Leading Questions: A Chat with Ben Heineman, Godfather of the In-House Bar

Mr. Heineman recently spoke to Law Blog about the book, which he calls his “last will and testament on the role of the general counsel,” and how law firms need to evolve to survive. Here’s an edited version of our conversation.

What was the inspiration for writing the book?

I’ve been working on this issue of the rise of the general counsel for nearly 30 years. I thought it was appropriate to gather all the threads in one place and weave a humble tapestry. Each chapter is an essay that can stand alone, centered around four framing ideas.

What are those four ideas?

One is the corporate mission of fusing high performance with high integrity and sound risk management. Fusing them creates the trust necessary for corporate sustainability these days when there’s huge mistrust. Second is the idea of the general counsel and in-house lawyer as a lawyer-statesman. It’s not just about what is legal but what is right. Third is being a partner and a guardian. It’s the hardest issue all of us face, to be partner to the CEO, but at the end of the day, to be guardian of the company. If you’re a naysayer you’re excluded and if you’re a yay-sayer you’re indicted. I think there’s something in between. The fourth framing idea is creating a culture of integrity. If you don’t have a very powerful culture, nothing really matters.

What is the inside counsel revolution?

The revolution has been twofold. One is the increased stature and role of the GC inside the company, becoming the peer of the CFO and being deeply involved in management. The second revolution is the transformation of power from outside law firms to in-house legal departments. For the super firms, doing high-risk, high-complexity work, they’ll always have plenty to do and high margins. But for the rest of law firms, they have to adjust to a world where a lot of work law departments need is lower-margin, lower-complexity work. There should be high margins for the brain surgery. There shouldn’t be for checking to see if you have a fever and giving out an aspirin.

Will the billable hour ever die?

Yes, because I think if what I’ve described is accurate about this drive to real segmentation, then you’re going to begin to have firms know what the proper margin is and get a better handle on costs.

Is every firm going to make it through that transformation?

We’ve already seen law firm failures, restructurings, and a mad scramble for money. Most observers would say most firms are going to have to change. I think that includes not pursuing empire building. I have been a longtime critic of the mega-firm. At those firms there’s a huge mediocre middle and not a coherent culture. Mega-firms trying to be all things to all people are in great danger.

Did you have models of in-house counsel who you looked to when you evolved GE’s department?

None. I say at the beginning of the book, somewhat ironically, that when [longtime GE Chief Executive Jack Welch] hired me, he hired me in 20 minutes. I had never met the man before. I had never done an hour’s work for GE. I had been a Supreme Court litigator. He said, don’t worry about it, you’ll figure it out. The point was, neither he nor I had any idea of the revolution that was about to follow. He was unhappy with the quality of the lawyers and the passivity of the legal function. That was all I knew.

How do you balance doing what’s legal with what’s “right”?

If you look at the top 50 or 100 companies, many of the GCs are people who are very sophisticated. They know the company has to not only comply with the law, but take voluntary actions that commit the company to do certain things. For example, building plants to world standards instead of local standards. I certainly argue that is an essential part of being a GC.

I’ve seen you say you don’t think there’s an inherent conflict in watchdogs getting paid by the company they’re watching. Why not?

Is there a conflict? Yes. Can it be overcome by people of high integrity and character? Yes. Another thing I talk about is the importance of having some significant component of the CFO and GC’s compensation be tied to integrity. If you behave badly, you either have unvested financial benefits held back, or if they’ve already vested, have them clawed back.

What advice do you give people who want to become a general counsel?

I’ve advised more people than I can count on whether or not to do GC jobs. I always say, before you start, ask yourself: Will I be prepared to quit with a really bad CEO and bad board, if I’m being asked to do stuff that’s illegal or highly unethical? I always felt, if I had to, I always knew that I could walk.

You said the power has transferred from law firms to in-house departments. Will that ever stop being the dynamic?

I see this trend going far into the future. I don’t want to overstate it, because I have many great friends in private practice, but generally speaking I’ve been disappointed in law firms and found them way too mediocre. Over time, except for the elite firms, there will be this segmentation and differentiation of margins, it’s just inevitable. At least as far as this eye can see, I see no decline in corporations trying to get great inside lawyers.

Do in-house departments offer a better work/life balance or is that a fallacy?

That’s a fallacy. I don’t know a single person who made the transition who does not say they’re happier and having more fun. It’s not because they work less hard. You’re part of the team, not just an adviser. You learn an enormous amount about products, markets, and competitors. You see the world in a different way. Everybody’s success builds success for everybody else. One reason the associates at law firms bail, it’s partly that they don’t like the terrible hours, but they look at the partners and say, “I don’t want to be that.”

What do you think the associates see that they don’t like?

The enormous money pressures to bill, bill, bill. If you’re not a client-getter, all of a sudden you go from being equity partner to salary partner. When you’re 58 you get tapped on the shoulder and told it’s time to go. I’m not generalizing about all firms, but I don’t think the horror stories are completely wrong.