Argyle Conversation: Alexander Arato, Vice President and Associate General Counsel, CA Technologies

Transcription

1 Argyle Conversation: Alexander Arato, Vice President and Associate General Counsel, CA Technologies January 1, 1970 Full conversation available for download here. CRAIG CASEY: What skills are essential for an in house counsel versus a private practitioner? ALEXANDER ARATO: I think the fundamental difference is that when an outside lawyer gets a phone call from a client, the problem s pretty well identified by in-house counsel they re calling you to tactically assist in resolving that issue. As in-house counsel, you need to be much more of a generalist and an issue spotter. You need to focus on being a good listener, and being curious and open to alternative ways of solving problems and identifying issues. Further, in big firm practice, the longer you practice, the narrower your focus tends to get. In-house, you ll get a call and someone says, What do we do? And you may have to say, Well, I don t have much experience in this area, but either I know who does or this is what I think the answer is and the issues we need to consider. Perfection is the expectation in outside practice, while it s not always the end-all goal of in-house practice. It s certainly desired, but many times good enough is exactly that. What in-house counsel need to know is when to call outside counsel and dig deeper, but overall it can be a very different mindset. Do you consider then in-house counsel to be more of a broad general practitioner with deep segment skills versus outside counsel, which is very industry and issue specific? Where I practice, that s certainly the case. I am expected to have a broad understanding of the law and the business. But, that isn t surprising given that I only have one customer. There are certainly some areas where, if somebody called, I would have to say that I really know nothing about it, not even enough to guess. If it s a highly specialized area for example, an admiralty case I would call outside counsel immediately. I have a very general and constantly changing practice. You need to be focused on the business objective at all times. The ability to say no is overstated in an in-house practice, because nobody ever comes to you and asks for permission to do something that is patently illegal. No one ever comes into your office and says, We need to fire all the employees over 40 tomorrow. Can we do that? To that, you could say no (and then call that person s manager), but that s never the question. It seems that many in-house counsels are moving toward becoming a true contiguous partner in the business. Do you find this to be true? If you want to be successful, it is essential. You want to be in the room while decisions are being contemplated, before they re made, because that s usually the best time to influence the direction the company s going. You want to say, I know where we want to get to, but if we just switch our method of getting there by a very small degree, we will mitigate a great deal of risk. That s much easier to say if you re having the conversation before the decision has been made. You need to be viewed as someone who understands the business and is enabling that business to move forward in a prudent and risk-aware manner. Regarding the oft-stated perception that legal discourages innovation and simply says no, if that is the case, it is career suicide, as A) you don t need a big legal department, because you don t need that many people to say no to everybody, and B) no one will call you anymore. If nobody s calling legal, it doesn t mean everything s operating in a prudent, risk averse, legally sensitive manner. It just means people have decided to leave you out of the loop. That s to nobody s advantage. Have there been any changes over the past five to 10 years that have allowed legal to enter the business decision-making process earlier? Sarbanes Oxley was a sea change, with companies now being required by statute to focus on internal controls. That certainly helped; it was a catalyst. That era has passed. What s really changed, frankly, is that the business has seen that we actually add value, that our judgment is something that is beneficial to the overall page 1 / 5

2 decision-making process. We no longer have to ask for a seat at the table. It s sort of expected now, although you still have to continually earn that seat at the table. Our general counsel is part of the executive leadership team, so she s very rarely at a meeting where the topic is legal. She lends legal perspective to business decisions. How can we do it? What s the best way to do it? Why are we doing this? We tend to be less siloed than many other functions and thus are a good source of institutional memory. When something goes bad, it tends to become a legal issue. That can give you a good perspective if you have the temperament and the interest to analyze things. Then you re able to say, We ve seen this before and here s where a similar initiative failed in the past. Sometimes just being able to raise the issue is enough to have the other business leaders pick up on how the problem can be addressed. But at times, you re also the person that says, And here s an idea for how we could address it. So again, it s being part of the daily business function of the company rather than a barrier to be cleared at the end of a process workflow, which is the way it traditionally was. In the past, the business would have an issue; they d go down the approval chain, until they got to the last people who needed to sign off on it legal. I think people recognized that many times we were in the unfortunate position of identifying an issue and realizing that it was too late to do anything about it. So we were able to convince people that bringing us into the process earlier would make for a better process and an improved outcome all the way around. How has your role specifically changed over the last five to 10 years? It s certainly changed greatly. When I came in 11 years ago, I split my time between managing litigation and supporting outbound licensing by our sales teams. Then I became solely a litigator (which was my area of expertise in private practice), and then for five years operationally ran the entire department, effectively the COO for the department. Now I m advising business units on day-to-day business issues, managing our e-discovery preparedness, and working on M&A transactions, which I never did in private practice. It s certainly very interesting and again, speaks to the basic difference between in-house and private practice. In private practice, it would never happen that someone would say, Let s see if Alex wants to help out on this M&A deal. It s just not how it works, whereas in-house, we had a need. We were overwhelmed with work on the M&A side, so somebody said, Alex is a little light right now, so why don t we ask him? The work s just got to get done. It has changed a lot in the last 11 years. I can t tell you how it will change in the next five to 10 years, but I know that it will because much of what I m doing now didn t even exist when I arrived at CA. For example, there was no e-discovery or cloud computing 10 years ago and now it s front and center for everybody. Can you discuss any interesting M&A deals that you ve done recently? Last year we divested our information governance product line to a competitor and this year we divested our internet security product line. We have typically been a buyer of companies, not a seller, so it was certainly very interesting to be on the other side of the table. I think the experience has made us a better acquirer of companies, because we have a better perspective on the other side s concerns. Now we ve dealt with some of the realities of the other side as opposed to just the theories. What are some best practices for coordinating in-house and outside counsel? I m certainly a firm advocate of brutal honesty. I don t have a lot of understanding or patience for a lack of candor. Over time, teams are getting much bigger and more dispersed because we are carving up services that we used to just call on one outside vendor for, typically an outside counsel. Now we re unbundling that service and hiring different vendors to fill those roles. It requires a fundamentally different skill set. In the past, it was as simple as being a demanding client and hiring the right outside lawyer, making sure they understood the task, and then, depending on your temperament, either being a passive or active participant in that partnership. Now you need to be much more of a project manager, which I don t think is a skill that most lawyers have learned in their undergraduate or graduate studies. You may not even have learned it in private practice, because there s less of a need for it in private practice now that many clients are having those relationships directly. The brutal honesty portion needs to be counterbalanced by making sure everyone understands that their input is very actively sought page 2 / 5

3 and critical to the project s success. No one should feel that it s some sort of hierarchy, where if you re a mid-level associate, you can t talk. Because teams are bigger now than they used to be you need to focus on an active open-door policy. You must reach out and make sure people feel that they can be open about their concerns (and be as candid with you as you are with them) without consequence. Ultimately, that vastly improves the bottom line. In an e-discovery engagement, for instance, if the same law firm and the same outside vendor and the same client are involved, where the law firm has hired the vendor for document review or processing, the dynamic is entirely different than if I hire that same vendor to do the same work that vendor will never call me with an issue if I haven t hired them. If I m not paying their bill directly, and I don t have a client relationship with them, they know that even if they disagree with the instructions they received from the law firm, they re not going to call me and tell me. If they do, they run the risk that the firm that hired them will never do so again. It s viewed as disloyal for them to contact me directly. But if I ve hired them, I expect them to say, Your outside counsel s asking us to do X but we don t think it s the best way to achieve our goals. It s going to be ineffective and inefficient. We think there s another way to do it. That only improves the bottom line. It s much more collaborative and messier than it used to be, and it requires a different skill set, and thankfully I don t think we re ever going back to the old days. Whether it s with outside counsel, vendors or consultants, do you have master service agreements in place for most of your counsel at this point? We don t have master service agreements with our outside lawyers. We have the functional equivalent, which is a set of outside counsel guidelines that govern the relationship. They clarify what we will pay for, how our matters are to be staffed and our overall expectations. They used to be much more voluminous than they are now. The first time, it was approximately a 25-page document of policy after policy after policy. Having learned what works for us we have now streamlined the document to less than half its original size while retaining all of the policies we care about and enforce. I don t think we re overly rigid in enforcing this functional substitute for a master service agreement. There will be lapses. For example, a new lawyer s brought on a team or a new matter is opened in a new office, and someone will not realize that we don t pay for X. Depending on what the issue is, we ll generally agree to pay it the first time. The second time, the response is usually more along the lines of, I don t know what part of the policy you didn t understand. We re not paying for that. With vendors, in general, we don t have the volume of litigation or other engagements that would warrant having master agreements in place until a particular engagement is contemplated, when we ll work out the documentation for the relationship at that time. I would like to think that over time, we would realize, the same way we did with law firms, that it s in our interest to have fewer but stronger relationships with vendors, especially for services that we view as fairly fungible. For instance, it s easier to have a relationship with a court-reporting service or a document-copying service nationally than we can with document reviewers, because we don t know what sort of document-review needs we ll have. A copy is a copy and a transcript is a transcript, so we decided that we don t have to figure out who s going to make copies or be our court reporter for each case. How does that relate to where the industry is going in terms of determining how to procure value-added outside counsel versus more basic legal functions? We re still willing to pay a fair price for high-quality talent to give us the high-quality advice we expect. But it doesn t mean we need to pay them for copying a document. We can find someone else to do that, and they don t want to be in that business anyway. They much prefer to be recognized as high value providers of strategic services. Of course, they still want to make sure that the work gets done well and to have a say in how the work is performed on matters they are advising us on. We wouldn t want it any other way. Has this been an adjustment for senior partners, now that they re no longer getting those hourly rates for their first years? page 3 / 5

4 They still get the same rates for their first year associates. They just have fewer of them now. If you believe the trade press, firms are making more money now than ever on a per-partner basis, because they re being much more rigorous on their own internal costs. The worst phrase I hear is something along the lines of we manage our firm like a business or we treat litigation like a business. No, it s not like a business. It is a business. There are downsides to it being more recognized as a business, but from a client perspective, it s all upside. How do you determine what stays in-house and what goes to outside counsel? Again, first you have to be brutally honest about your limitations, priorities and challenges. For instance, if you re not a serial, high-volume litigant, you may not need to build out certain capabilities in-house because you re not going to have the volume to ever achieve any economies of scale by handling it internally. Whereas, there are large companies big pharmas, for instance that have brought much more of the e-discovery process in-house because it is high-volume and repetitive so there are opportunities for significant efficiency improvements and cost savings. When I hear law firms complain about outsourcing, I generally have to remind them that they are an outsourcer too. Over time, we ve brought functions in-house because we realized that the demand was there and it was not prudent to continually treat it as project work. But once you decide you re going to outsource it, there are a number of different models. You can outsource it domestically. You can near-shore it domestically. You can offshore it and then figure out where you want to offshore to. You can go with a mixed model. You really have to figure out what the project is. The value that the high-cost lawyer adds is the experience and judgment to say, We ve done this before. We ve gone with this model in the past. Here are the problems we need to anticipate. Outside counsel is still getting paid for what they were always sought for, which is judgment and expertise. If they can provide that, they ll be hired over and over again. What are you doing to proactively keep costs down in the e-discovery process? The easiest way to keep the cost down is to keep picking up your phone and talking to vendors. The consolidation in the vendor space is amazing. There are vendors that were very prominent a year ago that simply don t exist anymore, and there are upstarts that have moved to the top of the value chain. There are lots of interesting technologies out there in terms of predictive coding and reviewing masses of information in a cost-effective manner. The old model of needing a lot of people to review a lot of paper simply doesn t work anymore. The model of sampling data in a statistically defensible manner that is starting to gain a foothold could have never gained a foothold in the past with paper. If you had walked into court and said, Your Honor, there s a warehouse full of documents so we decided to pull five documents out of every box as samples and came to the following conclusion... you would have been lucky to walk out of court unscathed. But those models are going to work with e-discovery because they have to in light of the volumes of data that need to be reviewed over a compressed period of time. You have to be willing to listen to new proposals. The pricing of the deliverable is changing regularly. The metrics are changing regularly. The technology is changing rapidly. Probably the best mindset is to remember that you don t know everything and you re not an expert. You ll have to listen to some really silly proposals from some fly-by-night vendors, but if you keep picking up the phone, it s worth the effort because every now or then you will find somebody that you really strike a balance with. The reality is that the old model is phenomenally expensive. The most expensive part of e-discovery is the review phase, because that s where you re paying somebody to sit and look at documents. Even if you go outside the U.S. and pay a very low rate, you re still multiplying that rate by a very large multiplier. So anything you can do to control the volume of data that will be reviewed always in a way you d feel comfortable standing up and defending is worthwhile. You have to be comfortable with it, though, because the only time it s ever going to come up is if there s an allegation that there was a mistake. If everything gets done right, you re never going to have to defend it to anybody. But if the other side has an issue, you need to be able to stand up and explain what you did and why you did it. And it never hurts to bear in mind that nobody wants to get too far ahead of where the judiciary is, and much of the judiciary fondly remembers the simplicity of the bygone paper world. This brings us back to where we started, talking about how it s important to bring in counsel early on in page 4 / 5

5 Powered by TCPDF ( the business decision-making process. Can the same be said of e-discovery? That s right, which makes me think of the other best practice for keeping cost down. It is something that does not come easy to most litigators I was trained as a litigator and I m still a litigator, and it doesn t always come naturally to me either. The best practice is picking up the phone and cooperating with the other side on the front end, before any decisions are made. If you can get them on board with what you re going to do and how the e-discovery process is going to work, you re in pretty good shape. If they re not willing to cooperate, you can build a record that you bent over backwards to get their input on the front end. Under the federal rules, that early cooperation is supposed to be mandated, but it s one of the provisions that doesn t seem to be enforced as often as it should be. That s starting to change. In the old days, everything was an adversarial process. The mentality was, if I give on something, it will be viewed as a sign of weakness. Now, the more you understand the data you have and the data you want, the easier it is to have that conversation on the front end, with an eye toward getting it done right and efficiently. That is a critical change in the way we view how best to add value. page 5 / 5