Date: April 12, 2013 Topic: The Shrinking ... - Georgetown Law

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astuteness’ is a valuable dynamic capability (Bagley, 2008:378). By incorporating legal know-how in business decisions, ‘legally astute’ TMTs can protect and enhance the realizable value of resources (e.g. intellectual property), use legal tools to create options (e.g. in litigation), and convert regulatory constraints into opportunities (e.g. by proactively going beyond the letter of the law in environmental compliance to improve financial performance). Legal astuteness impacts on the orientation of both TMTs and company lawyers. As for TMTs, the upper echelons perspective points out that organizational outcomes reflect the values and cognitive bases of powerful actors in the organization (Hambrick et al., 1984). Consequently, examining prior experiences and background of TMT members help us identify the ways they shape and direct the resources at their disposal. In the legal context, TMTs with legal expertise may create more structures and processes to improve the effectiveness of the in-house legal function. Thus, the presence of a functional TMT member influences organization design, and equally, the TMT composition is affected by changes in organization structure (Menz, 2012). Legal astuteness also affects the orientation of in-house corporate lawyers. They would be expected to be proactive in identifying complementarities between business opportunities and legal know-how. They are, in effect, counsels (combining legal and business advice) or entrepreneurs (giving priority to business objectives rather than legal analysis), rather than cops (limiting their advice to legal mandates) (Nelson et al., 2000). In short, these ‘decision consultants’ (Rosen, 1984) give legal advice in the context of the business. Thus, legally astute TMTs rely much on the GC’s capacity to create value from the co-specialization of legal resources and business-context knowledge within the firm. In doing so, the key source of the GC’s capability lies in his access to the TMT’s strategic thinking. Thus, the more legally astute the TMT, the more likely the GC is a member of the TMT and the more likely in-house lawyers rely on co-specialization of legal and firm-specific business 14
knowledge. This translates into a relatively large in-house legal department. We therefore predict the following: H4: The general counsel’s membership in the top management team will result in greater reliance on the internal sourcing of legal services. Supplier concentration Besides resource co-specialization, the degree of concentration of suppliers affects the design of plural sourcing strategy. As explained before, heterogeneity in supplier selection has not been explored in the context of plural sourcing. In essence, the analytical calculus that prompts a firm to choose plural sourcing is assumed to be independent of the composition of supplier portfolio. Here, however, we suggest that different degrees of supplier concentration impose different costs of contracting to the outsourcing firm. These costs depend on the nature of the contractual relationship. Low scale, arms-length transactions are characterized by high costs of contracting as the parties do not have much incentive to invest in firmspecific transacting platforms and systems (Baldwin et al., 2003; Langlois, 1992, 2006). In addition, infrequent interactions with suppliers do not generate inter-organizational trust and the associated benefits of relational contracting and increased commitment (Baker et al., 2002; Dyer, 1997; Sako et al., 1998). Hence, in the presence of high costs of contracting, we expect lower reliance on external providers. In the case of the plural sourcing of legal services, firms choose to outsource to law firms with different portfolios of specialisms and varying degrees of horizontal scope (Chatain, 2011; Chatain et al., 2007). In-house legal departments may choose to procure legal services from a large number of law firms in pursuit of increased expertise in some area (e.g. regulatory compliance in a specific industry) or lower cost. This model is closer to armslength-style market governance, as firms scan the environment for the best possible provider for their specific legal needs. Alternatively, legal departments could outsource to a 15
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Date: April 12, 2013 Topic: The Shr
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PROGRAM AGENDA & ROOM LOCATIONS The
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Things to do in Washington, D.C. Wa
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The Shrinking Pyramid: Implications
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REFERENCES Alavi, M., Leidner, D. E
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Page 71 and 72: 1 DECONSTRUCTING BIG LAW The Future
Page 73 and 74: The Stanford Law School Research Pr
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Page 77 and 78: Executive Summary of Key Findin
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Date: April 12, 2013 Topic: The Shrinking ... - Georgetown Law

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