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giovedì 18 apr 2019
HomeInterviewsBen Heineman speaks out on the state of the modern legal department

Ben Heineman speaks out on the state of the modern legal department

Ben Heineman speaks out on the state of the modern legal department

Ben Heineman founded the modern American law department. Sure, in- house legal departments existed before his arrival at General Electric Co. in 1987, but they weren’t the equivalent of big-firm legal powerhouses, as many of them are today. Heineman built a team of more than 1,000 lawyers, data- crunchers and other professionals, took a lot of the multinational conglomerate’s legal work in-house, and made GE Legal an institution. Somewhat as with Eni’s legal department in Italy, GE alumni lead departments throughout Corporate America and the globe.
Our sister online publication MAG spoke to Heineman at the start of the new year to get his perceptions on where in-house departments stand today, what their obligations are, and how in-house leaders need to reconcile being a legal professional while helping their business-side colleagues achieve corporate goals.

—Anthony Paonita

You virtually created the modern legal department, with more than 1,000 lawyers and public stature that rivaled big law firms. But there’s an inherent tension there, since you work for one client only. How do you reconcile that tension?

It’s the greatest challenge for a general counsel, reconciling the dual and contradictory roles of being a partner to business leaders and a guardian of corporate integrity.

There’s no question that general counsel failed as guardians. Beginning with the collapse of Enron and WorldCom, the question was, “Where were the lawyers?” In-house counsel were excluded from key decisions. They failed to ask probing questions about whether actions were legal or appropriate. They rubber- stamped improper business decisions. But they escaped formal sanctions, with some exceptions.

The choice for a GC shouldn’t be either as a yea-sayer or a naysayer excluded from key discussions and decisions. But to be effective, very real obstacles have to be overcome and certain key conditions inside the company have to exist. GCs have to be given the opportunity and power to address the issues facing modern corporations. They have to have a broad understanding of the business and be fully informed about high level issues. And the GC has a vital job as guardian and protect the company’s integrity and manage its risk.

There’s been a lot of debate about whether the compliance function is separate from legal. And we’ve also seen spectacular corporate scandals involving companies like Enron and Deutsche Bank, where they may have had great compliance on paper, but in practice, they didn’t work. What are your thoughts on this?
It’s one of the hot issues in the compliance world—the roles of the general counsel, the CFO, the chief compliance officer and the chief risk officer, if there is one of those. Much of the debate is whether the CCO should report to the GC or CFO or to the CEO. I think it’s far less important that deep authentic CEO and business leader commitment to compliance. I’ve argued for some time that the CCO should report to the CFO and GC but have an independent voice. But this is my preference, not a no- exceptions prescription.
I think that the CEO has to be the company’s chief compliance officer in a leadership, if not a day-to-day sense. Look, 80 percent of CEOs are ethical, they want to do the right thing, and produce good products. And there is that debate over who’s ultimately responsible. But whatever the formalities, there’s no doubt that these corporate officers, who are responsible for compliance together, have to ensure that the program is carried out with integrity and independence.
There’s also no debate that if the CEO doesn’t view compliance as one of his core jobs, then all the efforts of corporate staff aren’t worth much.

The general counsel, and other key executives, must work with the CEO and business leaders all across the company to ensure that those business leaders have management ownership of the systems, processes, and resource allocation that an effective integrity infrastructure needs.

I interviewed you years ago about Six Sigma and how it applies to legal departments. What do you think about companies mandating that legal departments follow business processes?

It’s a hard question to answer. It depends on what you’re talking about. Cost control, good financing, project management, using technology, becoming more efficient, all those things are perfectly valid. And law departments can learn from their business colleagues. That’s one of the advantages law departments have.

But I would add that it can’t be done slavishly. I’ll give you two examples.

One was Six Sigma, which was useful to do process mapping and see where there were deficiencies or areas for improvement in some of our compliance processes, which were very heavily paper and check and balance-driven. Could we make them simpler and more effective? But on the other hand, we weren’t going to measure, as Dupont did, the typos in briefs, and get the typos down to 3.4 parts per million, which is Six Sigma.

Another, in the era of Welch: At the end he developed an idea for human resources. There was the top 20 percent, the middle 70 percent, and the lower 10 percent, and the lower 10 percent had to be removed every year. It was all about differentiation. And I just said no. For a law department that was stupid. We had very good lawyers, we’re a profession and we’re small compared to the finance function. There were 1400 lawyers and 7000 in the finance function. I said we’re not going to do it. I’ll differentiate. HR would be individual, not cohort-driven. So that’s an example of some things, like Six Sigma, were good. But not slavishly follow the methodology that didn’t work for a professional function. And similarly in HR, differentiation was good, but slavishly slotting people into 20, 70, and 10 in a high quality, best inside law firm at the time, didn’t make sense.

Those are two examples of the complexity.

The bigger legal deptartments seem to be obsessed with data. We were exposed to that lately in publishing, an obsession about clicks…
Let me stop you right there. I appointed a woman, Suzanne Hawkins, who won an award, she now works for Reed Smith, in 1994, as senior counsel. This was more than 20 years ago. And I tasked her then with efficiency. Making things better for less, and that included technology. Ironically, in those days it was digitizing a lot of stuff, putting it on computers. I don’t think there’s any question, that if it’s done right, it’s good.

Another hot issue is that of globalization—the modern general counsel has to, for example, comply with different privacy laws these days, and the GDPR really brought it all home. At the same time, companies have censored news and other information when governments demand it. What should GCs do? Should they be the arbiters?

Companies have to comply with the laws of the countries they do business in. It’s a vexatious, recurring problem for general counsel. They have a range of options: obey the law, be civilly disobedient (an uncomfortable position for any company), try to change the law, or stop doing business in that nation.

The poster child is China today. At GE, we were faced with a Chinese law enforcement demand to review the contents of all employee computers at a GE facility with several hundred local Chinese workers. One of those had been arrested in Tiananmen Square for demonstrating against the government as a member of Falun Gong. The authorities wanted to know whether other employees were members.

The issue reached my desk within hours. We told authorities that such a broad request without clear evidence of an issue in the workplace, would violate our employees’ right to privacy. We told them that we had a policy against proselytizing in the workplace for political or religious causes. We convinced them privately. I think we succeeded because there was no publicity and it only involved a small facility.

What are you up to these days?

I teach a course in the fall at the Kennedy School [at Harvard]. I used to teach about general counsel. It’s now been changed so now it’s one-third corporate, one-third public service, one-third nonprofit. So we’ve got visiting folks who come and talk about huge problems that lawyers end up dealing with and we teach the students to be a real leader as a lawyer.

We have the GC of the defense department, GC of the state department, GC of the Treasury, the GC of the Office of Legal Counsel, and we talk about issues, like torture, whatever, or don’t ask, don’t tell. The role of GC of Harvard, or Mellon Foundation, these are huge jobs. They’re analogous to being general counsel of GE.

I teach a course at the Kennedy School for public policy students only, not for the joint degree program. Can corporations act in the public interest? We get the public policy students interested in the corporate process and have them think about what they’re going to do. Is it inevitable that they’re going to be selfish and private oriented, or will they be … what are the reasons that they’d want to act in the public interest.
I’ve stopped my oped-ing. I’m about to be 75 and have to decide whether I have one big book project left in me.

Mick Jagger is 76 and he’s about to go on the road again...
Mick Jagger has a lot more talent than Ben Heineman.

 

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