The Rise of Compliance – At The Expense of Legal?

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Last week I had the pleasure of co-presenting with Jeff Carr on AFAs. Jeff is a great guy and way ahead of the field in embracing value billing. He made a point in the presentation that got me to thinking. His point: he works hard to avoid the need for litigation. The result is significant cost savings for his company.

This seems obvious, but at the same time overlooked by so many. Thinking about this brought two things to mind. First – my sister works in compliance for a bank. She is not part of the legal department. Compliance is easily re-named as preventative law. So why isn’t it part of legal?

Second – at a former firm I helped develop a Litigation Readiness Audit service. The service was designed to help clients be better prepared for e-discovery, so they would not be hit with large costs when litigation occurred. Very few clients were interested in this. Their response “I don’t have a budget for that.” Say what?

In all the push for cost savings, you would think something as obvious as being proactive to prevent legal problems would be high on every GC’s list. It’s the old penny-wise, pound foolish maxim.

My read on this: GCs are not much different than law firm partners. Or in other words, they are risk averse. Going to the CEO proactively and asking for extra money now to save money in the future is a big risk for them. They will then have a new responsibility and more accountability. They will have to prove the savings over some period of time. So why take on more risk and responsibility when the outcome is unknown?

Jeff Carr has obviously taken this on. While his company has grown substantially, his overall legal budget has gone … down. But then Jeff sees himself as a business man with legal expertise. So risk (and reward) is in his vocabulary.

To me this is another manifestation of the Paradigm of Precedence. Lawyers are trained to look backwards not forwards. In this case, the real risk is actually ceding the preventative law role to compliance or some other department in the company. Taking the route that appears safe is actually the path to much higher risk.

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