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ACC S 2006 ANNUAL M EETINGTHE ROAD TO EFFECTIVE LEADERSHIP705 Effective Budgeting for the LawDepartmentHanna Hasl-KelchnerAssociate General CounselLorillard Tobacco CompanyCarl C. Straub Jr.General CounselPhoton Dynamics, Inc.Robert J. ThomasVice President, Strategic DevelopmentSerengeti LawThis material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).Materials may not be reproduced without the consent of ACC.Reproduction permission requests should be directed to Julienne Bramesco at ACC: 202/293-4103, ext. 338; bramesco@acca.com

ACC's 2006 ANNUAL MEETINGFaculty BiographiesHanna Hasl-KelchnerHanna Hasl-Kelchner is currently associate general counsel at Lorillard Tobacco Company inGreensboro, North Carolina, where she serves as a member of its brand integrity group and isnational counsel for Lorillard's trademark infringement litigation.She is also a former adjunct professor at the Duke University Fuqua School of Management.Ms. Hasl-Kelchner began her legal career in Washington, DC, spanning private governmentpractice, including the U.S. International Trade Commission where President Reagan decided oneof her cases. After, she moved to in-house practice developing a diverse portfolio of increasingresponsibility at Degussa Corporation, a subsidiary of Frankfurt based Degussa AG, and atReichhold, Inc., a subsidiary of Tokyo based Dainippon Ink and Chemicals.THE ROAD TO EFFECTIVE LEADERSHIPMr. Thomas created the ACC/Serengeti Managing Outside Counsel Survey, and is the author of the150 page annual survey report. The report analyzes the latest statistics regarding the techniquesused by hundreds of law departments to manage their work with outside counsel. He is a widelypublished author and frequent speaker on the use of technology by in-house counsel. His articleshave appeared in the ABA Law Practice Management, ACC Docket, ILTA's Peer-to-Peer, and RiskManagement.Mr. Thomas received his undergraduate degree with honors from Princeton University, and his lawdegree from Stanford Law School, where he was a member of the Stanford Law Review.She serves on the advisory board of WeComply, Inc., and the editorial board of the Journal ofBusiness Ethics Education. Her new book, The Business Guide To Legal Literacy: What EveryManager Should Know About the Law (Jossey-Bass, 2006), has been featured in Newsweek, theChicago Tribune, Dallas Morning News, 800-CEO-READ, Investor's Business Daily, Crain'sChicago Business, and by ABC News columnist Rob Rosner in his Working Wounded column. It'sdesigned to help clients understand the role of law as a strategic business tool and to earn counsel aseat at the table.She earned her undergraduate degree from Duke University, an MBA from Cornell University, andher law degree from the Rutgers University School of Law - Camden, where she won awards for heradvocacy skills.Carl C. Straub Jr.General CounselPhoton Dynamics, Inc.Robert J. ThomasRobert J. Thomas is vice president, strategic development for Serengeti Law in Bellevue,Washington. He was an architect of Serengeti's online matter management system, which includeselectronic bill processing, budget tracking, contract management, and reporting. Serengeti Trackeris the top-ranked system for both e-billing and matter management in recent law departmenttechnology surveys, and is currently used by over 8,000 in-house counsel to work with their lawfirms in more than 125 countries.Prior to joining Serengeti, Mr. Thomas had many years of diverse experiences as a practicingattorney. He worked on complex litigation and corporate finance transactions for the largestcommercial law firm in Seattle, after which he handled international transactions with a Japaneselaw firm in Tokyo. He also managed complex litigation and acquisitions for large corporate clientsof the Seattle law firm of Stokes Lawrence. He served as managing partner of the firm, andcoordinated national projects involving teams of both in-house and outside counsel.This material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).2 of 16

THE ROAD TO EFFECTIVE LEADERSHIPACC's 2006 ANNUAL MEETINGWhat is “effective” budgeting? Accurate forecastAccepted and approved by managementDynamic processGreater ExpectationsThe Good Old Days:Just add 15% to last year’s budgetBrave New World:Everyone, including legal is being cut by 10%Bottom Line:Law departments must “sell” their budgetsACC’s 2006 Annual Meeting: The Road to EffectiveLeadershipOctober 23-25, Manchester Grand HyattACC’s 2006 Annual Meeting: The Road to EffectiveLeadershipThis material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).October 23-25, Manchester Grand Hyatt3 of 16

THE ROAD TO EFFECTIVE LEADERSHIPACC's 2006 ANNUAL MEETINGOld Excuses Wearing ThinForecast vs. Reality“We can’t control who sues us, what the regulators will do,etc.”Legal Bill f(actual work performed)“Other Departments cause our legal spending to change.”Budget Forecast f(business needs)“On legal projects, you have to spend whatever it takes toget the job done.”Disconnects f (changing needs failure tocommunicate and document changes)ACC’s 2006 Annual Meeting: The Road to EffectiveLeadershipOctober 23-25, Manchester Grand HyattACC’s 2006 Annual Meeting: The Road to EffectiveLeadershipThis material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).October 23-25, Manchester Grand Hyatt4 of 16

THE ROAD TO EFFECTIVE LEADERSHIPACC's 2006 ANNUAL MEETINGNailing Down Jell-oBuilding Blocks of the FuturePredicting the Unknowable:Core workNew work driven by strategic businessdecisionsExtraordinary “one-off” projects Historical spending/ law firm project budgetsIdentifiable trendsForeseeable areas of changeLegal literacy and knowledge managementEngaging management in the process:CommunicateACC’s 2006 Annual Meeting: The Road to EffectiveLeadershipOctober 23-25, Manchester Grand HyattACC’s 2006 Annual Meeting: The Road to EffectiveLeadershipThis material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).October 23-25, Manchester Grand Hyatt5 of 16

THE ROAD TO EFFECTIVE LEADERSHIPACC's 2006 ANNUAL MEETINGStaying on Track Tracking actual spending/ role of metricsReforecasts – frequency/ scopeAdjustments within categoriesTransferring among categoriesAlternate fee arrangementsACC’s 2006 Annual Meeting: The Road to EffectiveLeadershipOctober 23-25, Manchester Grand HyattConclusionEffective budgeting operates on a macro and a micro level: Micro level – nitty gritty cost containment Macro level – as a cost center it provides an opportunity fortouting the value of the legal department.Focusing on Legal’s strategic role in protecting the long-term successof the business transforms the legal budget from a “cost” into aninvestment in sustainability and make it easier for management toaccept the budget.ACC’s 2006 Annual Meeting: The Road to EffectiveLeadershipThis material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).October 23-25, Manchester Grand Hyatt6 of 16

THE ROAD TO EFFECTIVE LEADERSHIPACC's 2006 ANNUAL MEETINGManaging Litigation CostsControlling Litigation CostsCarl C. Straub Jr.General CounselPhoton Dynamics, Inc. Key is to manage not controlStarts with early cost and risk analysisEvolves through day to day decisionsEnds with favorable decisionStaged process (see Template)This material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).7 of 16

THE ROAD TO EFFECTIVE LEADERSHIPACC's 2006 ANNUAL MEETINGBasics Develop Budget– Staged budget with decision points– Essential to evaluating decision to litigate– Bad budget drives bad decisions in risk analysis Understand case theme Difficult in evaluating what tact opposing counselwill take an impact on costs and budget Impose your risk management theories for caseon outside counsel. Formulate strategy for case management andcosts with Outside counselIn House Role Control recordsVent witness statementsIdentify witnessesInterface with the business unitBe a skeptic until it is time to be anadvocate Witness preparation Trial supportThis material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).8 of 16

ACC's 2006 ANNUAL MEETINGManaging outside Counsel If no existing counsel conduct interviews– right horse for the course Trial experience in your venueNegotiate the engagement letterReview team mix and ratesYour role as second or third chair?Review update and evaluate strategyoften look for decision pointsTHE ROAD TO EFFECTIVE LEADERSHIPTips for managing Costs Discovery can be a runaway train with outcontrol by in house counsel Attorney communications eliminate the barbs No extensions of time– it is my commitment to outside counsel and theircommitment to me Be prepared only disrupt business units once Summary Judgments Court participationThis material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).9 of 16

THE ROAD TO EFFECTIVE LEADERSHIPACC's 2006 ANNUAL MEETINGLaw Department Budget TemplateCore WorkFY02FY03FY04FY06FY05FY07 (Budget)CollectionsPrepare for UnknownContractsHuman ResourcesLobbyingProduct Liability LitigationReal Estate Discovery teamLitigation Hold letterAccounting issuesResponses to Auditor LettersInsurance reimbursement & coverage issuesTrial costs usually underestimated– Budget for 12 hours per day and weekends withincrease in personnel by 25%– Pocket briefing other research costs.RegulatoryOtherSubtotal: Core Work 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0Strategic TrendsMergers & AcquisitionsNon-compete IssuesSubtotal: Strategic TrendsBase Business(Core Work & Strategic Trends)Extraordinary ProjectsAntitrust LitigationBank FinancingConsumer Class ActionBank financingMajor Customer BankruptcySubtotal: Extraordinary ProjectsTotal Legal Spending(Base Business & Extraordinary Projects)This material is protected by copyright. Copyright 2006 various authors and the Association of Corporate Counsel (ACC).10 of 16