Articles Posted in Non-Law Firm Costs

An executive of the Association of Corporate Counsel compiles 75 tips for saving money in-house in the ACC Docket, Vol. 27, March 2009 at 39. Number 7 goes a bit over the top I would say:

“The single greatest tool inside counsel can use to reduce costs [!!] is to do a rigorous after action or lessons learned at the conclusion of each matter. That process should focus on two elements: First, what could your team have done more effectively and more efficiently? Second, what could your company do to avoid repeating a negative situation or re-creating a good process?”

The twin inquiries make sense, but I would not go so far as to elevate post-mortems to the top of the heap of money-savers nor would I advocate conducting them after every matter (See my post of May 27, 2008: post mortems with 7 references.). The knowledge-extraction effort makes sense on large matters and only on those where what is extracted is likely to be available and help on subsequent, similar matters.

According to an e-mail I received, a US telecommunications company needed over twelve thousand documents to be reviewed and filtered for pre-identified contractual issues and verified against certain online information. The law department asked Corplo, a legal support service (LSS) provider based in New Delhi, India, to review, extract and deliver in a predefined template ready-to-act information on each document.

At the start, the client and Corplo set up a project steering committee. An initial challenge was to impart a precise understanding of the project deliverables, which was done through a series of emails and a couple of teleconferences. Corplo did a partial review of a sample set of documents for initial client feedback to ensure that the deliverables matched what the client wanted. The project deliverables were planned in a phased schedule, so as to address any contingencies based on client feedback of initial phases and any potential changes in the specifications. Corplo completed the project within the time agreed, three months and three days, using a team of 13 professionals – 8 reviewers, 3 QA, 1 Project Manager and 1 Delivery Manager.

As summarized by Corplo, the most critical factors attributable to the success of the assignment were:

This is the fourth in a series of five postings by Jeff Kaplan on compliance and ethics (C&E) programs and cost (See my post of March 8, 2009: embedding risk assessment into codes of conduct.). Here, I address the topic of training. Training is generally the most costly part of C&E programs for companies. But it is less often the most effective or efficient part.

Sometimes this inefficiency is the result of assigning training in a largely indiscriminate manner – which can be unduly costly not only in terms of the expense of the training itself but also the use of trainees’ time. A way to avoid such a shotgun approach is to develop a curriculum “map,” so that training and other C&E communications are delivered on a truly need-to-know basis, for instance, along the following lines:

Board of directors: training should cover a) oversight of the C&E program; and b) risks relevant to their position, such as conflicts of interest, confidential information, financial reporting, insider trading and certain, other securities law issues.

The Financial Times included this tantalizing snippet in its Oct. 17, 2008 issue where an article discusses law department innovation (by Michael Peel).

“Another in-house lawyer who was seen as an original thinker was Dirk Tirez, whose work centred on trying to make Belgian Post’s approach to litigation more efficient. The company says that the initiative has allowed it to cut litigation costs 40 percent since 2005. The number of new files opened has fallen 43 percent, while the number of outside advisors deployed has been cut from 65 to 11 as their performance has been measured more toughly.”

That all sounds impressive, but statements of results don’t tell anything about how Belgian Post achieved them. What was the situation three years before and are “litigation costs” broader than fees paid to external counsel, e.g., settlements and judgments? Does it mean the company began to pay claims more quickly and generously, thereby avoiding lawsuits? The reduction in new files suggests that litigation avoidance has been crucial.

A throwaway line for general counsel who want to demonstrate their striving to reduce legal costs is “We’re going to bring more work inside” (See my post of Aug. 4, 2008: BAE Systems.). The intention really boils down to “We’re going to remove work from law firms.”

A general counsel can hire another lawyer, given the prospect of enough work that an additional in-house attorney can take on, and the substitution brings work in and saves money (See my post of Feb. 4, 2007: around $450,000 of projected spend on outside counsel justifies new hire.). But adding headcount is far from the only choice to “bring more work inside.”

A general counsel who takes such a shift seriously could choose to offshore some of that work, deploy software and databases more productively, raise productivity with knowledge management tools, encourage delegation to non-lawyers, turn work back to clients in a self-service model, or stop doing some work that is not a core competency.

Here’s an item for the “go-figure” bucket: a general fired for processing legal fees late?

As reported in the Fin. Times, Oct. 17, 2008, Michael Mocniak, was the general counsel of Calgon Carbon during 2005. The Financial Times reports that “Mr. Mocniak left Calgon in 2006 after an internal audit discovered that – according to the company – late processing of legal service invoices had cost it $1.2m the previous year.”

Something doesn’t make sense or this is an example of the error of post hoc ergo propter hoc. Law firms do not charge interest on delayed payments, or if Calgon’s firms did, the penalties didn’t hit seven figures. I can understand that if accrual numbers for 2005 had been $1.2 million too low and the CEO and CFO went berserk over that amount hitting in 2006, they would be angry, but to fire a general counsel for that financial misstep would be extreme. The company’s first quarter 2006 release reported that “Legal expenses for the first quarter of 2006 were $0.9 million higher than for the comparable period in 2005,” which doesn’t suggest such a calamitous over-run.

Since my last metapost on what it costs a company to support each hour of its internal attorneys (See my post of Aug. 27, 2008: fully-loaded cost per lawyer hour with 31 references.),

I have accumulated several more posts (See my post of Sept. 9, 2008: opportunity cost can be calculated; Nov. 16, 2008: low chargeable hours at many law firms; Jan. 16, 2008: more attacks on median cost per hour inside; Jan. 16, 2008: hourly-cost gap inside to outside might be one-third; Jan. 23, 2009: qualitative differences between internal and external hours; Jan. 29, 2009: rental costs for law departments; and Feb. 22, 2009: vacation days.). Additionally, I have written an article on fully loaded costs which just appeared in Legal Times.

This is the third in a series of postings by Jeff Kaplan on compliance and ethics (C&E) programs and cost. In the second I examined one cost-effective approach to C&E risk assessment, which is to embed risk assessment into training of senior managers. In today’s post I address a related idea: how to embed risk assessment into the process of drafting “third-party” codes of conduct.

Third parties – including suppliers, contractors, agents, consultants and other providers of goods and services – have long been a cause of significant C&E risk, e.g., in some of the major defense procurement cases of the 1980’s (“Operation Ill Wind”), the insurance agent sales misconduct scandals of the 1990’s, and various of the FCPA and financial reporting prosecutions of our decade. Yet despite this history – and, indeed the sheer obviousness of third parties being risk creators – far too few companies take meaningful steps through C&E functions to mitigate such risks, and fewer still undertake a structured effort to even identify what those risks really are.

One opportunity for doing both of these things – identifying and mitigating third party risks, and doing so in a cost-effective way – is to:

If law departments lack software to track external expenses, they may rely on accounts payable to generate whatever figures they need. This point struck me after I read astute blogger Ron Friedmann and his lament about the lack of technology in many law departments. On that point, he heard from Rob Thomas, the sage of Serengeti.

“In our most recent annual survey of ACC members (about 80% of which [law departments] have fewer than 10 lawyers), only 29% have a matter management and/or e-billing system. Another 36% manage by manually keying information into spreadsheets. So one-third have no system at all, not even spreadsheets. … Law departments can’t manage what they can’t see. “

They can see figures, however, from at least one other source. Many general counsel rely on the accounts payable system for all the spending data they think they need. The finance department will tell you how much you paid year to date to each law firm and for each special project tracked in the general ledger. If you can export the finance data, you can analyze the data further with additional breakouts.

Niall Ferguson, The Ascent of Money: A Financial History of the World (Penguin Press 2008) at 135, refers to “what economists call network externalities, the benefit of pooling information between multiple employees and agents.” As when fax machines became common and increased the value of each one that joined the “network,” the more people have a common interest and can pool information among themselves, the more efficient they become (See my post of Oct. 22, 2008: the elements of a knowledge management program.).

Network externalities may be one reason why larger companies that grow need fewer lawyers per unit of revenue earned. The advantages of pooling information about legal issues and responses among multiple members of the law department and with multiple agents (law firms) may exceed the disadvantages of overhead and bureaucracy. Total legal spend may decline as companies grow in part because the information economics improve from network externalities (See my post of Sept. 9, 2008: information economics and decisions.).