Legal news and trends for Canadian in-house counsel and c-suite executives
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MANAGEMENT By Geoff Kirbyson Billable hours Legal departments turn to dreaded hourly billing system to keep track of a company's bottom line. An in-house lawyer punches the clock after a week of negotiating contracts, fi nalizing commer- cial work, and even a little litigation — but who picks up the tab, individual departments for which the tasks were done or the corporation as a whole? There isn't a hard-and-fast rule but generally, the bigger the in-house team of lawyers, the more likely individual depart- ments foot the expense on their own. David Allgood, Toronto-based executive vice president and general counsel for the Royal Bank of Canada, says its 150 in- house lawyers bill individual divisions in quarter-hour incre- ments for their work in litigation or product development. The cost of internal legal tasks for one of Canada's biggest compa- nies, such as shareholder meetings or raising capital, are allocat- ed based on the amount of billable hours per de- partment. "You could say the overhead costs should be allocated equally over four [business units], for example. The price of being in the enterprise is paying your share of the overhead costs as well. We've picked 'your share is the same as you con- sume otherwise,' I think our approach is the cleanest way of doing things." Allgood says some components of its annual budget, such as public company documents required by regulators, simply can't be pinpointed to a particular division. "At the end of the day, we're a cost centre. To determine the business [divisions'] profi ts and losses appropriately, you need to allocate the consumption of their costs. The profi t and loss of each division should add up to the profi t and loss of the corpo- ration as a whole. You have to allocate your functional costs like law to your business." Allgood says it's simply not practical to have each division run on its own without centralized functions because some law- yers spend all of their time working for particular parts of the business while others split their time among different operating units. He says less than a decade ago, legal costs weren't allocated on an hourly basis at Royal Bank. They were doled out based on revenue, not the actual use of legal services. The bank could very well have used similar models based on profi t, net income before tax, or net income after tax, he says. 28 • FEBRUARY 2009 INHOUSE "If you had a much smaller legal department, you might [have each division run on its own]. It might be that each law- yer worked completely for one business, so you wouldn't need to allocate. But once you have more than one [division] and you have true overhead costs, you have legal costs that you can't really say relate to a division but relate to the fact you're a com- pany." One of Canada's mutual fund giants takes a different ap- A lot of lawyers get in-house and say, 'my God, you're going to ask me to record my time? I thought I was getting away from that.' — BRUCE BOWMAN, Canada Safeway Ltd. proach to billing. Donald MacDonald, Winnipeg-based vice president and counsel at Investors Group, says it doesn't bill in- dividual departments because the purpose of the legal depart- ment is to assist the business, particularly with laws and regula- tory matters. "We don't want people to be deterred from calling the le- gal department on a matter that could have signifi cant regulatory or risk issues because they think they'll get billed for it." From an in-house lawyer's standpoint, MacDonald says the strong preference is not to bill because time sheets are ad- ministratively burdensome, and bickering with particular depart- ments about the amount of legal services they actually used gives off bad vibrations. "It wouldn't create an environment of teamwork that we strive for," he says. Bruce Bowman, vice president of legal and general counsel at Canada Safeway Ltd., says with just two lawyers working at the Calgary-based grocery giant, billing individual departments isn't necessary. "It's more relevant for larger operations with a [sizeable] staff of lawyers that are performing a lot of transac- tions. It gives a better picture of where and how legal expenses are being incurred." The fl ipside, he says, is to have lawyers accountable for their productivity and what they contribute to the overall operation. The irony is many lawyers move in-house to avoid the "drudg- ery" of time recording. "A lot of lawyers get in-house and say, 'my God, you're going to ask me to record my time? I thought I was getting away from that.'" Bowman says there's often an underlying irrelevancy to the amount of time taken to perform a task and its value to the fi rm. "You can spend half an hour on one thing and save the com- pany a million bucks or spend all day on something else that's worth a few hundred dollars."