The Legal Department as a Profit Centre? Impossible. Think Again. It’s Here!

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In nearly two decades of writing about the legal profession I have never stumbled across a story with the power of one revealed at the recent Legal Spend Management conference in Canary Wharf London: a corporate legal department that actually makes money – and lots of it – for the company! So astonishing in fact is this revelation, I can safely predict it may force legal departments all over the world to re-evaluate how they actually function.

The legal team in question are the 185 lawyers of multinational pharmaceutical giant Dupont – an innovative company, legally speaking, being perhaps the first to embrace convergence, and before that, the ‘Wheel’, where law firms servicing the company learned how to exchange information with each other. So in fairness, it has been at the forefront of change for some time: now, it may well be there again, in inventing the legal department that is no longer a cost centre but a real generator of profit.

The key word in how they do it is ‘recoveries’. The legal team literally goes looking for contraventions against Dupont, and when they find them the perpetrators are threatened and, if necessary, sued. Most legal departments prefer to adopt a pragmatic, conciliatory approach to such problems as a utility power failure that stalls a manufacturer for a while, or certain terms of a contract that due to temporary extraneous reasons, may cause a few problems along the way. Because generally, in Europe, litigation is a spine-chilling word.

Not so in the USA, and certainly not at Dupont. In its legal department’s new guise as watchdog for the corporation in everything that goes wrong some other business is to blame. And as businesses have deep pockets they are able to pay for those mistakes. Hence embracing recoveries makes sound economic sense.

 In 2009 Dupont recovered over $300 million in litigious attacks on various companies around the world that had fallen foul in one way or another over its contractual obligations. In total, over the past few years Dupont’s legal team has brought in $1.5 billion in this way, but 2009 was its best year ever.

The costs in achieving this, according to senior vice president Tom Sager, were ‘peanuts’. He produced figures at the Legal Spend Management conference of less than $100,000 being spent to recover this astonishing amount. Of course, one needs to add the salaries and running costs of the legal department and this takes a substantial sum out of the equation. But even with that Mr. Sager estimates that the gross profit generated in the department certainly exceeded $100m.

In the next issue of EuropeanGC (out in March 2010) I will be going into this new approach in much more detail with Mr. Sager. The Ford Motor company has already had a lawyer-to-lawyer tutorial on recoveries and has now adopted a similar restructuring of its legal department to make it a profit centre. Others are sure to follow, and it’s surely only a matter of time before this phenomenon hits Europe’s corporate legal departments. What’s more there are lessons here for law firms, perhaps complaining of a shortage of business in this recession. That lesson to partners is, recoveries are profitable, and if you really want to help your clients look out for business to business infringements (Dupont find many in the press) and make the call. Encourage them to enforce their rights.

Just out of interest, on the other side, recoveries AGAINST Dupont totalled $13m in 2009, which might indicate that when legal departments do show their teeth as watchdogs, a deterrent effect comes into play.

If you would like to receive the full interview with Tom Sager on how he turned cost centre into profit centre, email me at patrickwilkins@europeangc.com

Contributor:   Patrick Wilkins

Patrick Wilkins was the founder, editor and publisher of the award winning the European Lawyer magazine from its launch in 2000 until 2009 when the publication passed into new hands. A former British national newspaper journalist, he began to specialise in the reporting of law and legal issues in 1994, becoming in 1999 executive editor of Commercial Lawyer. The European Lawyer won the prestigious Queen’s Award for Export in Great Britain in 2006. Contact Patrick for more information on European GC Newsletter. Opinions expressed belong solely to the author, and do not necessarily represent the views of Legal IQ and IQPC.

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Report Abuse   Hareton 05/25/2010 6:45:08 AM EDT that was really impressive! eager to learn more about Dupont, I found a video http://www.videorolls.com/watc/Dupont-Pharmaceuticals-long-version but I could never imagine that there are such issues regarding recovery, that can help to get profit. a great lesson to be learned. Replies (0) Post a reply Sign in or Sign up to post a comment