The Changing Role of the Global General Counsel

Volume 2 • Issue 4 • May 2016
Cover
Main Article Image

Asleep at the Wheel?

In-house lawyers at General Motors

In 2014 the general counsel of General Motors (GM), Michael Millikin, found himself in a place no lawyer ever wants to be: the hot seat at a congressional hearing with U.S. lawmakers calling for his resignation. Although CEO Mary Barra ultimately stood by Millikin and he was exonerated in the internal investigation, the GM recall scandal nonetheless raises difficult questions about the responsibilities of in-house counsel.

As part of a case study on the role of general counsel, Harvard Law School is asking students to try to imagine themselves in Millikin’s shoes. In the case study “Driving Blind at General Motors,” Nathan Cisneros, Karina Shaw, and Lisa Rohrer present GM’s slow-footed response to a widespread safety defect and the resulting federal investigation. Focusing on the actions—and inactions—of the in-house legal counsel in dealing with a faulty ignition switch and related airbag malfunction, this case highlights the missteps that led to the crisis, the leadership’s delayed response, and the consequences for the company. As a result, participants are provided with a real-life example of how corporate culture, bureaucratic divisions, and a lack of accountability can pose significant challenges to the in-house counsel’s ethical and professional obligations.

Focusing on the actions—and inactions—of the in-house legal counsel in dealing with a faulty ignition switch and related airbag malfunction, this case highlights the missteps that led to the crisis, the leadership’s delayed response, and the consequences for the company.

Drawing on publically sourced material, including the congressional hearing, internal GM reports, and press accounts, the case study outlines the details and timeline of the scandal, paying special attention to the role of the in-house legal department. In 2000 the GM engineering department introduced an alternative ignition switch for a new vehicle platform. Known internally as the “switch from hell,” the new design proved to be overly sensitive, causing the engine to unexpectedly turn off. The switch nonetheless was approved, and despite reports of engines spontaneously shutting off at high speeds, GM engineers labeled the problem as one of convenience rather than safety, a categorization that would relegate the issue to the back burner.

What is a case study?

A case study is an educational tool that allows students to analyze a factual situation confronting an individual or organization. Case studies, which are historically accurate, address topics such as the evolution of an organization’s business model, cooperation within teams, a corporate lawyer navigating his or her turbulent career, or a difficult merger between two law firms. Cases are not meant to provide definitive answers but instead to show multiple points of view and to highlight the complexities and ambiguities of particular situations.

It wasn’t until GM started to face litigation claims over a seemingly separate issue—airbag nondeployment—that the ignition switches began to receive significant attention. Although these claims seemed isolated at first, in 2007, GM received its first warning from outside counsel that the scale of the problem and GM’s inaction could result in punitive damages. Despite the urgency of the problem, GM continued to drag its feet. The legal department treated litigation claims discretely, and since most claims were less than $100,000, they did not require the notification or involvement of the department’s leadership. No recall was issued, and the legal department seemed content to refer the problem to engineering and wash its hands of the issue once settlements were made. As the internal investigation would note, the legal department also failed to follow directives in place that obligated staff to notify leadership of issues that might be severe. It wasn’t until the spring of 2013 that the connection was finally made between the switch and the airbag nondeployment, but even then it took GM until February 2014 to officially issue a recall.

The prevailing belief among many GM employees was that the legal department discouraged employees from raising concerns or taking notes during meetings about the faulty switch.

With more than 1.4 million cars recalled and 13 deaths linked to the faulty switches, the case quickly attracted widespread media attention. The Department of Justice launched a criminal investigation, and GM also initiated its own independent inquiry. Notably, the independent report highlighted a number of cultural and organizational problems that may have contributed to the delay, including within the legal department. The prevailing belief among many GM employees was that the legal department discouraged employees from raising concerns or taking notes during meetings about the faulty switch, and that it also encouraged employees to exercise caution when writing about safety issues. Most concerning, the report found that the legal department ignored its own directives regarding the communication of serious issues to department superiors—an oversight that undoubtedly contributed to the company’s delayed response to the crisis. Thus, while the report exonerated the general counsel, the CEO’s decision to not fire him was nonetheless controversial and left interesting questions about the responsibilities of general counsel at large corporations.

Among its many questions, the case study asks students to consider the following:

  • Was Barra making the right choice by not holding her general counsel accountable for failings in the legal department under his watch?
  • Was Millikin the best person to steer reform, or would it take a new person in the general counsel’s seat to chart a new course?
  • What steps in GM’s culture should be taken to remedy the cultural failings? Who has to drive the change, and how likely is it that such change will occur?

One of the authors of the case, Nathan Cisneros, explains that a goal of the exercise was to get participants to think about how the legal department interfaced with the rest of GM. Large corporations are complex organizations, and even well-intended general counsel have to deal with the problems of miscommunication and competing interests. While the complexity of the GM story precludes it from being a black-and-white morality tale, it nonetheless demonstrates both the important role of general counsel as well as the serious challenges they face in balancing business with the law.

Teaching general counsel

A growing number of law schools are beginning to offer courses that prepare law students for future in-house careers. Triggered largely by the rising importance of general counsel as well as spectacular corporate scandals during the past two decades, the emergence of these courses reflects a constructive development within legal education, one that will undoubtedly help prepare students for the difficult challenges that in-house counsel face. Harvard, Yale, and Stanford have led the way with courses that emphasize the ethical dimensions of the position and the need to balance business and legal judgment, using corporate scandals as learning moments that demonstrate the challenges of acting as business partner, counselor, and guardian of the corporation.

Law schools are also developing executive education programs specifically for general counsel. For instance, in the spring of 2009, Harvard Law School Executive Education launched Leadership in Corporate Counsel, which has attracted more than 200 participants. The program is geared toward general counsel—or individuals who are set to take on those roles—and aims to provide them with management frameworks and tools that will enable them to succeed as leaders. Similarly, a new European initiative was launched at the beginning of 2016 to better prepare EU lawyers for careers in general counsel. Dubbed the “General Counsel Executive Programme,” the program is run jointly between the Rotterdam School of Management at Erasmus University and General Counsel Netherlands and seeks to provide lawyers with management and business courses that will help them better understand the needs of businesses and the position that general counsel can play.

The Changing Role of the Global General Counsel Volume 2 • Issue 4 • May 2016

Cover