Editor: I understand that a greater amount of the legal work is now being done inside as compared with the situation when Ben Heineman, your predecessor, became general counsel in 1987?
Denniston: There is certainly a substantial amount of work being done inside. I think it's important to move a considerable amount in-house because you have more control over the quality, more control over the efficiency with which the work is done, and the people who are doing the work are closer to the business and the issues in the business. So I'd say those are the three main reasons. You can exert more quality control, it can be done more efficiently, and it can be done more knowledgeably in many cases - not in all cases, but in many cases.
Editor: I would assume that that is based upon your practice of hiring "A players" to be a part of the legal group?
Denniston: That is certainly part of it.I guess you could say that you could hire "A players" from outside groups too. However in most cases you do get greater quality, efficiency and knowledge when you use inside people.
Editor: What sort of a relationship do you have with outside counsel?
Denniston: We hire many firms, so the relationships vary, but our aim is to have a partnering relationship with firms at the level at which the engagement is handled. So we try to work together. That comes back to the advantage of using in-house lawyers in the way that we do. The idea is to do a substantial amount of the work with inside lawyers, internally, while partnering with the outside lawyers on the ultimate work product, strategy, and approach.
Editor: In terms of partnering strategy, does that encompass looking for firms that reflect the reputational values of GE, such as practicing diversity, involvement with pro bono, and having a fine reputation otherwise?
Denniston: I think those are factors. We look at all those things. Beyond general reputation is the quality of the person or lawyer who is assigned to the case and the level of expertise of that lawyer, as well as the prior experience of that lawyer with GE or with others.
Editor: One point that Ben makes is that with the 1,300 lawyers, GE legal has tremendous bench strength.
Denniston: GE legal has tremendous bench strength because the reporting relationships, both dotted line and functionally, are very strong. So there is both loyalty to the values of the organization and cohesiveness within the organization. That contributes to having the capabilities of a large international law firm.
You have to go well beyond that basic set of characteristics to achieve the kind of quality that you want and that you would see in some large law firms. You have to have practice groups focusing on specific areas of expertise. For example, we have practice groups in export, in litigation, in EHS, in M&A, and in a variety of other disciplines. Those practice groups focus on initiatives to enhance their expertise in ways that will better meet GE's company-wide needs.
Additionally we have "pole" groups based on global regions such as Asia, Latin American and Europe. These act as a form of practice group because they meet independently to talk about common problems and share best practices. That sharing benefits everybody.
Sharing best practices in these ways is a strong GE characteristic. Litigators have a particular type of expertise. Commercial lawyers have a different type of expertise. Those types of expertise are available to GE people globally because of those various integrating mechanisms that I spoke of, like the practice groups and the "pole" organizations .
Editor: Another thing that Ben mentioned is the lawyer's role in early warning systems that enable them to identify and address emerging issues.
Denniston: The early warning approach, which varies by the type of problem, involves processes to identify emerging trends by tracking various sources - for example, complaint letters, external litigation occurring with respect to other entities, speeches by regulators and a variety of other sources. When a development that might affect the company is identified, it is given more detailed consideration. Sometimes we use external experts to help. This process allows people to take action ahead of emerging trends. The process is systematic and repeatable, so that it isn't episodic.It's a continuous process.
Editor: In GE's 2007 annual report, there is a reference to the fact the GE didn't get involved with CDOs and SIVs. Does this reflect GE's effective risk management?
Denniston: We have a sizable, skilled and able risk organization within the GE capital businesses, Commercial Finance and GE Money, and the function of that organization is to look at both the risk of individual transactions and systemic risk. It is because of such risk strength that we didn't have any significant CDO or SIV exposure.
Business people own the risks as do the lawyers. Sometimes, in a particular compliance risk, the leader will be a business person or what we call the policy owner or policy coordinator. When it comes to compliance with the policies, we expect the business executives to be as responsible as the lawyers or compliance people. They own those compliance risks. Editor: Explain GE's commitment to early dispute resolution coupled in many cases with ADR.
Denniston: Our philosophy is to look at early dispute resolution as a fundamental discipline, but that doesn't mean that we think every case is suited to it. There are some cases which we think from the beginning are cases we have to dispute for various reasons. But, for the most part, cases of all kinds are susceptible of early dispute resolution on the theory that most cases get resolved and historically most cases get resolved late, either just before trial or during trial. That's a tremendously inefficient way to do things, which has collateral consequences, involving friction with your adversary, who might be a customer, an employee or a supplier; cost; and the possibility of engendering other cases, publicity or a variety of other collateral consequences. For reasons like those I mentioned, ADR makes basic business and legal sense.
We are disciplined to find ways to sensibly resolve cases using mediators in many cases. We try to measure when it's done, how often it's done, what the cycle time is from the beginning of a case to the end of a case and what the costs are.
Editor: As reflected in the interview we did with the President and CEO of CPR, Kathy Bryan (See July issue page 22), I gather that your strategy includes supporting an organization, or joining with a group of other companies, to build a community of people who have common good citizenship objectives?
Denniston: There is no question that it first requires a willingness in the other party to go along with ADR and many are, but some are not. Some distrust it, some don't have much experience with it and some are just stubborn. But a lot of people believe in it and they use it where appropriate. Mediation is by far the most effective way to resolve cases early. It results in the highest satisfaction if it's done with good mediators. You can mediate with a less-than-able mediator, but the results aren't going to be as effective.
Kathy and her organization have been helpful in persuading others that mediation is a good thing and in broadening the community of mediators. We try to do that in the U.S. and we try to do that globally, where it is a longer road because there's less of a history of it.
Editor: Is it fair to say that GE doesn't necessarily take things for granted, but seeks ways to change things where that might improve the situation, whether it's supporting anticorruption measures, ADR or other good causes that improve the business climate?
Denniston : I think it's a basic responsibility of GE lawyers to take on causes like that to improve the way we operate and do business - and frankly to improve the rule of law.
Editor: Looking at the reputation of business, not only in the U.S., but also abroad, it's been taking some hard knocks recently. Yet, an overwhelming number of companies operate with great integrity. Perhaps, we could spur our readers to encourage their own CEOs to speak out if we interviewed CEOs of companies with an outstanding record of high performance with high integrity.
Denniston: I think that's a good idea. I think there's a tremendous amount of cynicism about business and always has been. That cynicism goes up or down over time, and in stressful times it's always worse. In the nineties it was probably somewhat less, now it's somewhat more. In all of those contexts there is rarely much attention and analysis given to the socially useful benefits of companies, and I think that's a shame; I think there are a number of ways to change that, including, as you suggested, getting the viewpoints of prominent CEOs, but what people sometimes miss in all the cynicism is that companies create real jobs, and they're great jobs. We have 320,000 employees. Those are good jobs all over the world and in the United States. We're one of the top five hiring companies in the U.S. We spend a lot of time on change that we think is positive, not just for us but for all people - things like anticorruption, things like the rule of law, things like alternative dispute resolution - that story is not often told, and it deserves a voice, it deserves more attention than it gets, and it deserves a more balanced presentation than is seen.