Since the financial crisis, revenues at Lear Corporation have steadily grown. The law department? Not so much.
Bucking any trend towards bringing more legal work in house , Lear GC Terry Larkin said his law department has dropped from around 20 attorneys in 2006 to only 11 at present.
That reduction started under Larkin’s predecessor, Daniel Ninivaggi, but the decision to downsize continues to make sense and has been driven by a desire for flexibility in legal spend and an interest in using highly specialized attorneys.
Since taking over as GC in 2008, Larkin said he’s hired only a few attorneys: There are five in Detroit, two in Shanghai, two in Munich, one in Paris, and one in Sao Paulo.
The company posted $17.7 billion in revenue in 2014, and ranks 174 in the Fortune 500. Lear manufactures and distributes automotive seating and electrical distribution systems, and has roughly 135,000 employees in 36 countries.
It’s an unusual approach, but having a lean legal department works, Larkin explained. The company has a relatively low volume of litigation work, and has been able to negotiate fixed fee arrangements with long-standing “relationship firms” Winston & Strawn, Bodman PLC , andBrooks Kushman .
Larkin was an attorney at Bodman for 28 years before coming to Lear and graduated from Wayne State Law School. In an interview with Big Law Business, he discussed the virtues of running a thin legal department, the Detroit legal market, and the future of the law firm.
Below is an edited transcript of the first installment of the interview.
[caption id="attachment_5313" align="alignleft” width="250"][Image “Terry Larkin (Photo Courtesy of Lear Corporation)" (src=https://bol.bna.com/wp-content/uploads/2015/10/TBL-HiRes-Photo-2015.jpg)]Terry Larkin (Photo Courtesy of Lear Corporation)[/caption]
Big Law Business: How big is your legal department?
Larkin: We’re roughly an 18 billion dollar a year business. I think we’re ranked number 174 in the Fortune 500. But we have an in-house legal staff of only 11 attorneys.
That’s a very small legal staff for the size business that we run. My immediate predecessor, back in 2006, decided to effectively outsource most of the legal function. He terminated the employment of most of the attorneys who were in-house at that time and then awarded the business to a select group of law firms that he wanted to cultivate as partner relationship law firms.
I have continued to adhere to that model in my time here. I think I have a fairly unique perspective on this, because Bodman was one of the law firms that was selected as an outsourced law partner. The Bodman firm had done legal work for Lear for roughly 20 years before that and had a long standing and very good relationship with Lear.
I was the relationship manager at the law firm at the time we negotiated that outsourcing arrangement, and so now I’ve had the benefit of seeing those kinds of relationships and the arrangements from both sides of the table.
I remain convinced that the outsourcing arrangement provides real value to Lear, and I’m very comfortable proceeding with a relatively small staff.
Going to the experts when you need them, and getting the best lawyer for a particular assignment, makes a lot of sense.
Big Law Business: What was the rationale behind downsizing your legal department? How many people were actually let go?
Larkin: I think at the time there might have been roughly 20 attorneys. The lawyers that were brought in were fine lawyers — I knew many of them and worked with them as an outside lawyer for Lear — but my predecessor concluded it was very hard for them to stay cutting edge with legal developments when they only had one client.
He thought Lear would be better served with legal experts who were exposed to a broad variety of clients, different industries, and different experiences — [attorneys who were] really be able to stay cutting edge in thinking about how we resolve legal issues.
The other piece of it, I think, was a desire to maintain some flexibility over the expense side, effectively making a lot of the legal department a variable expense rather than a fixed overhead item. I think those two reasons primarily drove the decision.
When I arrived, we really only had a couple of attorneys remaining on staff, and I’ve added some over the years as we’ve grown. Our [company-wide] growth has been fairly explosive. Since the downturn, I think we’ve probably doubled our size in terms of revenue, and expanded our footprint around the world.
What I became convinced of is this idea that going to the experts as and when you need them, and getting the best lawyer for a particular assignment, makes a lot of sense, rather than trying to retain on-staff attorneys.
Our law firms are really viewed as partners. They’re willing to share information that maybe other law firms would not.
What I’ve instilled in the legal group is a sense that they’re to be generalists, not specialists, and I say that with only one exception — I have a chief intellectual property counsel who is an expert.
But the rest of the lawyers who work with me around the world are generalists. They get very deeply involved in understanding Lear’s business — our people, our products, our customers, our suppliers — and so they become trusted advisors to the senior leadership team around the world.
They’ll go out and get technical expertise from the outside law firms when they need it, but they’re the ones who are able to communicate very effectively between the outside counsel and our operations people, who really have the day to day responsibility of running the business.
It’s been a model that’s worked very well for us, but again, it was dependent upon our being able to have these select group of relationship partner law firms, if you will, whom we outsourced a lot of routine work to. We’ve had these relationships for decades now, and they really serve as an extension of our in-house department.
Big Law Business: Are you paying a premium for your strategy, or keeping legal spend comparable to other companies your size?
Larkin: I think we do operate the legal department at a cost lower than if we tried to build up the capabilities in-house, and I think we get better quality representation doing it the way we do than the reverse.
As I’m sure you can appreciate, I look at that very carefully on a regular basis to make sure that the premise remains true. We have a volume of work that is fairly predictable, and with these relationship law firms, we’ve negotiated fixed-fee arrangements.
I look very carefully at the hours that the law firms commit to those projects. I evaluate what their realization value is on that work. It’s a very transparent process, because the law firms are really viewed as partners. They’re willing to share information that maybe other law firms would not, to make sure that we both are achieving sort of the win-win proposition we’re looking for.
In Part II of the interview, Larkin will discuss his annoyance with law firms overstaffing matters, the Detroit legal market, and Michigan State football.
(UPDATED: This article has been updated to reflect that Lear ranks 174 in the Fortune 500.)