case in which a lawyer who resigned because he discovered evidence that his client was engaged in a massive fraud felt compelled by the confidentiality rules not to reveal what he knew to successor counsel). Ironically, the successor lawyer involved in OPM was none other than Peter Fishbein, who subsequently was the lead lawyer for Kaye Scholer in the Lincoln Savings & Loan case. I discuss the changes to Rule 1.6 and other related rules that would have altered what would have been permissible for lawyers in the Lincoln and OPM cases below.
323. See COFFEE, supra note 16, at 225-26.
324. See, e.g., Robert W. Gordon, A New Role for Lawyers?: The Corporate Counselor After Enron, 35 CONN. L. REV. 1185 (2003).
325. See COFFEE, supra note 16, at 226
326. (citing MODEL RULES OF PROF'L CONDUCT R. 1.2 (2003)). As Coffee goes on to say, "If the organization as client wants to use outside counsel in a narrow fashion, asking them only technical questions and structuring the relationship so that outside counsel is neither invited nor equipped to provide 'holistic' advice, the organization would seem entitled to do so." Id.
327. Id. at 231.
328. See Gulati & Sytch, supra note 14, at 61 (emphasizing that the logic of embeddedness is mediated by the amount of "joint action" between the parties and that this factor significantly "contributes to the enhanced performance of the relationship as a whole and its increased value-generating potential").
329. See Bd. of Prof 1 Responsibility of the Supreme Court of Tenn., Formal Ethics Op. 96-F-140 (1996) (refusing to allow a lawyer appointed to represent a minor seeking an abortion to resign because the lawyer was morally opposed to the procedure under any circumstances). Given that corporate clients are sophisticated repeat players who must operate every day in relationships that are less than ideal, the argument that the rule allowing clients to fire their lawyers for any reason is necessary to preserve the client's right to effective
330. See MODEL RULES OF PROF'L CONDUCT R. 1.6(b)(2)-(3) (2007).
331. Id.
332. Of course, if the lawyer did know about the fraud (or turned a blind eye under circumstances in which such knowledge can reasonably be inferred) and continued to actively assist the client, he or she would not only be guilty of violating the ethics rules but (most likely) the substantive law as well. See MODEL RULES OF PROF'L CONDUCT R. 1.2(d) (2007) ("A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent ⋯."). I return to the question of how the substantive law regulates lawyer conduct below.
333. Id. R. 1.13(b).
334. Id. R. 1.13(c).
335. Id. R. 1.13(e).
336. See COFFEE, supra note 16, at 372 (arguing that regulation will be required to allow gatekeepers to function in a world where they can "demand fuller disclosure, to report misconduct up the ladder, and to search for information the corporation wanted not to disclose").
337. For my prior analysis of the limited ability of "general moral" and "corporate social responsibility" arguments to generate robust ethical duties by clients to promote diversity in law firms, see Wilkins, supra note 11, at 868-75.
338. Although the trigger for up-the-ladder reporting under SOX is notoriously murky, the Act nevertheless sets an objective standard for defining the lawyer's duties in this area. See Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, § 307, 116 Stat. 745, 784 (codified as amended in scattered sections of 15 U.S.C. (2006));
339. SEC Rule, 17 C.F.R. § 205.2(e) (2009) (mandating up-the-ladder reporting if there is "credible evidence, based upon which it would be unreasonable ⋯ for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation has occurred"). Model Rule 1.13, on the other hand, still requires that the lawyer has actual knowledge of a material violation before he or she is required to report conduct to a higher authority in the organization. MODEL RULES OF PROF'L CONDUCT R. 1.13 (2007);
340. see also id. R. 1.0(0 (defining "knows" as "denot[ing] actual knowledge of the fact in question").
341. See Wilkins, supra note 22, at 835-38.
342. See COFFEE, supra note 16, at 221-23 (describing the bar's successful efforts to beat back this rule).
343. See Tanina Rostain, General Counsel in the Age of Compliance: Preliminary Findings and New Research Questions, 21 GEO. J. LEGAL ETHICS 465, 473 (2008).
344. Rostain compares her results to the relative unwillingness by general counsels to act as "cops" found in studies conducted by Nelson and Neilsen and Robert Rosen in the 1990s and 1980s respectively. See generally Nelson & Nielsen, supra note 191;
345. Rosen, supra note 50.
346. Rostain, supra note 258, at 489
347. (quoting the general counsel of a medical device company).
348. See Martin C. Daks, Compliance, Not Legal Fees, Named as GCs' Chief Concern, N.J. L.J., Nov. 1, 2006, http://www.law.com/jsp/ihc/PubArticleIHC.jsp? id=1162289115195 (reporting that in a survey of general counsel in 169 companies, eighty-six percent listed '"keeping track of company activities that might have legal implications'" as their number one concern);
349. see also Conley, supra note 68 (reporting that "GCs - buffeted by regulatory changes from the Sarbanes-Oxley Act, an increasingly risk-averse corporate environment and CEOs who want cost containment and more value from in-house law departments - are turning to outside lawyers with greater frequency").
350. Rostain, supra note 258, at 480. Examples of this new regulatory approach can be found in fields as diverse as environmental protection policy to antiterrorism and employment discrimination regulation.
351. See id. at 466-67.
352. See COFFEE, supra note 16, at 231.
353. Id. at 351.
354. Id. at 347-52.
355. Although any proposal to create a class of specialists with enhanced responsibilities for gatekeeping runs the risk of diminishing the importance that lawyers not in this role place on these public duties, Coffee's proposal seems particularly likely to produce this result. A law firm general counsel, for example, is specifically charged with interacting with the firm's partners and associates in order to remind them of their individual professional obligations. See generally Davis, supra note 222. Coffee's proposal, on the other hand, seems to contemplate that disclosure counsel, who by definition will come from a different law firm than the other lawyers working for the corporation, should perform their role independently without seeking to influence what the company's other lawyers are doing. Indeed, given that disclosure counsel would be assuming all of the risks of nondisclosure, it may even be difficult to get lawyers to assume this new role since malpractice insurance and other related costs would likely be quite high.
356. See generally CHRISTINE PARKER, THE OPEN CORPORATION: EFFECTIVE SELF-REGULATION AND DEMOCRACY (2002);
357. Tanina Rostain, The Emergence of "Law Consultants," 75 FORDHAM L. REV. 1397 (2006).
358. With apologies to the Reverend Dr. Martin Luther King, Jr.
359. The consulting firm McKinsey & Company famously wrote a report in the late 1990s predicting that Cravath would no longer exist as an independent firm by the turn of the century. We all know how that one worked out.
360. See Lynne Marek, Layoff Pain Migrates In-House, NAT'L L.J., Mar. 23, 2009, http://www.law.com/jsp/article.jsp?id=1202429290561 (reporting attorney layoffs at Hyatt, Cigna, eLoyalty, Motorola, Yahoo!, and even GE).
361. See ASS'N OF CORPORATE COUNSEL, ACC VALUE CHALLENGE: BRIEFING PACKAGE 3 (2009), available at http://www.acc.com/valuechallenge/resources/upload/ACC- Value-Challenge-Briefing-Package.pdf.
362. Id. at 4.
363. Id.
364. The Legal Thing: Notes from a General Counsel, http://blogs.sun.com/ dillon/ (June 18, 2009, 15:53 EST).
365. Claire Ruckin, Tyco and Eversheds Overhaul Relationship and End Bonuses, LEGAL WK., NOV. 5, 2009, http://www.legalweek.com/legal-week/news/1561035/tyco- eversheds-overhaul-relationship-bonuses
366. (quoting Bryan Hughes, Chief Executive, Eversheds).
367. Id. (reporting that "major projects" will constitute 60% of the work Eversheds handles for Tyco under the new agreement - up from 20% under the initial deal in 2007- and that Eversheds will now handle all of the company's intellectual property work).
368. See id. (noting that the bonuses were introduced in 2008, "with former general counsel Trevor Faure then describing them as 'pure added value for pure profit'").
369. Id. (noting that Eversheds had hit the client satisfaction and exceeded the litigation reduction target);
370. see also Eversheds, The Groundbreaking Tyco/Eversheds Relationship Continues, http://www.eversheds.com/uk/Home/about-us/how-we-work-with-you/case- studies.page (last visited Mar. 28, 2010) (reporting that "Tyco has been pleased with a 27 per cent reduction in legal spend and an astonishing 60 per cent drop in the number of disputes it has had to endure in its litigation portfolio").
371. In a conversation with the author about why the incentives he had negotiated had been dropped in the new deal, Trevor Faure indicated that Evershed's success in meeting these initial targets indicated that there may no longer have been a need for further incentives of this kind. Although this may be a plausible explanation, the fact that the diversity targets were also omitted even though Eversheds failed to meet this goal suggest that it may not be a complete explanation. See Ruckin, supra note 274 (reporting that Eversheds failed to meet the diversity target);
372. see also Eversheds, supra note 277
373. (quoting David Symonds from Tyco's legal department as stating, "I thought the previous contract was complicated" and that "'bonus' is a dirty word at the moment," particularly to business people). Even those who ultimately decided to modify the agreement, however, conceded that the original incentive scheme "served a purpose in that it has driven the right behaviours."
374. Id. (quoting Symonds).
375. See Peter Sher, Lessons for U.S. Corporate Law Firms from the Great Depression (2009) (unpublished manuscript, on file with author) (documenting how many of today's leading law firms rose to prominence during the Great Depression by displaying a flexibility to changed circumstances that allowed them to take advantage of the regulatory and market reforms of the New Deal and speculating that there will be similar winners emerging out of the current crisis).
376. ASS'N OF CORPORATE COUNSEL, supra note 270, at 4.
377. Stephanie Chen, For Jobless Lawyers, Plan B Includes Good Works, CNN.COM, Apr. 13,2009, http://www.cnn.com/2009/CRIME/03/16/lawyer.layoff.public/index. html.
378. DINOVITZER ET AL., AFTER THE JD I, supra note 170, at 53-54.
379. DINOVTTZER ET AL., AFTER THE JD II, supra note 170.
380. See HEINZ & LAUMANN, supra note 231, at 72 n. 11.
381. See Beardslee et al., supra note 76.
382. For my prior punting of this issue, see Wilkins, supra note 228.
383. 2 TRIAL OF QUEEN CAROLINE 3 (New York, James Cockcroft & Co. 1874).