Articles Posted in Non-Law Firm Costs

Having just published a post on the financial blow to general counsels’ budgets of electronic discovery (See my post of Sept. 8, 2010: costs of e-discovery.), I busied myself with finding posts on electronically stored information (ESI) that do not bash the cash, as it were, as well as metaposts.

Process posts came tumbling out of the blogwork (See my post of Oct. 11, 2008: assistance from internal IT for some discovery tasks; June 4, 2009: project management and e-discovery; June 26, 2009: Six Sigma applied to e-discovery in-house; Aug. 10, 2009: dashboard for discovery management; Feb. 8, 2010: project management software for discovery; Feb. 7, 2009: about 60% of corporate documents are stored electronically; Feb. 4, 2009: different use of term “Early Case Assessment”; Feb. 19, 2010: productivity in document review from double monitors; Aug. 20, 2009: confidentiality issues when inside counsel review sensitive discovery documents from the other side; Aug. 24, 2009: pessimistic prognosis for internal e-discovery teams; April 28, 2010: in-house discovery team at Ford; June 18, 2010 #1: simplified book on e-discovery;

Software and hardware posts were also plentiful (See my post of Dec. 7, 2008: “appliances” that combine specialized discovery software and hardware; Jan. 8, 2009: Clustify software; May 15, 2009: wide range of software needed for in-house functions; and Sept. 5, 2009 #4: Bayesian and concept searching.).

This statement, which I summarized from remarks by Richard Susskind at last week’s conference, Generals of the Revolution, embodies much wisdom. The choice by a legal department of which law firm or other provider – the sourcing decision – should handle some piece of work determines the total cost much more profoundly than does the subsequent negotiation with the firm or vendor of costs – the pricing decision. We place too much emphasis on fee arrangements (the splinter) and neglect the more fundamental decision (the log) of who gets the fees.

Whom you choose changes the tab far more than the method by which you pay them. That inconvenient truth spells the end of convergence, since legal departments should select more widely and with more discrimination.

Speaking at the Datacert conference, Generals of the Revolution, last week, Richard Susskind, the author of The End Of Lawyers? Rethinking the Nature of Legal Services (Oxford 2008), referred to an interesting event. British Telecomm assembled its own team of lawyers and others in India to provide LPO services. Without mentioning why, Susskind then said that BT eventually transferred that group to United Lex, one of the leading LPO firms.

That is not surprising, since even the largest legal group would find it hard to sustain and manage an offshore legal function. Service providers who concentrate their attention and resources on that capability will surpass the performance of the captive team (See my post of Sept. 21, 2009: more detail on the Rio Tinto deal with CPA Global.).

A ten-year-old article said that the median costs of wrongful-termination awards reached $151,800 for men and $75,000 for women (based on 1,700 verdicts rendered between 1988 and 1995). The article is in Admin. Sciences Quarterly, 2000 at 557. Even in 1988 the average cost to defendants of those types of cases reached $80,000.

In today’s dollars, the average total cost of resolution (award plus fees) might be nearing $300,000 (See my post of April 22, 2007: more recent data that outlines lower expenses; and April 23, 2006: jurimetrics myths.).

An advertising supplement by CT Tymetrix in Corp. Counsel, Sept. 2010 at 3, reels off 11 methods by which legal departments manage external legal costs. Experienced, managers of departments know about all of them and will find nothing new, except one: “trial date management.”

Trials are so rare that it seems this is an odd method to control costs, but it certainly makes sense that a logjam of trials at the same time would tax the in-house litigation managers and possibly lead to higher bills from the litigation counsel let loose on their own. Aside from pile-up consequences, I do not know what “trial date management” does to reduce spending.

A piece in Met. Corp. Counsel, Sept. 2010 at 28, offers a stunning metric about the number of invoices Novartis AG’s legal and intellectual property groups cope with annually. The groups work with more than 300 law firms, legal vendors, and IP agents, who collectively snow each year a blizzard of invoices that approach 60,000.

Such an immense volume means that Novartis, or any of dozens of other large departments that accumulate such drifts of invoices, need to (1) automate as much as they can of the process; (2) study the process and understand it; (3) create policies and procedures and educate those who are involved in invoice handling; (4) practice kaizen, and (5) believe in and use mathematical analysis and benchmarking.

Among the 25 most influential people in IP singled out by Intell. Prop., Fall 2010 at 13, three of them loom large in the controversial domain of what some refer to as patent trolls. John Amster, the CEO of RPX Corporation; Nathan Myhrvold, CEO of Intellectual Ventures; and Paul Ryan, CEO of Acacia Research Corp., all thrive in the underworld of non-practicing entities that own significant portfolios of patents. How they sometimes deploy those holdings may lead to litigation, licensing, or at least anxious looks over the shoulder by patent owners (See my post of March 22, 2010: non-practicing entities with 6 references.).

It bothers me that the common refrain goes like this: “Pressure from the CEO or the CFO forces the general counsel to cut costs.” Beyond cavil, the two top executives often mandate budget cuts and what functional head voluntarily signs up for headcount reductions or a lower spending limit? Pressure probably does come more often than not from outside the legal function.

On the other hand, I like to think that responsible general counsel themselves understand prudent stewardship of shareholder assets and act on their duty and desire to reduce costs. They are not porky, puddn’head and profligate; they keep what they believe is the right degree of pressure on law firms to deliver worthwhile services and watch their internal pennies.

My point is that general counsel are not merely and only reactive to demands from the boss or the holder of the purse strings.