The third Top of Mind survey conducted by the law firm Kirkpatrick & Lockhart Nicholson Graham LLP released last month identifies the major concerns facing in-house counsel at Fortune 500 and 1000 companies in the U.S.  Topping the list is:

1. Containing litigation costs
2. Compliance issues
3. Corporate governance

     It seems to me that these priorities are backward.  Placing governance behind compliance and litigation cost control assures that you will keep playing catch-up with the bottom line for a very long time.  It’s the difference between continually mopping up around the shower curtain and turning off the spigot.

     Sure, litigation costs are the colicky child of corporate budgeting and as a short-term cost they are a legal process management issue (case staffing, case strategy, etc.). But as a long-term cost, litigation expenses represent a management process issue.  After all, how did the company get involved in the suit in the first place?  Chances are the root cause of the suit ties back to something that happened on the business side.   So if you want to get long-term litigation costs under control, you need to learn from past mistakes and adjust processes going forward to avoid making the same mistakes and incurring the same ungodly costs.  It’s a quality control issue.

     Better compliance is a quality control mechanism.  It helps eliminate some of the flash points that can escalate into litigation.  Stepping up compliance is therefore a good strategy for tackling future litigation costs.  Doing the right things means some of those pesky litigation costs will dry up on their own.

     It’s true that not every business activity is regulated.  But, that unregulated piece of the pie is where corporate governance steps in.  Senior leadership establishes policies.  It determines how those policies are implemented and the architecture of the company’s corporate culture.  Do that job right and live the values you espouse and your litigation costs will be few and far between.  That’s why corporate governance should be job #1, not #3.

     Unfortunately, a McKinsey survey of directors conducted in 2005 showed that even though corporate boards are “determined to play an active role in setting the strategy, assessing the risk, developing the leaders, and monitoring the long-term health of their companies,” they’re tired of being on the defense after years of corporate scandals and want to spend less time on auditing and compliance. 

     If that’s true and the McKinsey survey is a predictor of near-term senior management attitudes, it looks like we can expect bone chilling litigation costs to continue a while longer.   

This entry was posted on Thursday, February 2nd, 2006 at 5:31 pm and is filed under Business Blind Spots, Compliance, Corporate Governance, Costs, Decision Making, Lawyers, Leadership. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.