Jeff Immelt, GE's CEO, began his letter to GE's investor's in its 2007 Annual Report: "Bubbles burst and excess ends in an ugly fashion. The easy credit cycles that defined the recent past have given way to a tidal wave of financial crises. As I am writing, banks have written off almost $150 billion, entire classes of securities have disappeared, and rating agencies have been criticized. This transition - from easy credit to no liquidity - seemed to occur in the blink of an eye." He goes on to say: "We have strict risk discipline, and as a result, have no exposure to losses from Collateralized Debt Obligations (CDOs) and Structured Investment Vehicles (SIVs). We have retained a "Triple-A"-rated balance sheet and generate substantial cash flow, so we can invest while others pull back."
As Brackett Denniston notes in this month's cover interview, the strict risk discipline that enabled GE to avoid this risk was the result of the efforts of a sizable, skilled and able risk organization, of which lawyers were a part. He points out that at GE business leaders own the risks as do the lawyers.
Ben Heineman's book High Performance with High Integrity (Harvard Business Press) and GE's success in avoiding or mitigating risk has aroused corporate counsel interest in learning more about GE's legal group. Ben, having retired as general counsel of GE, drew heavily in his book on his many years of experience at GE in the course of which the GE legal group became what it is today.
The front cover of our July issue was devoted to exploring with Ben the implications for general counsel of his conviction that only the CEO can fuse high integrity with high performance and in the same issue on the front cover of Part I of our Special Section on GE: High Performance with High Integrity , Brackett Denniston, the general counsel of GE, described his current role at GE.
In this issue, we delve more deeply into the people and processes that account for the high quality of the GE legal group - and its successes. On our front cover, Brackett Denniston continues his description of the GE Legal Group. On this page, we begin our Roundtable consisting of the distinguished GE outside counsel pictured above whose perspectives Brackett felt would enhance our readers' understanding of the GE legal group and its processes. Given our space constraints, I was able to include in our Roundtable only a few of the GE outside counsel mentioned by Brackett.
Please describe your role at your firm and the services your firm provides to GE.Tom Cole: I am a partner at Sidley Austin LLP and serve as chair of the Executive Committee and I am also a member of the Management Committee. My connection with GE goes back to the day Ben Heineman called to tell me that he was leaving the firm, which is now a long time ago. I have personally done some M&A work for GE. I helped GE's Med Systems when it acquired Marquette Medical, which was a public company deal that goes back many years to a time when Jeff Immelt was still at Med Systems. My colleagues do a number of other things for GE - a lot of transactional work and some litigation and so on. It obviously is a significant relationship, and we are proud of all of our clients and particularly proud of GE.
Kurt Hansson: I have worked with GE since 1986. I am vice chair of the Global Litigation Department of the firm as well as the relationship partner for GE at the firm. My practice area is complex commercial litigation with an emphasis on securities and trial practice. I have also spent a lot of time helping to design ADR policies and procedures for various companies including GE. Our firm provides a wide range of services for GE including corporate, tax, employment and litigation advice in all of our 18 offices.
Brad Brian: I am a partner of Munger, Tolles & Olson LLP in Los Angeles, specializing in all types of criminal and civil litigation. I have done work for GE for more than 10 or 12 years both in litigation and in the investigations area. I have worked closely with lawyers at GE's corporate headquarters in Connecticut and with lawyers at a number of GE businesses around the world.
Bart Williams: I am a partner of Munger, Tolles & Olson LLP. I do civil and criminal litigation as well, but my interaction with GE has been in the context of internal corporate investigations relating to GE subsidiaries around the world.
Mason Stephenson: I am a commercial real estate lawyer at King & Spalding LLP, where I am a senior partner in the firm's Commercial Real Estate practice and the Managing Partner of the Atlanta office. I have personally represented GE's commercial real estate business, now known as GE Real Estate, since the late seventies. I have seen that business evolve and grow over a period of 30 years and have witnessed the growth of its legal department, which in 1978 consisted of only one lawyer. Today, our firm represents GE in a number of different areas, which, in addition to real estate, includes finance and investment, financial restructuring, M&A, litigation, environmental, compliance, FDA regulatory, IP, IT and tax.
Kevin O'Shea: I am the Managing Partner of the New York office of Allen & Overy where I specialize in commercial real estate finance, equity investments and private equity fund formation and investment.
The GE relationship with Allen & Overy goes back many years, perhaps 15 or 20, and has been growing at a significant pace over the last five years. We are currently doing work for GE in virtually every major capital center in the world and in many different business areas, including commercial finance, healthcare, industrial, infrastructure, GE money and NBC Universal. To a large extent the growth of the relationship has mirrored the growth of GE's business outside the U.S. As GE has diversified its businesses outside the U.S., we have broadened our relationship with them particularly here in New York on the M&A side. We are immensely proud of the fact that we have secured a spot on GE's domestic M&A panel.
Cunningham: I am the senior partner for Allen & Overy's global U.S. law group. Iam a relationship partner with GE, andI work with them on M&A deals.
Roberts: I am the Chairman of the Corporate Department at Weil, Gotshal & Manges LLP, and serve on the firm's Management Committee. I am also one of the GE relationship partners. We are very active for GE both domestically and internationally. My particular areas of expertise are M&A and private equity.
Ben describes GE's in-house lawyers as "A Players" who, in many cases, have been established partners of leading law firms or have had important governmental posts. How do you find working with lawyers of that caliber?
Cole: [Sidley Austin] Shortly after Ben got to GE he called me and said that he planned to build a law department of "A Players." His concept was that the various functional heads, whether it is environmental, tax, M&A, corporate, litigation or whatever, reporting directly to him in the general counsel's department, would be the equivalent of our executive committee level senior partners. My reaction to that was, "Ben, that is going to cost a fortune." He replied that it is more important to build the right kind of department for GE. And that in fact was what he set out to do and accomplished. To give you one example, he wanted one of the top environmental lawyers in the country and he did, in fact, pick one of our very, very top environmental lawyers, Steve Ramsey. Steve, who had joined us from the government, remained with GE until he recently retired. Ben left as his legacy to GE one of the finest law departments in the country. It is always easier for any lawyer, inside or out, to work with talented people. What Ben did with GE led to an elevation of the quality of law departments at the major corporations throughout the U.S. He really blazed a new trail.
Williams: [ Munger Tolles ] They are the most consistently excellent in-house lawyers I have encountered in my career. That overall feeling comes from the fact that I've done investigations for them in places such as Mexico City, Bogotá, Colombia, and Calgary, Canada, among others. Every lawyer that I've come in contact with has a highly sophisticated understanding of corporate governance, litigation strategy, governmental concerns and particularly compliance concerns. They just seem to be very experienced and very skilled lawyers. I've often wondered how GE gives lawyers of such high quality an incentive to go to these faraway places. These are people who could be working pretty much anywhere. Obviously GE does a fantastic job recruiting - and must make it worth their while.
O'Shea: [Allen & Overy] I view working with GE lawyers as tremendously positive. It makes our job much easier and more enjoyable when we can work with people who are very talented lawyers in their own right. Working with GE lawyers is like having additional partners on your side.
Cunningham: [Allen & Overy] GE's ability to attract the finest lawyers from the best law firms and the highest government positions has made my job easier. For example, Briggs Tobin was a partner at a firm in Atlanta before he came to GE to join its central M&A team. The pattern goes back to 1987 when Ben joined GE as general counsel from Sidley Austin. When you deal with lawyers of that caliber in-house it means you don't waste time on unimportant things; you can focus on the key issues and you can have a very efficient dialogue with them about the alternatives for managing the risks you will inevitably find in transactions. It makes M&A more efficient and more fun.
Hansson: [ Paul Hastings ] GE lawyers are absolutely "A Players" whether they were formerly partners at leading law firms or not. Their legal department has always focused on hiring only top legal talent and it is a source of understandable pride for the department. The things that I have always enjoyed about working with GE lawyers are their intelligence, their hands-on approach and their team-oriented handling of litigation matters. They are eager to analyze potential business solutions, to help review ADR possibilities and develop litigation strategies as necessary. Those of us at Paul Hastings who work with GE lawyers agree that they are not only tough, smart and dedicated, but they also challenge us in ways that make us all better lawyers.
Stephenson : [King & Spalding] Every GE lawyer I've met is a class act. They are excellent managers of outside counsel.
Both Brackett's small group and GE lawyers are "A Players" and our firm continues to be impressed by GE's ability to attract the best and brightest lawyers from private practice and government. They bring to the table knowledge of the broad expanse of the GE businesses, including an understanding of GE's policies and strategies. This brings great efficiency to the whole process and makes working with them a much more pleasant and enjoyable experience.
Roberts : [Weil Gotshal] It's no different than working with the associates and partners of Weil Gotshal or the associates and partners in any other major firm. You are working with people who know what they're doing; are very professional and very smart. They interact well and understand the issues and press for creative solutions.
Brian: [ Munger Tolles ] GE has been able to recruit and maintain a law department of the highest quality. It is outstanding and ranks among the best that I have had the pleasure to work with. There is a consistent quality about the lawyers they recruit and retain. Their lawyers are mature individuals who make sound decisions and participate in all aspects of a case. They also have lawyers with the highest integrity. To me, the greatest strength of a good lawyer is the ability to identify a problem and take care of it. GE's lawyers do that as well as any lawyers I have ever seen.
Ben Heineman describes the mission of the CEO as achieving high performance with high integrity so that driving integrity down into the organization becomes the responsibility of the CEO. How have you seen this reflected in your work with GE?
Roberts : [Weil Gotshal] Certainly, on sensitive issues the most senior officers, including the CEO and CFO, want to know about any issue that may involve any question of integrity or compliance. You don't have to push GE to recognize those issues. There has always been a culture at the top of GE that, if you see something that might be a problem, you're to raise that issue and ask the necessary questions. The tone at the top at GE is exactly what Ben recommends it should be at all companies. It drives sensitivity and concern for integrity and compliance down through the organization.
Cunningham : [Allen & Overy] GE developed a guide for those involved in doing joint ventures in emerging markets. The first topic discussed is business strategy and vision and immediately following that, and before getting into any other details, is a discussion of compliance. There, GE says that when you are looking at a JV partner you need people who have a strong commitment to integrity and best compliance practices. Within the discussion of compliance the first topic is legal and reputational risk, and the first sentence says that prior to entering into a JV relationship, GE must determine that the potential JV partner shares GE's ethical standards and is prepared to follow business practices consistent with GE's commitment to compliance with the spirit and letter of the law.
Is the nature of integrity and compliance issues such that they deserve the attention of the CEO?
Roberts: [Weil Gotshal] Absolutely. Many times in all companies, integrity issues arise that clearly deserve the attention of the CEO because they could be "affect-the-whole-company" or "bet-the-company" issues. When such possible issues come to the attention of GE people they know they should be brought to the attention of the CEO. I have found this consciousness pervasive in the lawyers and other people at GE with whom I deal. My impression is that they do a very good job of keeping the CEO properly informed and are in close contact with the CEO. I've been in meetings where it is very clear the CEO, CFO and other senior officers were well aware of all significant issues of any kind. GE people are really good at making the judgment of what should go up and what does not need to.
In general, do you feel that the nature of the problems that should get the attention of the CEO merit the expenditure of bringing "A" lawyers in-house?
Roberts: [Weil Gotshal] Definitely. GE clearly has a compensation structure for lawyers that, all in all, is competitive with the private sector or they could not attract and retain the caliber of people they have. In addition, Ben Heineman was always very effective at convincing people to come and join the team because he was going to give them responsibility and opportunities that would be both challenging and rewarding. Brackett has continued Heineman's legacy by doing the same thing. Both of them believe so much in what they are doing that they become great salesmen for the proposition. So, they manage to attract the best attorneys.
Are GE lawyers involved in risk management?
Cole: [Sidley Austin] If you think about GE's approach to risk management, there is almost a words and music metaphor, which is that compliance can be technical, but, if you approach it with the compass of integrity, your interpretation of the rules is less likely to be challenged. We see the contrast also in the way GE approaches negotiations. GE is a tough bargainer to be sure, but they are looking for a reasonable bargain as well, so there can be times when they have the economic leverage to take a much more extreme position but simply do not.
Hansson : [ Paul Hastings ] GE lawyers play a significant role in the risk management process.They are involved at literally all levels of that process, including the early warning system, their compliance function, the early case assessment program, as well as active participants in all its litigations and investigations. It is hard to think of any significant risk analysis that GE lawyers are not involved with at some level.
Stephenson: [King & Spalding] GE lawyers' important role in risk management issues associated with compliance is illustrated by the activities of Jane Alpert, a lawyer with GE Real Estate with a particular expertise in tax exempt financing. She is also Chief Compliance Counsel for GE Real Estate and was one of the many lawyers involved in helping GE avoid financing pitfalls in the post-Enron era and dealing with issues under the Foreign Corrupt Practices Act. She has also been involved in compliance issues confronting GE globally after 9/11, including compliance with the USA Patriot Act. Our firm has worked closely with Jane in advising GE with respect to its ability to walk away from transactions where it was not comfortable with the identity of the counter-parties.
Ben comments that since most GE lawyers are organized into practice groups, if a business needs a particular skill they can get it, even though it may mean drawing a lawyer away from another business. As a result, the GE legal group has the bench strength of a large international law firm. Have you found this to be the case?
Stephenson: [King & Spalding] GE conducts "practice group" meetings of its lawyers across businesses to create a highly coordinated and effective team effort. They foster a bond among the attorneys that encourages close collaboration among the lawyers as if they were in a single law firm. At these and other meetings of inside and outside counsel throughout the company, GE leverages the knowledge of lawyers serving all the company's businesses, not isolating the lawyers in the silos of their particular businesses. GE is clearly ahead of many law firms in training, keeping their lawyers up to date and encouraging collaboration among them.
Cunningham : [Allen & Overy] GE takes the law firm panel process very seriously. We are one of six firms on the U.S. M&A panel. The partners from those six firms regularly meet either via teleconference or in person with the lawyers at GE who are responsible for executing M&A transactions. At these gatherings we have not just the representatives of GE's central legal M&A team in Fairfield, but we also have M&A lawyers from each one of GE's major businesses. The goal of this effort when it was set up four years ago or so was to create a virtual law firm for GE that includes not just the in-house lawyers but also the firm lawyers who work on M&A transactions for GE.
We share know-how and experiences among the firms and with GE. We have monthly conference calls where there is a presentation on a current topic of interest. It's a very proactive process going both ways. We had a meeting at the GE learning center in Crotonville in the spring of 2007, at which we had lawyers from law firms from around the world as well as GE lawyers from the U.S., Europe and Asia together for two days of meetings to learn more about GE businesses and to talk about international legal developments affecting M&A. GE legal spends a lot of time with their panel firms educating them. We are also one of a similar number of firms on the European M&A panel, and GE is also in the process of putting together an Asian M&A panel. We are one of the two firms that have been on the GE M&A panels for all three major geographic areas in the world.
Brian : [ Munger Tolls ]: I can only speak to my own experience, but I would say they have tremendous bench strength. And that strength extends across business units. If one GE business has a problem and a lawyer in a different business has experience in that subject matter, they will find a way to draw upon the expertise of the lawyers in that unit. Within the last year and a half, they brought in a lawyer from a different business unit to work with us because he had the experience in that area.
Hansson: [ Paul Hastings ] That has been my experience - their lawyers are definitely not just stuck in their own business silos. If you handle a matter for a certain GE business that involves significant legal issues or for which specific expertise is necessary, lawyers from GE headquarters or even other businesses with that expertise are likely to be involved.
I oftentimes marvel at GE's ability to find the right person within their vast legal department to help bring the necessary experience to get the best result for their company. They always seem to know where to find the lawyer whose talents are needed even if they are in a totally different business. In this way, GE makes sure it utilizes its vast legal resources for the benefit of the company.
Contributing generally to the effectiveness of GE's legal structure is its various Centers of Excellence (COE). In GE Commercial Finance, for example, they have COEs such as litigation, bankruptcy and M&A that bring together lawyers who focus entirely on those specialty areas within a particular business. The litigation COE houses various in-house litigators who focus entirely on litigation issues affecting their business, and they all have specialized knowledge that truly benefits the company. GE's commitment to specialists, while recognizing the importance of lawyers dedicated to certain businesses, helps them effectively handle their legal issues.
Roberts: [Weil Gotshal] Yes, in my experience there is no area of law that we deal with domestically or internationally in which GE doesn't have a trusted resident expert somewhere in their system. For example, securities, mergers and acquisitions, antitrust, tax, employee benefits, labor, environmental, compliance and litigation to name a few. Basically, if the GE legal team were an independent law firm, it would be one of the largest law firms in the world.
There is no silo effect as far as the GE legal department is concerned. It is exactly the opposite. Brackett would never tolerate it. GE lawyers attend a lot of meetings and in-house CLE offerings, which fuse the lawyers into a unified in-house law firm. There have been situations when I wasn't aware of who at GE was the "expert" on something, but I've always been able to make a call and find out who it was and to get them involved.
Outside counsel is also integrated into the total GE legal effort so that, in a sense, many of the advantages of one very large international law firm are realized with in-house and outside counsel working together to achieve common objectives. We are included in a lot of conferences, either phone conferences or in-person conferences, on a regular basis. I think that is just part of the GE way, which clearly is inclusive. They not only want you to be there, they expect you to be there. Ben used that approach - and that tradition has been carried on by Brackett.
Williams: [ Munger Tolles ] My experience has been limited to investigations. However, I can attest to the fact that GE has the ability to pull together the right group of lawyers to work on an investigation from any place in its orchestration. Scott Gilbert, who has since left GE to take a very senior position at Marsh McLennan, formerly headed up GE's investigations group. If any of GE's businesses had a really difficult, thorny government investigation, Scott would be brought in. And Scott had familiarity with a network of people throughout the company that he could activate to work on the investigation. GE's lawyers seem to have an interdisciplinary depth. GE's strength is its ability to identify the right lawyer, inside or outside, to solve a problem.
Cole: [Sidley Austin] What exists at GE is very similar to what we do at our firm. Having practice groups creates a lot of efficiencies because we can marshal the intellectual capital to most effectively serve the client. There's no sense in wasting experience and expertise by having a lawyer operate in the silo for one business unit. Collaboration can elevate everybody's game - they learn from the best practices of each other. The GE lawyers are also members of "pole" groups based on global regions such as Asian, Latin American and European. These act as a form of practice group because they meet independently to talk about common problems in their regions and share best practices. Each of our offices is a kind of "pole" group in the sense that the lawyers in each office are familiar with issues unique to the area in which they are located and communicate about these issues with the other lawyers in their office and other offices of the firm in that area.
Ben talks about the early-warning systems that GE has set up in which there are lawyers and non-lawyers whose jobs are to pick up information from a variety of sources that might provide an early warning of emerging issues so that those issues can be addressed before they become a problem. Have you experienced this?
Hansson: [ Paul Hastings ] GE's early warning system is literally what it suggests: an early warning system to help businesses manage risk. They use both internal and external resources in the program. Accounting firms, law firms, and internal resources are tapped to keep GE up to date.They look for new developments and trends by tracking litigation results, new legislation, the media, speeches by public officials, etc. Once they identify the risks, they then take the appropriate steps to manage them. It's a wonderful process that they have refined over the years to help them avoid surprises and make sure they are complying as best they can with new legislation and evolving case law.
Stephenson: [King & Spalding] In May, we hosted a dinner with our partners, clients and community leaders in Atlanta at which Jeff Immelt spoke. In his remarks to this group of both business leaders and lawyers, Jeff stressed the importance of having a team that focuses, as he described it, on being proactive, anticipating needs and staying ahead of issues. His comments underscored the importance of lawyers alerting their clients to trends - in Congress, in state capitals - so that businesses can react to future change, proactively implement policies that will mitigate or avoid their effects or that will lead to the creation of new products or services to benefit from such changes. Even though I am not an environmental lawyer, my exposure to the thinking of GE's in-house environmental experts who spot litigation trends and know where potential exposure lurks has assisted us in better structuring our transaction documents to mitigate risk. It is obvious that the information that they obtain is the result of the kind of sophisticated data collection activity that you describe.
Brian: [ Munger Tolls ] I saw this in connection with internal investigations. They have devoted large amounts of time to putting in place procedures so that if and when a situation arises it is not handled as a crisis, but as an anticipated problem.
Roberts: [Weil Gotshal ] Although I have not experienced this, over the years I have been called numerous times by Ben, Brackett or others at GE asking, "Tell us whether there is an issue in this proposed regulation? What do you know about this issue? How does this regulation work? What does this court holding mean? What could be the effect of this legislation?" Not only do we get calls from them on a regular basis, we, and I suspect other law firms, continuously send GE information, keeping them updated in such areas as corporate governance, compliance, securities, M&A, regulatory, antitrust, tax, etc. So they have a great early issue discovery and analysis culture.
Cole: [Sidley Austin] I am not familiar with a specific GE example. But it is obviously of great importance to have lawyers like those at GE who are dedicated to uncovering early warning signals. Take, for example, the changes in the regulatory and prosecutorial climate that have taken place over the last few years. A business practice that has gone on openly for years in a particular industry sector may be challenged by a creative prosecutor or regulator. It is important to have lawyers who are tracking such developments so that a company can take whatever actions are necessary in advance to avoid or mitigate a problem.
I gather that there is a group around Brackett that Ben calls super-substantive experts. They focus on issues like tax, healthcare, environment and employee health and safety. They look at policy issues and come up with proposals to address them. Have you worked with these experts?
Roberts: [Weil Gotshal] To mention just a few, Steve Ramsey for years was the super-substantive expert on environment. Now it is Ann Klee. John Samuels is the expert on tax, Mike McAlevey on securities, Briggs Tobin on mergers and acquisitions and Ron Stern on antitrust, just to name a few. They play a major role in shaping GE policy in those areas, as do other members of Brackett's group in other areas. Shaping policy can be an effective business tool, if, like GE, you do it well and use it effectively to stay ahead of the game. More and more companies are trying to be proactive and getting out ahead of developments so that they can have some influence on shaping the future business environment.
Cunningham : [Allen & Overy] We have dealt with Steve Ramsey and now Ann Klee and their team on environmental issues. They think about the long-range implications for GE of environmental issues and work on GE's environmental policies. When we consult with them about the environmental implications of a transaction in which we are involved, you can tell that they are thinking not only about that deal and how it gets done but also about the overall GE position on the environment and how individual transactions should be structured so they are consistent with that position. GE gives its outside lawyers descriptions of the policies that guide its business planning.
Cole: [Sidley Austin] One of the great strengths of the GE group is that it has lawyers who seek ways to affect major policies. Its effort to fight corruption by enlisting the support of other companies is one example. Policy concerns become more significant in the case of a multinational that must operate under rules of different jurisdictions. The whistle-blower rules under Sarbanes-Oxley when they first came out presented issues of that kind for companies subject to European Union regulations. A company needs lawyers who can help it weigh-in during the comment periods as legislation and regulations are being considered and offer important intellectual input into issues that will affect U.S. competitiveness as well as just getting things done the right way. And it takes a talent base like the lawyers in GE 's legal group to do that right. That is not to say that GE is the only company in the country or the world that can do it, but it is certainly out there, with a lot of credit to Ben, and following Ben, Brackett.
Stephenson: [King & Spalding] Steve Ramsey was, before his retirement, a member of Brackett's group, who at the time was working with one of our environmental partners in Atlanta. He organized a climate change roundtable that we held in our Washington office. The participants included a cross functional group of six or seven lawyers from our firm and nine from GE, including environmental lawyers, business leaders and governmental affairs specialists. We talked about climate change and GE's approach to the problem, including Ecomagination .We spent a day brainstorming about the whole climate change issue, which for me, as a real estate lawyer, was eye-opening. GE was clearly looking ahead to consider the effects of climate change on its business, including, for example, how it would impact the value of commercial real estate. Understanding how GE views and addresses these issues allows us to better serve GE. This demonstrated to me the importance of companies like GE having policy experts who think about not only how to be good corporate citizens but also look at the cost effectiveness of a good deed. Companies need to look at how, in doing good, they also can maximize the economic return to their shareholders.
GE is known for being thorough and well prepared. Has this proven productive for GE?
Roberts: [Weil Gotshal] GE's attorneys are very professional. They tend to look under every stone to make sure that they know what's happening. While some people think that's good, others think it's a pain in the neck, because they know GE is probably going to be more thorough and prepared than they will be. GE has been that way the whole time that I've represented them. They are very thorough in what they do and when they make a decision, they have all the facts necessary to make that decision. With GE, if you're not prepared or you haven't really covered all the bases, they will know and you will not last long. Brackett also does not like it if you are critical of the Red Sox.
GE prides itself in giving a voice to their employees in the sense of encouraging them to come forward when they encounter a compliance or risk management issue. Have you seen examples of this?
Williams: [ Munger Tolles ] GE has as good a corporate ethics policy as I've seen and its diligence in educating people at all levels about that policy is the best I've seen. As a result, a culture of law abidance permeates the company. There have been two or three matters in which an issue was uncovered because people were encouraged to come forward and report potential issues. There seems to be little or no fear of inappropriate retaliation and the corporate culture encourages people to do the right thing.
To what extent does GE encourage your law firm to engage in pro bono and practice diversity?
Williams: [ Munger Tolles ] With respect to diversity issues, GE asks a lot of questions about figures - how many minority and women lawyers we've hired, and whether diverse lawyers have been retained. I happen to be African-American and they've been extremely supportive of me in terms of the things that lawyers there have said about me to third parties and in terms of the importance of the matters on which they've allowed me to work. There is no question in my mind that GE is truly interested in the diversification of the profession.
Our firm just won the American Lawyer magazine's "A-List" competition. This is a competition in which one firm is chosen every year that gets the highest overall score in the following four categories: diversity representation, revenue per lawyer, pro bono hours and associate satisfaction. We're very proud of the accomplishment, but it is something to brag about only in comparison with other major American corporate law firms. Whereas Corporate America has a lot of women CEOs and minorities who have burst through the glass ceiling to become captains of industry, major corporate law firms seem to be the last bastion of a lack of diversity in America. When you look at the limited number of partners of color and female partners in comparison to those groups' representation in the profession overall, it really is not a great picture. In my opinion, companies like GE need to keep the pressure on firms like ours to improve the number of minorities and women who advance to the senior positions within corporate law firms.
O'Shea: [Allen & Overy] We have partnered with GE on a number of pro bono initiatives and share their commitment to pro bono work. Currently, we are partnering on a great initiative inspired by GE's general counsel for real estate, Eileen Brumback. We decided on an organization called "Dress for Success," which provides disadvantaged women seeking their first jobs with interview skills, resume skills, business clothing and ongoing professional support. It's a terrific organization, extremely well managed and staffed with caring and enthusiastic people. It gives us an opportunity to provide not only pro bono legal services to the organization, but also non-legal assistance in a variety of areas that the women will encounter in the workplace and in their personal lives.
Cole: [Sidley Austin] Our dedication to pro bono was recognized when we won the ABA pro bono award. When I talk about diversity with our partners and other colleagues, the critical underpinning of our diversity program is the business case for it. It is unlikely that a program will be implemented as effectively only if it is viewed as a social good or because it has a positive impact on company reputation. The bottom line is that a corporation that insists that its lawyers inside and outside be diverse is going to get a better practical result. GE is a great example.
Hansson : [ Paul Hastings ] GE has been truly committed to both pro bono and the practice of diversity and this has been part of their culture for a long time. Right now, our firm is working with GE to establish a pro bono program that will help disadvantaged teenaged children, and they have literally hundreds of such opportunities for their lawyers to be involved in pro bono projects. In addition, over the twenty plus years that I have represented them, they have always insisted that we have diverse teams, including minorities and women, representing them. For example, when we represented GE in the Santa Barbara trial previously mentioned, they were very pleased that the lead trial lawyer for them, Dennis Ellis, was an African American partner of mine, who did an outstanding job. GE's commitment to pro bono and diversity is an outgrowth of their general commitment to excellence and its well-earned reputation for high integrity in its dealings with others.
Brian: [ Munger Tolles ] We live in a diverse society and GE believes that its lawyers should represent the society in which we live. I am personally involved with pro bono activity and our firm is also actively involved with it. We were just ranked number one by The American Lawyer in large part for the extent of our pro bono work.
Roberts: [Weil Gotshal] GE is very big on diversity and they want a diverse team. GE stresses the importance of diversity on a regular basis, and they want diversity taken into account in connection with staffing matters. We have a big diversity program at Weil Gotshal so this works quite well for us. GE does more than talk about diversity; they keep track of it and they want to know what the diversity score card is as you go along. Both Ben and Brackett have been very active in pro bono activities throughout the last several years, and so have a lot of the other senior lawyers, like Rick Cotton who is General Counsel at NBC. Our firm supports the Pro Bono Partnership, which would not exist except for GE's dedicated support at the beginning. Brackett, Garland Stephens - one of my partners in Houston - and I are handling a death penalty case together. And Brackett is in there together with us. It's not as if I am doing it and Brackett is coattailing. Brackett doesn't coattail, except maybe in golf.
Stephenson: [King & Spalding] Diversity is a major commitment of our firm, as well as for a number of our major corporate clients, including GE. On an annual basis, we report to GE the number of our minority U.S. lawyers. GE is not only interested in the number of minority lawyers but also whether they are partners or associates and whether they are working on GE matters. Happy Perkins is General Counsel of GE Energy in Atlanta and recently he and Teri McClure, General Counsel of UPS, attended our annual pro bono awards presentation at which we recognize our lawyers and paralegals in Atlanta who have committed 50 or more hours to pro bono service. Happy and Teri spoke to our lawyers about the importance of pro bono work. During the course of his remarks, Happy discussed the Pro Bono Partnership and his involvement in its organization here in Atlanta and his own personal experiences in providing pro bono legal services to the indigent. It is important, especially for young lawyers, to hear directly from our clients that pro bono is important.
Cunningham : [Allen & Overy] When you think about Allen Overy with 28 offices in 25 jurisdictions, we are inherently very diverse given the places where we have offices and the demands of clients like GE. GE makes it clear to us that they care about diversity in all kinds of ways. They want information from us about our lawyers from that perspective. We get the clear message from them that this is important to them, and it's obviously important to us as well.
In situations where it cannot achieve a policy objective acting alone, GE works jointly with other companies or through NGOs. Describe situations where this approach has been effective.
Stephenson: [King & Spalding] GE was an early participant in USCAP, a NGO urging the U.S. government to enact strong legislation to control and reduce greenhouse emissions. USCAP approached this issue in a way that is helpful and beneficial for American business generally. GE recognized such an effort must involve the commitment of other companies to be successful.
Hansson : [Paul Hastings] It is my understanding that GE lawyers meet on a fairly regular basis with top legal people at other companies and law firms to develop best practices relating to a whole host of issues. For example, when they were developing their early case assessment program they worked with me and other law firms to develop that program. They understand that they can learn from other companies as well and appear to have a good system in place to share and develop best practices generally for GE.
Have you seen the GE emphasis on integrity reflected in litigation or negotiations?
O'Shea : [Allen & Overy] I represented GE on its purchase of a very large real estate loan portfolio from a company that was effectively going out of that business. In the course of the negotiations of the transaction it came to light that there was a fairly significant issue that the other side had inadvertently overlooked. We discussed what should be done with the GE lawyers and business people and it was determined at that time we should inform the other side about the issue, because it would result in an unfair advantage to GE not to advise them of it. This approach, and more importantly the decision that was made, clearly demonstrated to me the emphasis placed on integrity at GE.
Brian: [ Munger Tolles ] GE has developed a well-earned reputation for integrity in their dealings with the government - for being forthcoming and for being completely and totally honest. This has led to very good relationships with decision makers, and when they come in, they come in with a track record that is helpful.
Stephenson: [King & Spalding] GE will maximize, as it should, the economic return on its investment. At the same time, GE is fair in its dealings. In the real estate area they do a lot of equity investment with third parties, often smaller real estate developers with which GE clearly has the economic clout. GE recognizes that it must deal fairly and reasonably with its partners, and that often the way to maximize its own return is to maximize the return of its partner. High performance and high integrity really go hand in hand. It makes good business sense.
Hansson : [ Paul Hastings ] GE has an excellent reputation for the highest integrity in its business dealings. I have represented them for over 23 years and the one thing that most mediators, judges and adversaries usually understand is that although GE is likely to be hard-nosed and tough in its dealing with other parties, it also will be honest and fair. I have seen this work to GE's advantage in ADR proceedings, for example, where arbitrators and mediators tend to have a high regard for GE and the positions its lawyers are taking at that proceeding. Likewise, about two years ago, Paul Hastings handled a jury trial in Santa Barbara, California that we won for GE Healthcare. The other side's unfounded claim was essentially that GE had provided them with untested and defective medical equipment. While some large companies shy away from jury trials because of a general poor public reputation, GE had confidence that its reputation for high integrity and excellence in its product would help it before a jury. The jury found in GE's favor in three hours and I can tell you that GE's deserved reputation for high integrity and excellence were extremely helpful in securing that important verdict.
How does GE assure that businesses it acquires or joint ventures it enters into meet it high ethical standards?
Williams: [ Munger Tolles ] I have been in situations in which the company had acquired a subsidiary in a foreign country. GE no doubt made those acquisitions after doing the best due diligence it could, but the process can't be perfect. Sometimes, post-acquisition, compliance issues arise. GE is a company where it doesn't matter who the executive is, or how high level he or she may be at that subsidiary at the time of the acquisition - the company will do what it has to do to correct a problem. In my experience, GE's lawyers and executives have been decisive in these situations even if the solution calls for removing the people at the top of the acquired company.
Cunningham: [Allen & Overy] GE is very sensitive when they acquire businesses, particularly businesses outside the U.S., to potential problems involving the Foreign Corrupt Practices Act. They have developed procedures for identifying those problems and dealing with them very pro-actively, ideally before an acquisition closes. They also educate their lawyers who do deals for them outside the U.S. to these issues, how they should be identified and how they should be handled once they are identified.
What is GE's attitude toward early case assessment and ADR?
Brian: [ Munger Tolles ] GE is a proponent of getting a frank early assessment. GE believes in assessing a case early so that everything it does in the case, whether it is settlement or litigation, is designed to achieve an objective. On that basis, they can decide whether it is a matter that ought to be resolved or a matter that ought to be fought.
Stephenson: [King & Spalding] We also see it on the transaction side. On the front end of a transaction, when negotiating the documents, GE takes a very practical approach and in many transactions will insist that we have binding arbitration provisions, and in others they don't. It is a recognition that ADR can work well in certain areas, but perhaps not in others.
Hansson : [Paul Hastings] Early case assessment is something of a misnomer because it is really an early matter assessment. GE will sometimes use an early case assessment before litigation is brought against them or in connection with a potential acquisition or other transaction. One of the reasons why they have been extremely successful with this program is that they have formalized the process, and in formalizing the process they require certain things to happen at the earliest possible time. In addition to interviewing key witnesses and reviewing key documents you are also asked by GE to go beyond just a formal legal review. Instead, you are also required to identify business objectives for both sides and really take the time to understand how best to resolve a dispute or develop an appropriate litigation strategy. What GE essentially does is to say there are certain things we absolutely want you to consider at the outset, and if it's a big enough case, we want you to commit it to writing. In its early case assessment program, GE also places great emphasis on taking a close look at damages and to creatively suggest possible settlements.
As discussed, the early case assessment program is a great tool to make sure that GE's legal and business teams truly understand their objectives in a particular dispute. A careful review of GE's objectives may lead to the conclusion that it may be in GE's best interest to seek an early business solution, particularly if the other side has important business relationships with GE, even if it is not with the GE business that is a party to the dispute. It may also lead to a specific litigation strategy. In any event, GE has saved quite a bit on outside counsel fees, as well as reduced its litigation exposure, because of the discipline their legal department brings to their early case assessment program.
Cunningham : [Allen & Overy] Both in the U.S. and internationally, GE includes in its agreements dispute resolution provisions that provide for efficient resolution of potential disputes. The objective is to get a reasonable result in a reasonable period of time as opposed to a perfect result after an extensive proceeding. Sometimes a provision is included to the effect that, even before a dispute goes to mediation or arbitration, the dispute will be referred to senior executives of each party for attempted resolution.
I've talked to foreign lawyers about corruption and sometimes it's passed off with the comment that "everybody does it." How do you assure that the lawyers in your foreign offices understand GE's firm policies against bribery?
O'Shea: [Allen & Overy] Part of that is educating our people about GE's internal policies and their commitment to integrity. But a bigger part is our firm's commitment to maintaining high quality and integrity wherever we practice.
GE takes great pride in its reputation. I would assume that GE's reputation is a great advantage when you sit down at the bargaining table. Has this proven helpful in its dealings with other parties and in litigation?
Brian: [ Munger Tolles ] The short answer is yes. The long answer is I think a lot of factors go into a client's and a law firm's reputation. I think what you do in the community and what you do for people who are less fortunate are very important for the development of your reputation with opposing counsel and with judges. The quality of the brief you file is obviously important, but other less tangible factors are important as well.
Cunningham: [Allen & Overy] Absolutely. When GE says they care about certain types of compliance issues, you know and the people on the other side of the table know they really mean it. They are taken seriously, and that's a big advantage.
Cole: [Sidley Austin] Reputation is something you earn and refresh daily. There is the other old cliché that it can take decades to build a reputation and a day and a half to lose it. So protecting it is something that really requires a great deal of vigilance. Once a reputation is tarnished, it takes a lot of work to redeem it. So maintaining a corporation's integrity in the ways suggested in Ben's book is exactly the right approach.
Stephenson: [King & Spalding] When you, as a lawyer representing GE, commit to the other side that something will be done, it carries a great deal of weight. The mere involvement of GE helps facilitate closing of deals. GE's customers, partners, and borrowers are aware of the GE focus on reputation and often GE will mandate that its business partners adopt their own integrity policy.
O'Shea: [Allen & Overy] I would also say that there is a large credibility benefit to representing GE. When GE takes a position or makes a commitment, that statement or commitment is backed by years of experience and vast expertise, and is extremely meaningful to counter-parties or adversaries. I think in particularly difficult economic times like these, that credibility is a great benefit and will provide GE with a further competitive edge.
Published August 1, 2008.
