In the wake of the financial crisis, many of the country’s top banks separated their legal and compliance department. Morgan Stanley’s chief legal officer Eric Grossman believes that was the wrong way to go.
During a keynote address at Bloomberg Law’s Big Law Business Summit in Midtown Manhattan Wednesday, Grossman told an audience of law firm partners and corporate legal officers that it’s “counterproductive” to separate a company’s legal and compliance functions, and that doing so does a disservice to clients, shareholders, employees, and regulators. “If you’ve built the right culture, the lawyers and the compliance professionals all share the same goal.”
“Compliance officers were unfairly being held on account for failures in the first line,” Grossman later told Big Law Business. “So a lot of general counsel said, ‘Well, why would I want compliance? That’s all risk.’ Well, that’s what you get paid to do. So I just think that’s cowardice. You know this space better, so you should own that patch.”
At Morgan Stanley, compliance is still run independently of legal, but both departments report directly to Grossman, he explained. “All roads lead to me,” he said. In other financial organizations, compliance departments might report to the chief risk officer, who often isn’t a lawyer, or to the CEO, who also doesn’t necessarily understand legal risk, according to Grossman.
“The compliance function is largely making sure that the business is compliant with law and regulation,” Grossman said. “The advice often comes from the lawyers on whether or not you can do business in a particular way. So there’s a synergy between the two functions.”
Grossman said he expects other financial firms to combine the functions again soon. “If they’re allowed to, they will,” he said.
[caption id="attachment_50778" align="aligncenter” width="506"][Image “Eric Grossman and Megan Murphy” (src=https://bol.bna.com/wp-content/uploads/2017/05/Eric-Grossman-and-Megan-Murphy.jpg)]Eric Grossman, chief legal officer of Morgan Stanley, left, speaks with Bloomberg Businessweek editor Megan Murphy, right, at the Big Law Business Summit in New York. Photo: Jamie Watts/ Big Law Business[/caption]
At the Big Law Business summit, Grossman was later joined on stage by Matthew Cooper, head of Capital One Financial’s legal department, Stuart Ingis, chairman of Venable, and Jamie Wine, partner and global litigation chair of Latham & Watkins, who all shared their thoughts on the changing business of law, including one major hot topic: automation.
All of the panelists agreed that automation will soon be playing a greater role in some legal work like document review, discovery and due diligence. But both the Big Law attorneys and in-house counsel said law firms — and the billable hour — aren’t going anywhere.
“You’re still going to want to talk to a human,” said Grossman.
Wine said Latham & Watkins has partnered with IBM to beta test a new product that automates portions of the due diligence process.” If there are technologies out there that have the potential to help us provide the best legal services, we have an obligation to explore them,” she said. But even the best automated tools won’t be able to catch the “most important” thing: “what’s not in a contract,” she said.
Cooper said Capital One has asked firms to staff document review out to lower-cost service providers, yet at the same time, he believes “the death of the billable hour has been overstated.”
He also had thoughts to share on his ideal hiring practices:
“The hiring test I would like to employ, which I’ve never had the guts to do, is to put out a piece of trash in the parking lot and watch lawyers come in, and just kind of observe whether they pick it up and throw it away or not,” he said to laughter in the room. “But I’ve not tried that.”
Stuart Ingis responded, “If you were Venable or Latham, the lawyers would pick up the trash. Our competitors might pick it up, but they’ll bill you.”
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