Ten Things: Creating a Good Contract Playbook

Contracts are the grease on the skids of most businesses, i.e., it is how they make money.  Consequently, unless you work in a very unusual legal department, one of the most important tasks you deal with as an in-house lawyer is the drafting and negotiation of contracts.  Most of us sat through a contracts class the first semester of our first year of law school, where concepts like “consideration,” “statute of frauds,” “offer and acceptance,” and “direct vs. consequential damages” were drilled into our heads.  And I am glad this was the case because the bit of law school I use the most day-to-day as an in-house lawyer is contract drafting (followed closely by “meeting avoidance”).  Most legal departments use contract templates for their important contracts, as it speeds up the process.  Yet, less than 25% of in-house legal departments use contract playbooks as part of the process.  This is surprising because everyone in the legal department, executive team, and the sales organization should understand which contracts are acceptable to the company and which contracts the company will walk away from.  Contract playbooks do just that.  Given their importance and the lack of adoption, this edition of “Ten Things” will walk through the process of creating a contract playbook:

1.  What is a contract playbook?  A contract playbook is a document that, in some fashion, breaks down the company’s standard contract terms, sets out an explanation of each clause along with fallback clauses (i.e., variations of the standard clauses that the company would accept if the customer wants to negotiate a standard clause), and notes when the company will “walk away” from a contract.  The last part means the customer is insisting on changes to the standard contract that the company cannot accept based on risk-management, economic reasons, or some other criteria.  While companies want to sell their products or services to as many customers as possible, they will only do so to the extent the contract makes financial and other sense to the company (e.g., acceptable limitations of liability).  A properly prepared contract playbook allows the legal and business teams to stay aligned and close contracts faster (or know when it’s time to walk).

2.  What are the benefits?  The benefits of a contract playbook are numerous.  Here are just a few to consider:

  • A playbook aligns key groups up front (e.g., legal, sales, finance) and makes it more likely they will stick together and not snipe at each other throughout the contracting process.  If you have worked on enough contract negotiations, you know there is little more frustrating than when the sales team becomes an advocate for the customer’s contract positions vs. the company’s.  A playbook can help solve this.
  • A playbook is a lifesaver to new attorneys joining the department as they can get quickly up to speed on the parameters of the company’s contract negotiation positions. It also captures years of legal department “tribal knowledge” about the contracting process.  Similarly, a playbook helps reduce renegades, i.e., those lawyers or business people who want to do things “their way” which may not be the “best way.”
  • The same is true for outside counsel, where a playbook can make them far more effective in helping you.  A good playbook means you can probably hire most any outside commercial lawyer and have them be helpful almost immediately.
  • A playbook helps your business colleagues understand the contract and the issues at play.  This makes them better negotiators and partners on deals.  Moreover, it takes away, to a large extent, the easy path of blaming the legal department for contracts being delayed or for not being able to reach agreement at all.  A playbook that tracks what the company finds acceptable, means that contracts fail or are delayed because of the company’s positions and not because the legal team is killing deals.
  • We have all been asked to do “more with less.”  A well-prepared contract playbook allows you to do that as you and the team will spend less time in contract negotiation and drafting when the company’s negotiation positions are already set out in writing.  Just follow the playbook!

3.  What does it look like?  A contract playbook can take many forms.  One version is simply a document setting out general contract negotiating principles that the company follows, e.g., no unlimited liability, company employees will negotiate in good faith, signature/approval process, and so forth.  It may also contain checklists and link to form agreements or a contract clause library.  Likewise, it may link to different company policies and procedures related to contract negotiation and approval, including a “deal review” process and/or some type of grading criteria.  The more common type of contract playbook may include some or all of the above but typically takes the company’s standard contract template and for each clause explains why the clause is important, any acceptable changes to that clause (i.e., fallbacks), and when the company will walk away.  The contract playbook may be different based on geography and you can have different playbooks for different lines of business/contracts.  Here is the first page of a sample contract playbook I created based on past experience with SaaS contract.  The columns across the top are: “Section and Issue,” “Standard Agreement Language,” “Purpose/Meaning of Language,” “Potential Customer Objections and Response,” and “Alternatives.”

Playbook 1

4.  How do I create it?  It takes some effort to create a contract playbook, depending on the sophistication of your business and the number of standard contracts utilized.  If your department has not created a playbook before, you should start with something relatively easy, like your standard NDA agreement which is typically just a couple of pages long with roughly 12 or so sections.  Cut and paste each section of the NDA into a spreadsheet and for each section prepare a summary of the purpose of the language, i.e., why is it there?  Then discuss common objections from customers.  Finally, propose alternative language for the clause that is otherwise acceptable to the company.  For example, your standard choice of governing law may be New York and you may have customers object to that choice, especially those located outside the United States.  So, for fall back you can note that you will except Delaware, Florida, and Colorado law in the United States, and the laws of England or Singapore outside the U.S.  And any situation where the customer objects to these options must go the General Counsel or a deal review committee to accept something different. Once you have created a playbook for one of your simpler contracts, you can start to tackle your more complicated ones.  For any contact playbook, you must do the following:

  • Review your existing contracts to determine what positions the company has agreed to in the past.  Not material differences between geographies and line of business, i.e., you may need multiple versions.
  • Understand where the company has deviated from the template and how so.  But do not rely solely on the fact that the company may have accepted a different clause once or twice – it may have been in a position where it had no choice but otherwise would not want to accept the clause again.
  • Find your company’s bottom line, i.e., where the company has walked away.
  • For each clause, create the acceptable fallbacks (if there are any).
  • Do not create a contract playbook in a legal department vacuum. Loop in the other key players in the contract process to get their input, i.e., finance, sales, IT security, sales operations, risk management, etc.  This way you can reach a consensus on business priorities and tolerance for risk.  A collaborative approach means everyone is invested in the playbook and the agreed upon limits.
  • Determine the escalation process, i.e., what happens when the customer will not agree to the standard terms or agreed on fallbacks.  This is where the company (not the legal department) decides what it will or will not accept, balancing the risk and reward with all affected parties having the opportunity to weigh in.
  • If you have a big enough team, let the more junior members own the playbook project.  It will give them a substantive responsibility which is good for retention, and it will allow the more experienced team members to review and edit vs. taking the leading oar in the drafting.

5.  Automation.  An extra benefit of a contract playbook is that it makes automation of your contract process much easier to implement.  Most contract assembly tools require that you break your contracts down into sections.  A contract playbook already does that work.  Likewise, the tool will require that you set up acceptable alternatives to your standard clauses usually in the form of a clause library.  Then, as the contract is assembled, the user (lawyer or business person) can pick and choose from approved clauses.  A robust contract playbook makes this task easy as well.  Likewise, there is growing use of artificial intelligence within in-house legal departments.  One hotspot is using AI to review contract drafts and tell you what sections of the contract are acceptable and where negotiation is needed.  A contract playbook is an important part of setting up such a tool.  The tool’s AI uses your playbook to learn your standard clauses and positions and then can “review” contracts, e.g., redlines to your standard contracts or the customer’s standard paper, and give you a redline of proposed edits you should make. While a contract playbook will save you valuable hours during the contract negotiation process, using artificial intelligence to do the first pass of contract review is, in my opinion, a game changer for legal departments.

6.  Who is the playbook for?  On first blush, you might think this is a silly question.  The contract playbook is obviously for the lawyers (in-house and outside).  While that’s probably true, you might be better served considering your audience to be the business, in particular, the sales team.    If your sales team understands the contract and the company’s positions on various material clauses, you can save yourself a lot of headaches because you can start to turn them into advocates for the contract vs. advocates for what the customer wants.  When the latter occurs, it drives bad behavior on the part of the sales team and forces the in-house legal team to have two negotiations, with the customer and internally with sales.  A well-written contract playbook can bring sales over to the right side.  But, to do this means you must keep the playbook relatively short and written in a way non-lawyers can understand.  If you give the sales team a hyper-detailed, 100-page playbook to use, it will sit on the shelf gathering dust.  That said, you don’t want to dumb it down so much that it’s not helpful to your lawyers.  One solution – though extra work – is to create two playbooks – one for the lawyers and one for sales (i.e., an edited version of the lawyer playbook).

7.  Training.  You cannot dump a playbook on someone’s desk, say “here you go,” and walk away.  For a contract playbook to be effective, you need to spend time annually training people on how to use it and the different provisions, fallbacks, and other items contained in the book.  For new lawyers joining your in-house team or outside counsel you use for contract work, this means a longer and more “legal” focused training. The level of training you conduct for lawyers will be different than that you provide to the business.  For the former, you can set aside several hours and drill into the details of the wording and the law.  You cannot do that with the business.  Consider setting up several one hour (or less) sessions on the playbook.  These can be live or webinar (or a mix).  Record them so others can view them when they have the time or when joining the company.  The purpose of the business training is to get them familiar with basic legal concepts and the “what” and the “why” of the company’s positions on different clauses in the contract.  If the business understands the difference between a limitation of liability clause and an indemnity clause, they are much more likely to be helpful during a negotiation.  That said, don’t expect miracles.  Most of the sales team won’t care – and it will show.  That’s normal.  But, a solid minority will care and they will be your champions within the organization for the value of the playbook and how it can lead to faster (and better) deals.  If you can convince the head of sales of the value of the playbook, that can drive converts in their organization as well.  Usually, the one phrase that gets their attention and buy-in is “faster deals,” which always appeals to a head of sales who is running behind revenue targets.

8.  Key clauses to focus on.  While most contract playbooks deal with the entire contract, that is not always feasible, especially if you are pressed for time or you are preparing something for the business vs. your lawyers.  If so, focus on the most important clauses for your business in your playbook.  For example, while commonly called “boilerplate” these are some clauses that can substantially reduce the risk your company faces in entering into any contract:

  • Legal parties.  Getting the legal parties down correctly can be very important for multiple reasons, the least of which is tax treatment and the ability to hold the correct party responsible.
  • Indemnities.  Indemnity provisions place the risk of something going wrong on one party or other.  These are usually among the most heavily negotiated part of a contract.  For example, if you are providing software, you typically will indemnify the other side against third-party claims alleging IP infringement.
  • Limitation of Liability.  These are clauses that typically put a cap on the overall liability of one or both parties in the event something goes wrong.
  • Warranties.  Usually, the party providing the good or service will give a warranty that the product will work vs. some set of specifications.  Additionally, many contracts specifically exclude any implied warranties.
  • Dispute resolution/arbitration.  While everyone is happy when the contract gets signed, the smart lawyers are already planning for the divorce.  Meaning, you should spend lots of time on choice of law, choice of forum, etc.

9.  Update it regularly.  Creating a playbook takes a lot of work, but the creation is not the end of the process.  Plan on reviewing the playbook annually so you can keep it current and fresh.  Add it to your department’s official goals each year.  While you’ll focus on updating the playbook for changes in your contract, updated contracting processes, customer feedback about clauses, or changes in the law, it’s also an opportunity to make your playbook more user-friendly.  Consider adding flowcharts and graphs – visuals are always helpful for creating understanding.  Checklists are helpful too.  Consider adding a discussion about the contracting process generally, including signature authority and the approval process.  Consider setting out how company contracts are stored and managed after signing.  Finally, be sure everyone gets a copy of the updated playbook.  The best idea is to store the master playbook online so that employees can access it easily and you can keep it updated (but remember to focus on keeping it confidential as well).  Many (especially the lawyers) will want a hard copy to keep at their desk.  So, just be sure to give notice when it’s time to get the latest version.

10.  Resources.  If you would like more information about contract playbooks, here are some additional sources you can check out:

*****

All in-house legal departments should develop contract playbooks.  While there is a good amount of work required, the payoff is more than worth the trouble.  The key things to keep in mind are: 1) make it as simple to read as possible, 2) get a wide variety of inputs – not just lawyers, 3) the importance of training users, and 4) annual updating of the playbook.  Once you launch your contracts playbook, you and the legal team will find that getting contracts done becomes a faster and less stressful process.  That should be of interest to all in-house lawyers.

Sterling Miller

July 17, 2018

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If you find this blog useful, please click “follow” in the top right and you will get all new editions emailed to you directly.  “Ten Things” is not legal advice nor legal opinion and represents my views only.  If you have questions or comments, please contact me at sterling.miller@sbcglobal.net.

Follow me on Twitter @10ThingsLegal and LinkedIn where I post articles and stories of interest to in-house counsel daily.  My first book, The Evolution of Professional Football, is available for sale on Amazon and at www.SterlingMillerBooks.com.

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Ten Things: So You Want to Hold a Contest (and Not Go to Jail)?

I do love the folks in Marketing.  They are always very engaging and fun, and they have cool giveaways they will share with you.  But, I love them a lot less when they show up at my office door wanting to launch a contest. Tomorrow. Ugh. If you’ve been in-house long enough and your company has a marketing department, you will at some point probably need to figure out how to deal with contests and sweepstakes.  These games can be great promotional devices, generating excitement and interest in your company’s products and services. For many companies, these are their most effective forms of advertising.  As consumers, I know that many of us have entered such games – filling out a form, dropping a business card in a fishbowl, submitting a photo, clicking on a link on Facebook, getting a “Monopoly” game piece at the supermarket, or just buying a “Lotto” ticket at the gas station.  As consumers, however, most of us pay little attention to what goes on behind the scenes of a contest or sweepstakes.  As lawyers, we know that creating a successful one takes a lot of work by the business and the legal department, all of which will go to waste if the contest rules are not clear or if the sweepstakes runs afoul of state or federal laws. Unfortunately, sometimes your marketing team doesn’t understand all the work and complexity of pulling off a successful contest or sweepstakes.  It most certainly is not as easy as showing up at your door and announcing that the company wants to launch a one tomorrow or even next week.  As we say in Texas, that dog won’t hunt.  Yet, with some forethought and planning you can work with your marketing team to set up a reasonable process to create and approve contests that meet everyone’s needs. This edition of “Ten Things” discusses the basics of creating legal contests and sweepstakes in the United States:[1]

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Ten Things: Buying and Implementing Legal Tech

Last week the good folks at LawGeex released their free 2018 Legal Tech Buyer’s Guide.  Jammed full of valuable information, it’s essential to any in-house department looking to purchase legal tech.  If you haven’t downloaded it yet, do it now.  On June 11, 2018, I’ll be speaking at the ACC Legal Operations Conference in Chicago about practical uses of Artificial Intelligence in legal departments.  And, as you readers know, I am a sucker for a good gadget (watch for my 2018 “Cool Tech” blog later this summer and check out my interview with legal tech blogger Colin Levy).  All of this got me thinking about the fact that I have been around for – and helped buy and implement – a lot of legal tech over the years.  I was there when fax machines were cutting edge and when e-mail was new.  I helped build a home-grown document management system and now I am looking at uses of artificial intelligence for my team.  From typewriters to AI, yellow pads to iPads, is a pretty healthy span of technological change for any lawyer. The one thing that hasn’t changed is the process you go through when buying or implementing any type of technology.  If you go about it the wrong way, you can end up with a very expensive lesson and a piece of software that no one wants or uses.  Trust me, I know.  So, it’s important to get it right.  This edition of “Ten Things” walks through some of the lessons I have learned about buying and implementing legal tech:

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Ten Things: Sherman Act Section 2 – The Monopoly Man Cometh

When I went to law school way back when there were two topics I swore I had no interest in Tax law and Anti-Trust law.  I avoided those classes like a high school third-period ballroom dancing.  Ironically, as General Counsel, the two biggest pieces of litigation I have worked on were, of course, multiple tax law class actions and a mind-numbing, soul-sucking antitrust dispute.  Which meant, despite my previous oaths, I got a first-class education in both.  Of the two, by far the worst was the anti-trust dispute which involved multiple plaintiffs, the DOJ, and the hyper-focused attention of the CEO, President, and Board of Directors as this was truly a “bet the company” problem.  Not to mention that I did not have a day off (including holidays) for almost two years.

So, why do I bring up all this pain?  Because I wanted to share the most challenging part of the entire dispute – dealing with Section 2 of the Sherman Act.  I’ll get into the details below but will just note here that Section 2 is vast minefield of traps for the unwary and you can easily find your company mired in a litigation quagmire where every contract, every clause, every meeting or action, and every email or PowerPoint comes under scrutiny for alleged uncompetitive behavior all because your company is highly competitive and highly successful.  Sound like a nightmare?  It is.  Meaning, all in-house counsel should have a basic understanding of Section 2 (or the local law equivalent, e.g., EU Article 102 on abuse of a dominant position) so they can keep a sharp lookout for whether, under the right set of circumstances, company actions or plans could risk drawing anti-trust scrutiny or, far worse, an anti-trust lawsuit.  This edition of “Ten Things” sets out the basics of Section 2 and what you need to watch out for:

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Ten Things: My Boss is a [Censored] – What Do I Do?!

One of the most frequent questions I get from in-house lawyers is how to deal with difficult bosses. I have been very fortunate because – while practicing law for almost 30 years – I can count on a couple of fingers the times I was stuck with a boss who was a real asshole.   After talking with a lot of other lawyers (at firms and in-house) I realize how lucky I have been in my career.  While rare, I definitely remember how miserable I was the few times I did draw the short straw.  Practicing law is tough enough without having to dread coming into the office because of a boss that just makes your life miserable.  Still, I survived and got through it.  But it wasn’t always easy and some days it really took a toll.  I think my revenge was getting to the General Counsel chair a few times and swearing a blood oath to myself that I would never, ever be a jerk boss – something I remind myself of every day.  Unfortunately, the problem of crummy bosses in legal departments will never go away.  They are out there and they always will be.  So, if you want to be a successful in-house lawyer you’re going to need to learn how to deal with them whether they are legal department lawyers or executives in the company (lawyers have no monopoly on being buttheads).  This edition of “Ten Things” will set out some of my tips on how to deal with troublesome bosses:

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Ten Things: Managing a Dispersed Legal Team

A long time ago, most in-house legal departments were based in one location (or, at worst, one country).  Over the past twenty years, this dynamic has dramatically changed for many companies.  While a majority of smaller company legal departments still operate out of one location, not all do.  Moreover, many medium and large companies have their in-house lawyers located in multiple offices, including both domestically and internationally.  While definitely different than when I started in-house, I believe it is also better.  Much better.  Just like diversity in the workplace improves the company’s products and services, a legal department with members located in different places brings together multiple viewpoints, fresh legal analysis, different biases, and new work styles.

While this melting pot of differences makes things better over the long run, there are numerous challenges to managing such a group and bringing all of these differences together a way that functions smoothly.  How do you lead across multiple countries and multiple time zones?  How do you create unity in a team that rarely – if ever – sees each other in person?  How do you ensure everyone feels engaged and that their contributions are valued when they sit several thousand miles away from the home office?  All of these are tough things to work through, but all are solvable if you are willing to commit to doing the work necessary to bridge the gaps.  In my current role, I have attorneys in four cities in the USA but we are adding attorneys in London and Tokyo this year.  So, I will soon be faced dealing with the challenge of managing across countries.  Fortunately, I have managed teams like this before.  I’m not saying it’s easy, but I know it can be done.  This edition of “Ten Things” discusses the things you need to do to manage a dispersed legal department:

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Ten Things: 10 Essential Legal Department Issues for 2018

As I mentioned last year, I always look forward to the first part of the year as general counsel. Basically, it is a fresh start for me and for the Legal Department, a time to close out the past year’s issues and move on to next year’s problems.  Though, realistically, a lot of last year’s problems just tag along into the new year like a rude party guest who just doesn’t get the hint that it’s time to leave!

One thing I do near the beginning of every year is put together a list of the Top 10 things I think the Department needs to focus on over the course of the upcoming year.  These are tasks that are rooted in cement – they need to get done or there needs to be a damn good reason why not.  Well, as – unlike last year at this time – I am back in the General Counsel chair, I have been jotting down ideas like mad.  As move deeper into 2018, there are a number of things on which I think my team and I should be focusing.  Like last year, this edition of “Ten Things” will share my list with you.  I hope that you come up with your own Top Ten list or, if not, that my list gives you some good ideas for things you want to focus on in 2018.

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Ten Things: I Know It’s Only Boilerplate (But I LIke It)!

I was working my way through a contract recently and, like I always do, I flipped to the last several pages.  This is where you find the real action in any commercial agreement.  That’s right, the “boilerplate” clauses are where I like to spend a lot my time.  Why? Because if you get it wrong it can lead to big problems down the road.  Trust me, I’ve seen it.  Like many in-house lawyers, I did not begin my legal career focusing on contracts.  I started in litigation where I got see up close and personal the results of well-drafted contract clauses and poorly-drafted contract clauses.  When I went in-house, I taught myself a lot about drafting contracts, stumbling along with the help of some great mentors, a couple of books on contract drafting, and, most importantly, by reading a boatload of contracts – trying to figure out how all the pieces worked together.  My realization was that contracts simply tell the story about an agreement between two parties.  How the story turns out depends in large part on who is doing the writing.

I remember very clearly one of the first commercial agreements assigned to me when I started working in-house.  The attorney who asked me to work on it told me not to worry too much about all the boilerplate, saying, “it’s all pretty standard stuff.”  Since the boilerplate clauses took up almost half the agreement, that didn’t feel like the right way to go.  So, contrarian that I am, I spent a lot of time on the boilerplate.  And I am glad I did because I found a lot of little twists and turns that were anything but standard, fair, or balanced.  The lesson was if you ignore or skip lightly through the boilerplate, you are begging for problems or surprises down the road.  Since all in-house counsel should have a working knowledge of contracts, this edition of “Ten Things” describes some of the key boilerplate clauses you will find in most commercial agreements along with a few words of advice from someone who still likes to get his hands dirty reading every sub-paragraph of every clause “stuck in the back” of most contracts.  Hey, I know it’s only boilerplate… but I like it:

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Ten Things: An Index to all the Posts (November 2014 – March 2018)

I have been on the road good bit lately.  I spoke on Artificial Intelligence and ethics at the South Carolina Law Review 2018 Symposium a couple of weeks ago.  Last week, I presented at the Winston & Strawn 2018 VISION Conference in Dallas on how to be more productive.  Down the road, I will be speaking at the ACC Legal Operations Conference in Chicago in June on practical uses of Artificial Intelligence for in-house legal departments and I will be back at the annual Texas Bar Association Advanced In-House Counsel Course in Dallas in August.  The interesting thing to me is that all these opportunities came about because of this blog.  Which means I continue to be very humbled by the fact that so many people find it worth their time to read it.  We’re up to almost 2,600 direct subscribers and aiming for 3,000.  I remember when I thought 100 would be amazing.   Now I’m just thunderstruck (okay, I could have used a different word but when would I ever get to use “thunderstruck” in a sentence again?)

If you’re new to the blog, one thing I do every so often is put together an index of all of the blog posts, going all the way back to the beginning, November 2014.  I do this because I know it’s very difficult to go back and search through the monthly archives to see what’s there (and because I am too lazy to create an index on the website).   As I put this index edition together, I see that I am almost to 80 posts (and it is fun for me to go back and read the older ones).  By the time I do another index I may be over 100.  I keep thinking that at some point either I or the people that read it will get bored with “Ten Things.”  But, we’re not there yet (at least not on my end).  The good news is that I am still learning and going back in-house has shown me that there are so many things I am curious about regarding the law.  There are many new and exciting developments for in-house counsel and I am excited to be part of it.  Put another way: I still have a lot to write about (and maybe “time management” will be on the list)!  Thanks for taking the journey with me:

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Ten Things: How to Lead

I have always been impressed by those who seem to come to “leadership” effortlessly.  For some, it’s charisma and likeability.  For others, it’s the aura of gravitas that emanates from them.  Many become leaders because they survive the crucible of a crisis and their leadership skills simply emerge.  Whatever it is, I think most in-house lawyers wonder how people become good leaders because, ideally, in-house lawyers want to be good leaders themselves (of people, projects, etc.).  Sometimes, I look at myself and ponder how did I get to be the leader of three different legal departments? I can tell you for sure that it wasn’t something I was born with.  Luck played a part.  But I think most of my leadership abilities derive from having tremendous mentors over many years who were not only excellent role models but were generous with their time and feedback on things I did well and things I could work on (usually more of the latter).  But, not everyone is so lucky.  Sometimes, you have to teach yourself what it takes.  For example, I learned a lot from watching people who I thought were not good leaders, and promising myself to never be like them.  As I have come off the bench to take on my third general counsel position, I know that leadership matters. It is expected from the Board, your boss, and your team.  Without it, you’re probably doomed in long run to hold onto the role.  Over the past few months, I have been looking back on the things that worked or didn’t work during my first two tours and am trying to be a better leader every day.  As I have thought it over, I have prioritized the qualities that I think make for the best leaders for legal departments (or anywhere for that matter).  This edition of “Ten Things” shares what I think are the key traits for legal department leadership:

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