Qwest Communications International, Inc., a recent Corporate Pro Bono Challenge℠ Signatory, has been named the 2008 Best Legal Department by Corporate Counsel magazine. It is important to note that the company exemplifies the type of top-down support for pro bono work that can make a pro bono program flourish. The article, reprinted below, notes that several changes in the legal department that were introduced by General Counsel Richard Baer, have reduced turnover rate from 25 percent to 4 percent. The article also notes that participation in the nascent pro bono program (initiated in 2003) has increased every year, with a thirty percent increase between 2006 and 2007. While much of the article focuses on the changes Baer has introduced to Qwest’s legal department, the strength of the legal department’s pro bono efforts was an important consideration in the award process. Read below for details.
2008 Best Legal Department: And the Winner Is…
Corporate Counsel
Amy Miller
May 20, 2008
Richard Baer clearly remembers the day he walked into the center of a perfect legal storm. Like the eye of every hurricane, the nondescript San Francisco conference room was deceptively calm that fall 2004 day. But the eye soon passed. Baer, Qwest Communications International Inc.’s general counsel stood before two dozen of what he calls a “murderers’ row” of plaintiffs attorneys from firms such as Entwistle & Cappucci, Berger & Montague, and Cotchett, Pitre & McCarthy. They were out for blood. Their clients were angry investors suing to recoup more than $40 billion after a multibillion-dollar accounting scandal wracked the Denver-based telephone company in 2001. Its stock value had plummeted, and in June 2002, then-CEO Joseph Nacchio resigned amid rumors of fraud and insider trading.
Baer says his department, not outside counsel, had to take primary responsibility for handling the difficult, often tense negotiations with the investors. The company’s survival and the livelihoods of too many people depended on the outcome — people who had nothing to do with Nacchio’s alleged deeds. “It was very important that plaintiffs lawyers understood that the company is made up of people, good people,” Baer says. “We tried to humanize the company as best we could.”
The strategy worked. Qwest settled the suit a year later for $400 million, a mere 1 percent of the original claim. Then Qwest’s lawyers took a deep breath. Investors who had opted out of the settlement filed additional lawsuits alleging nearly $2 billion in damages. So Baer and his most experienced litigator, Stefan Stein, crisscrossed the country last summer to negotiate. Last fall, all the remaining suits were settled for about $410 million.
It was some of the best legal work that Qwest’s current CEO, Edward Mueller, says he’s ever seen. Baer and Stein were tough when they needed to be, and flexible when they could be. “But they didn’t compromise,” Mueller says. “They gave me great advice.”
Baer and his legal team did more than rescue a badly managed company from the brink of bankruptcy. As Qwest’s troubles played out in daily headlines, Baer and his colleagues transformed the legal department. And they did it against the backdrop of investigators scouring Qwest’s financial records, looking for the kind of accounting fraud that destroyed Enron Corp. in 2001 — and triggered an outcry for corporate reform.
That’s why Corporate Counsel has awarded Qwest’s lawyers the accolade of Best Legal Department of 2008. Baer’s accomplishments are impressive. The 51-year-old GC has brought virtually all commercial contract negotiations, disclosure and corporate governance, trademark and immigration work in-house. Baer created more supervisory roles and opportunities for advancement. He’s willing to take chances, whether it’s letting lawyers work part time or from home, or embracing new technology to streamline operations. And he’s diversified his staff, too, and encouraged everyone to do more pro bono work. “He’s energized the entire department,” says deputy general counsel Andrew Crain, who joined the company in 1997.
“Qwest Communications was in an absolute world of hurt,” says Lawrence Theis, a partner at Denver-based Holme Roberts & Owen, a firm on Qwest’s regular roster. “You could have had a disaster. Instead, Rich and his group just barged ahead and created a highly professional department that has great judgment.”
The Qwest legal department was a much different place when Baer took over in 2002. While handling the fallout from Nacchio’s unceremonious departure may have been challenging and exciting, Qwest’s lawyers were exhausted from the long hours. Boundaries between work and family life often blurred or disappeared altogether. Conference calls in the middle of the night were common, they say. One attorney even recalls a supervisor tracking him down during his grandmother’s funeral in Mississippi. “We were burning people out,” Baer says in his 52nd-floor office overlooking the Rocky Mountains.
Baer didn’t follow any particular model when he set out to re-engage and motivate his staff, he says. He did ask executives such as Mueller for advice about being a good manager and leader, skills professors don’t teach aspiring attorneys in law school.
Baer needed help, he says, because he’d never planned to become general counsel, for any company. A trial lawyer by training, Baer headed the litigation department at Denver’s Sherman & Howard before joining Qwest in 2001 as special legal counsel to then-CEO Richard Notebaert. He cut his legal teeth as an assistant district attorney in Brooklyn. Even fellow Qwest lawyers were surprised when Notebaert offered him the top legal position in 2002. “Most of us thought there was no way he’d accept it,” says Laurie Korneffel, Qwest’s litigation chief. “We were delighted when he did.”
Baer’s character, intelligence and work ethic are the main reasons why they were so thrilled, they say. Walk into his office, and he’s usually reading e-mails or legal documents on three different computer monitors at the same time. Outside lawyers he works with say it’s not uncommon to get e-mails from him about a case at 10 p.m. or 4 a.m. “Frankly, if I had one criticism, it would be that he works too hard,” says Jim Lyons, an attorney with Denver-based Rothgerber, Johnson & Lyons, which represents Qwest’s board of directors.
The GC laughs when told that. He’s a down-to-earth guy’s guy, colleagues say, with a football signed by New York Jets quarterback Chad Pennington placed prominently on his office bookshelf. They all know his dog, Tater Tot. For more than a year, his 11-year-old daughter CeCe’s stick-figure drawing of the pooch has decorated his office whiteboard.
Those qualities helped Qwest when it was outnumbered by some of the country’s best plaintiffs attorneys, says retired California state Judge Daniel Weinstein, who helped mediate Qwest’s settlement negotiations with investors. Stein and Baer set the tone immediately by acting more like straightforward businessmen than demanding lawyers.
“They combined a folksy, no-nonsense approach with firm limits,” says Weinstein, a judge with San Francisco-based mediator JAMS. “They didn’t spend a lot of time dickering around in low-ball land where it wasn’t going to work, and they gained a lot of credibility.”
Creating a special litigation group headed by Stein to handle all the securities class actions stemming from the allegations against Nacchio and other Qwest executives was one of Baer’s first actions as general counsel. The group formulated the company’s defense strategy, and coordinated the efforts of eight law firms representing Qwest, including Boies, Schiller & Flexner and O’Melveny & Myers, and about 75 other firms hired by former officers and employees, such as Hogan & Hartson. The group also handled related cases, such as litigation that arose when the company’s insurance provider rescinded Qwest’s $350 million directors and officers liability policies. The General Services Administration was also deciding whether Qwest could still compete for government contracts.
Stein’s legal team handled all the thousands of information requests from investigators with the U.S. Department of Justice, the Securities and Exchange Commission and Congress. The company admitted that it had overstated revenue by more than $2.9 billion between January 2000 and March 2002 and agreed to pay $250 million to settle civil fraud charges in 2004. A year later, the SEC filed a civil suit against Nacchio and eight other Qwest executives alleging they had committed accounting fraud, and Nacchio was indicted on 42 counts of insider trading. Last year Nacchio was convicted in federal criminal court on 19 counts of insider trading and sentenced to six years in federal prison.
The special litigation group’s work isn’t done yet, although it’s only Stein and one part-time lawyer now. The SEC’s civil case against Nacchio won’t go to trial until next year, at least. Nacchio has appealed the final approval of the $400 million class action settlement, saying he wasn’t invited to participate in settlement talks. Then, last March, the 10th U.S. Circuit Court of Appeals overturned Nacchio’s criminal conviction, saying defense expert witness testimony was excluded improperly and ordered a new trial before a different judge.
“The government or defense may want different information this time,” Stein says. “And who knows when that trial will take place?”
Lawyers in the special litigation group aren’t the only ones handling more work in-house, lawyers say. Baer has brought more work into all departments and cut the number of outside firms it hires from 700 to about 350 (not including special litigation). But the bulk of the company’s legal business goes to about 27 firms, Baer says. Spending on outside counsel dropped more than 40 percent, or about $68 million, again excluding special litigation. Qwest lawyers handle most of the company’s commercial contract negotiations, disclosure and governance issues, trademark and immigration work. Last year, they resolved 61 percent of litigation matters and 76 percent of employment matters without using outside counsel.
When Qwest lawyers do hire outside attorneys, they remain closely involved in the cases, says Brian Roche, a partner at Reed Smith, which handled recent trademark litigation for the company. “When you combine their deep knowledge of the company with the trial skills of an outside firm, you get the absolute best for your client,” Roche says. “You’d think it would be more common. But it isn’t.”
Boosting morale has required more than bringing more work in-house, though, Baer says. He’s also created more opportunities for advancement, given lawyers more freedom to set their own, more humane hours, and began deploying technology in day-to-day operations.
Legal department advancement has often been a sore point among corporate counsel, according to past Corporate Counsel surveys. Baer created more supervisory positions, and lawyers now get in-place promotions and salary increases, something company policy had prohibited until Baer convinced the company to make an exception for attorneys.
Lawyers are encouraged to challenge themselves professionally and switch groups, and even move to the business side if they want. Deputy General Counsel Andrew Crain says he’s a good example. He started out in litigation with U.S. West 11 years ago, before it merged with Qwest in 2000. He moved to the wholesale division in 2002, and left to head 25 lawyers in the regulatory group in 2007. He says finding the same opportunities at another company would be difficult, if not impossible.
“It’s one of the things I really like about working here,” Crain says. “I’ve really been given an opportunity to learn the whole company, the whole business we’re in.”
In general, Baer has loosened traditional work rules he considers unimportant, such as constant office face time. His attorneys can now make time to see their children’s soccer games or attend a father-daughter breakfast. Besides, they say, they’re always reachable on their cell phone or BlackBerry. And working from home and flextime carry no stigma, Qwest lawyers say. “You hear people say letting people work part time is a slippery slope,” Baer says. “You know what? That’s garbage.”
These changes are working, Baer says, adding that the proof is in the numbers. The department’s turnover rate is now 4 percent, down from about 25 percent a few years ago. Over the last three years, the department’s job satisfaction rating has jumped from 3.76 to 4.02, on a scale of 1 to 5, according to a company survey.
Leslie Kelly, an attorney in the commercial litigation group, says being able to work part time has kept her from looking for another job. She began working five afternoons a week after her second child was born and says it was even encouraged by her supervisor. She still handles interesting cases, she says. In fact, she’s been given more autonomy, and she can spend more time with her kids. “I appreciate this job so much more because of that,” Kelly says.
Baer isn’t afraid to take chances on new technology, either. The department created an intranet database that tracks documents and automatically notifies attorneys to hold possibly relevant documents. And Qwest lawyers helped create a now freestanding startup, Falcon Discovery, a Denver-based company that coordinates the company’s electronic discovery. Falcon’s founder, Don McLaughlin, had worked closely with the legal department as a consultant for four years, so he’s well acquainted with Qwest’s lawyers and documents.
And, chastened by the insider trading scandal, the department created a database that tracks when anyone exercises stock options. Another database tracks who writes and reviews sections of the company’s annual financial report to the SEC, says Stephen Brilz, who arrived in 2003 to head Qwest’s securities and compliance department. His staff and the CFO popped open a bottle of Dom Perignon when the company resubmitted the financial statements from 2001 and 2002 that the company had admitted falsifying. “That’s the only time we’ve ever done that,” Brilz says.
We found a couple of deviations from the ideal legal department. Qwest’s legal pro bono program, while fairly extensive, is only voluntary. Initiated in 2003, its participation has increased every year; last year 64 attorneys and staff spent more than 800 hours doing pro bono work, a 30 percent increase over 2006. They gave legal advice to the homeless, assisted with divorce or child custody cases, and held mock trials with students based on fictional hate crimes, just to name a few projects.
And while Baer is proud of his department’s diversity efforts, he concedes that it still has a long way to go. The department has done a lot to boost the ranks of female attorneys; since 2002, they’ve jumped from 37 percent to 52 percent. The number of minority attorneys has grown, from 8 percent to 21 percent. The department also began hiring summer interns last year from a diversity internship program for students at the University of Denver Sturm College School of Law and the University of Colorado Law School. “I just think there was absolutely no focus on it [before],” Baer says. “There was a lack of consciousness.”
But that was then. Now Baer and his team show justifiable pride in their department and the work they’ve done, something that might have been unimaginable six years ago. There’s an appealing modesty, too, about what they’ve achieved. No one, not even Baer, takes full credit for saving the company. They’re part of a team. They look out for each other when there’s a family or personal crisis. And Baer says he’s still a little unsure of exactly how it all happened. Everything happened so quickly when he took over, he says, that events have blurred together in his memory.
Michael Gieger, head of Qwest’s commercial law group, seems to speak for most, though. Baer, he says, saw the potential to build a much better department six years ago, and he made it happen, even under conditions most would find intolerable. “It’s a completely different place now,” Gieger says. “People just don’t want to work anywhere else anymore.”
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