Articles Posted in Clients

A short item about Serco, the U.K. contract and facilities management company, praised Mark Duckworth, its general counsel, for “decentralizing” 10 of its 12 lawyers to business units. He also redid the company’s panel of external counsel, leaving a prominent firm, Allen & Overy, off the panel. Legal Week, Nov. 3, 2005, at 78

This choice to leave the prominent law firm “out in the cold,” was “signaling a brave but risky strategy that demonstrates that Duckworth is confident in his own convictions and resistant to moving with the tide of opinion.”

Astonishing condescension. You mean, a general counsel has the temerity to stagger ahead, giving legal counsel all on his own, without the strong arms and bright minds of a mighty big-name firm? Imagine the hubris of that “brave [read, foolish] but risky” [read, tragic] fellow parading around like a grown up, Magic Circle partner? How quaintly romantic, but ultimately ill-fated, that he doesn’t body surf in on the tide of opinion in favor of hiring brand firms.

“According to the survey, when general counsel have more than 20 years’ experience, 35 percent of CEOs will get involved in evaluating outside counsel, and 31 percent of CEOs are involved in choosing the outside attorney to handle a high stakes matter.” (A survey sponsored by LexisNexis Martindale-Hubble summarized in Counsel to Counsel, Nov. 2005 at 17) More on this survey is in an earlier post (See my post of Nov. 11, 2005.)

What may account for this paradox – years of GC experience yet high CEO involvement with outside counsel – is that veteran GCs understand that with crucial decisions on how to handle hair-raising legal risks, the GC should check with the boss. Another possible explanation is that experienced GCs steer the legal course at large companies, where the size of litigation exposure from blockbuster cases more often reaches the CEOs desk.

I also grump at the wording of the finding. It says that a third of the CEOs “will get involved in evaluating outside counsel.” That could be informal feedback on one or two firms every year or two, or it could be much more. Without a more precise question that yields sharper data, we can’t evaluate this statement on evaluation.

David Krasnostein, the General Counsel of Australia’s National Australia Bank, discussed risk management and the role of lawyers in helping to make risk-reward decisions. He said that his in-house lawyers “aim to break risks and rewards into units that can be measured so that when a risk is taken, it is known that the rewards outweigh the risks.” Wow!

Proponent though I am of quantification, I snicker at this claim. Defining legal risks is hard; breaking them into units, harder, and measuring those “legal risk units” harder still. The aim of his lawyers will surely miss, although a watered down version – try to prioritize risks and give some order of their magnitude and likelihood – could hit the clients’ targets. (See my posts of March 27, 2005 on the elusiveness of risk management and Aug. 14, 2005 on the vagueness of the term.)

David Krasnostein, the General Counsel of Australia’s 120+ lawyer National Australia Bank, explained in an interview that “when you brought in really good lawyers, your internal clients understood the value that they offered and they had to open their purse strings to pay for more.”

Dream on. For many legal departments, the headcount and costs hit a corporate budget, not a client group’s budget. Decisions to open the purse are made far away from the client’s purse. Furthermore, in my experience, clients resist the removal of lawyers supporting them, but they don’t typically clamor for more. Perhaps the wild card here is the quality Krasnostein presupposes; “really good lawyers” don’t come along to tempt the purse very often.

In a recent interview, David Krasnostein, the General Counsel of Australia’s National Australia Bank, explained this point:

“If I’ve got a lawyer who’s got a 9/10 understanding of a particular area of law and a 3/10 understanding of the client’s business and they’re going to put in 50 hours in continuing education, there’s more bang for the buck in spending that 50 hours in learning more about the business and moving the 3/10 to 7/10 than moving the 9/10 to 9.2/10”

That is a 10/10 statement. Clients want astute business advisors who happen to know and apply the law (See my post of May 10, 2005 on CLE payments for bar membership.).

Clients might rate an attribute, such as training, low on their relative scale of importance, yet that rating may be dragged down because the law department trained poorly . If so, clients might not understand how valuable and important training can be.

If management of outside counsel expenses comes back as having low importance scores, it might be that the department hasn’t given clients a clue about the cost of external counsel. (See my post of Oct. 26,2005 on client satisfaction surveys and making a gap analysis.)

The learning from this is that a department should not take at face value low scores from clients on satisfaction. Assure yourself that the clients are able to make an informed decision.

Many law departments only ask clients for ratings on the department’s performance. They should take the more useful step of asking clients about the relative importance of performance attributes. Otherwise, they may fall for a myth: high scores mean the department is doing well.

A legal department can pat itself on the back only if clients bestow good ratings on attributes they also rate as important.

A gap analysis compares the difference in ratings between importance and performance, which is another way of saying between expectations and reality. If you sort from high to low on importance, and spot the largest gaps among the most important attributes, you are moving in the right direction. Next, tackle the widest gap areas.

On the Greatest American Lawyer (Sept. 12, 2005), I read a plausible idea, albeit one written for lawyers in private practice educating their clients. Consider this:

“I’ve decided to develop a presentation for my client which discusses in general the high cost of litigation, the alternatives to litigation and budget issues. By having them sign off on the presentation hopefully they will keep in mind as the case progresses that justice comes at a price.” What’s new here is having clients sign something that shows they have paid attention to the presentation.

Doing so in-house to a business manager sounds bureaucratic and patronizing, but it could be useful to have the presentation and offer to walk a client through it.

Combine the results from three questions in Corporate Legal Times and Dickstein Shapiro’s “Survey of CEOs,” (Oct. 2005 at 52) and a message shouts out: the CLO should act more as a business strategist who knows some law than as a lawyer who manages the law department.

One question asked “the most important thing your GC could do to improve the legal department,” and gave six choices with “other.” The action chosen most frequently (33%) was “Communicate more with business units.” Fifth on the list – below two cost-control actions – was “Provide more business guidance.” In short, the key desiderata were oriented toward business advice.

A second question asked where CEOs wanted their GCs to spend more or less time in the coming year, giving five choices. The largest positive gap between “more” and “less” was “learning the business” (71% wanted more and 29% less). The least valuable, by far, was “managing the legal department (33% more and 67% less). Again, the message is to attend to business.

Thanks to the October 2005 newsletter of Laurence Simons, the international law department recruiters, we can all add this German term to our vocabularies and recognize its meaning (For another useful Teutonism, see my post of May 20, 2005 on “schadenfreud.”).

The term describes the feeling of disappointment one gets when something doesn’t turn out as badly as you had predicted. Risk averse in-house counsel, who worry clients with too many potential legal pratfalls from a deal, may suffer frequent bouts of scheissenbedauern. The cure is to say aufwiedersehen to over-stressing legal risks.