An interview with Kent Johnson
Interview by: James Nelson
Kent Johnson is an in-house Senior Counsel at Texas Instruments Inc., specializing in the fields of antitrust, intellectual property, sales, marketing and advertising law, strategic alliances and other major business spheres.
In his 26 years with Texas Instruments, he has had responsibility for legal support of all of TI’s businesses and business functions, including its semiconductor operations, medical components, consumer products and its marketing, sales, purchasing, ethics and quality functions.
To the legal mind, the prospect of a company sharing information with another company about processes it performs may well seem unlikely and alarming. Unlikely, because sharing information may give another company a competitive advantage. Alarming, because the potential exists for antitrust violations and the loss of intellectual property.
And yet, sharing information is exactly what companies are doing, and at an accelerating rate.
Benchmarking is the process of sharing “best practices” between two or more organizations in order to improve learning and adopting from others. It involves understanding your own processes as well as the outward search for best in class processes. It is this outward search, inherent to the benchmarking effort, that has legal implications. Hence, there is a need for legal guidelines and an open atmosphere between in-house legal counsel and the employees engaged in the benchmarking process.
Talking here, Kent Johnson discusses the role of in-house lawyers in the benchmarking process, and their importance in supporting the company’s benchmarking practitioners.
Why should in-house lawyers be concerned with benchmarking?
Lawyers need to become knowledgeable about benchmarking because it's pervasive. People are benchmarking everything from marketing practices to how they handle their facilities needs. Benchmarking, as part of the overall total quality thrust, is changing the way companies compete and communicate. House counsel are in a strategic position to help guide their companies' benchmarking efforts in ways that maximize productivity while avoiding unnecessary legal exposure.
I think lawyers also need to practice benchmarking themselves – within the legal function, in order to survive the next decade. The alternative is the increasing isolation of house counsel, and resulting deterioration of their effectiveness.
What's happening in the legal profession in terms of benchmarking knowledge?
In legal circles benchmarking is still a hot topic. The discussions on benchmarking illustrate two points: first, lawyers general lack of sophistication about benchmarking, and second, lawyers' stubborn notion that the legal profession is somehow exempt from the need to engage in beneficial practices like benchmarking. In the past ten years or so, many lawyers have grown in their understanding of benchmarking and even engaged in it themselves, but my impression is that many are still resisting it
Don't clients (i.e. “benchmarkers”) coordinate their efforts with their in-house legal counsel?
They must coordinate on a strategic planning level. But as a practical matter lawyers just can't be involved personally in every benchmarking engagement. In today's business climate, the idea of the "legal monopoly" over company employees is a dangerous illusion for in-house counsel to have. These clients do have an option – they can avoid the lawyers, seek no guidance, and proceed unwittingly to engage in practices that pose a great risk to the company. For this reason, house counsel need to forge strong trusting relationships with their clients, and must be willing to re-examine their mission as lawyers in light of the clients' complex needs. Done improperly, activities in the name of benchmarking can cause major legal problems. Done properly, benchmarking can serve an important role in driving and improving legal and ethical compliance behaviour.
What are some of the stereotypes and traditions which benchmarkers are up against when working with legal counsel?
Let me refer to Section Two of the Malcolm Baldrige National Quality Award criteria – Information and Analysis – which emphasizes the importance of benchmarking one's products and services against others, and demands documentation of improvements implemented because of benchmarking. From the lawyer's perspective, such data can be used against you. Most laypeople have no idea of the fear struck in a defence lawyer's heart when hearing the client tell its customer or competitor, "We're here to show you our warts." The conventional wisdom in most legal circles is still that you don't ever admit anything to anybody. But in today’s high-technology world, with enhanced means of broad communication, even the suspicion that a company is concealing negative information can bring significant negative exposure.
“…with employees at all levels of the organization empowered to make strategic decisions that can have legal consequences, legal advice must be made available to every employee who is engaged in benchmarking.”
To those who counsel companies that publicly embrace the Malcolm Baldrige National Quality Award criteria, there is no choice. Communication will take place. Such companies must equip their people to communicate clearly, effectively, completely, and prudently. We need to help assure that documentation accurately reflects the integrity and legitimate purposes of benchmarking.
How has empowerment in the workplace affected the legal aspects of benchmarking? Doesn't this create even more challenges for the legal profession?
Let me make a generalization here that I think holds water. Historically, lawyers have counselled senior management. We set the "rules" and management enforced them. In the past, we had the "You can't trust the salesmen" attitude. Now, with employees at all levels of the organization empowered to make strategic decisions that can have legal consequences, legal advice must be made available to every employee who is engaged in benchmarking. Lawyers must build relationships of mutual trust with the salesforce. A culture change is underway, as the lawyers are becoming known throughout companies as facilitators and not arbitrary obstructionists. Lawyers are equipping the workforce to make decisions that carry legal consequences, instead of simply dispensing "yes" or "no" advice. This is a major change.
Are any other paradigms being broken in this area?
The ironclad rule "Under no circumstances will you talk to a competitor!" is an example of this. The absolute prohibition on use of the term "partner," except in the rare cases where a legal "partnership" is involved, is another example. The knee-jerk ultra-conservative answer to legal questions does not serve the client well in our chaotic, fast changing business environment. The problem with this, of course, is that change has now become the norm. Lawyers are being stretched to leave their comfort zones and give individual situations the detailed consideration they deserve. And communications are changing so quickly that it’s hard to keep up.
In light of these trends, what are some of the volatile legal areas impacted by benchmarking's "new" ways of quality improvement?
Specifically, antitrust law compliance, intellectual property law compliance, and product liability defences. Let me address antitrust law first. The term "schizoid" could be used to describe current antitrust law. We still hear echoes of Adam Smith's statement in The Wealth of Nations: "People of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices." On that point, Adam Smith was flat wrong. The law does not necessarily prevent cooperation among competitors, especially in the high-tech industries where many joint research efforts and standards-setting activities are commonly accepted as pro-competitive. But still, antitrust law has not kept pace with the fundamental changes in high technology competition. Benchmarkers need to be informed about antitrust principles.
“Most breakthrough benchmarking doesn't involve competitors at all! Airlines benchmark against racing pit crews.”
One additional thought on this. The aim and design of benchmarking have nothing at all to do with reaching "agreements in restraint of trade." In fact, most breakthrough benchmarking doesn't involve competitors at all! Airlines benchmark against racing pit crews. Provided that clear legal counsel is provided concerning the limits of cooperation among direct competitors, the search for "best practices" need not be limited to one's own industry.
Describe the issue of intellectual property as it relates to benchmarking.
The essential question with intellectual property and benchmarking is, "What information should and should not be shared?" Speaking practically, how can employees know they are making the "right choices" when sharing (or refusing to share) intellectual property with benchmarking partners? For many companies, ideas are the most valuable asset of all. Companies need to decide which information they will and will not disclose. Once data is disclosed without restrictions, it's difficult to argue that such data is a trade secret, subject to use only by permission from the owner. A vast array of ideas are appropriate for sharing. The most important thing, in my view, is that someone in each participating organization is thinking about the issue. Otherwise, by default, the company's "crown jewels" may be inadvertently disclosed, and certain ownership rights will be forfeited. We need to be influencing our clients to exercise the mental discipline, in each case, of determining what should and should not be given freely to the world. An important related issue involves that of patent rights.
If the parties want to restrict the use of data to certain named purposes, then the authorized benchmarking partners should sign an agreement that spells out the parties' rights and obligations. This area is too easily misunderstood to rely on handshakes. Each benchmarking partner should describe what they intend to do with the data, including making it available to entities that may compete with the other benchmarking partner. If feasible, the best is to have "no strings attached" to authorized use of the data. But even this assurance carries some risk: Companies should make clear that simply by sharing information, they are not expressly or impliedly granting licenses for use. The information provided in benchmarking is “as is.”
You mentioned product liability and contract compliance as other issues. What is happening here?
Product liability and contract compliance are definitely impacted by benchmarking. As benchmarking becomes increasingly pervasive, companies are more effectively documenting the processes by which products are developed, manufactured, and sold. A cross-section of empowered employees becomes aware of corrective actions that are taken in these processes and of corrective actions that, for specified reasons, are not taken. Especially if it contains subjective language or inappropriately ascribes blame, such data can create a blueprint for a plaintiff's case in the courtroom. As legal counsel, we have a tremendous challenge in protecting our clients while torrents of data are being created every day. House counsel cannot review or monitor failure analyses, quality audits and other such data being routinely shared with benchmarking partners. We have to learn how to help clients manage risk for themselves within the framework of total quality, without stifling necessary communications.
In summary, what key messages would you highlight for benchmarking practitioners?
I’d advise them to:
- Bear in mind that the very idea of benchmarking runs counter to a company lawyer's training and instincts. Be prepared to be challenged in this area.
- Even beyond the legal requirements associated with benchmarking between competitor companies, ask yourself if your benchmarking relationship with a competitor would cause your company embarrassment if reported in the media.
- Never disclose information about a benchmarking “partner” to a third party without obtaining specific permission from the partner involved. Observing this rule can avoid one of the most common grievances felt by benchmarking companies.
- Follow the benchmarking Code of Conduct – it will always save time in the long term.
- Company lawyers often need to re-examine their mission in light of the complex needs of their benchmarking clients.
- Employees at any level who are involved in benchmarking must have full authority to share information about their company with benchmarking partners – and must also have access to the same legal advice as senior managers.