Articles Posted in Outside Counsel

So-called maturity models imply best practices and a desirable progression along a ladder of improvement (See my post of May 15, 2009: model for ethics and compliance function.). You can get a taste of one for leadership development in the Harvard Bus. Rev., April 2011 at 133. Its bottom rung is “Inconsistent management training,” next is “Structured Leadership Training,” then “Focused Leadership Development,” and the zenith is reached at “Strategic Leadership Development.” The major shift in this particular maturity model is from training to development.

Mitratech has laid out a maturity model for technology that can be used by corporate counsel. They name the five rungs “Embryonic,” “Emerging,” “Adolescent,” “Established” and “Optimized.” The evolution has to do with how well the software works, its ability to scale up, ease of implementation, and flexibility of customization.

It would be easy to devise a maturity model for outside counsel management. Platitudes and gold-plated phrases could appear effortlessly if that were a scholastic effort divorced from messy reality. It would be the operational differences and choices, however, that would be the struggle and give it construct validity (See my post of Jan. 4, 2011: construct validity tests a concept in real life.). Put more bluntly, the maturity model for managing law firms would not be useful unless you believe there are best practices (not just the avoidance of bad practices).

Abbott Laboratories was clobbered on a patent infringement case, a smack-down jury verdict in June 2009 for $1.67 billion. The article about the ensuring appeal, in Corp. Counsel, July 2011 at 21, vividly conveys the pressure Abbott’s general counsel was under as a result of the huge adverse award. The law firm of Wilmer Cutler Pickering Hale and Dorr had represented Abbott in the defense and trial. The Wilmer partner in charge offered to step aside for the appeal Abbott took, and was surprised when Abbott retained his firm for the appeals round.

The point made in the article is that trial counsel who lose expect to be terminated. Another firm, with a fresh viewpoint and objectivity about what was done during the case below, typically takes over. Admittedly, appeals are very rare, but those “terminations” shouldn’t be counted in the same category as “firing” a firm.

“Ariba Inc., the maker of one of the main reverse-auction software tools, claims that around 40% of today’s market for legal work – a threefold increase from just a few years ago – is contracted through electronic, online means, most of which involve a reverse auction, according to Sunda Kamakshisundaran, a marketing manager for the company.”

This statement is risible. Today’s “market for legal work” in the U.S. likely exceeds $100 billion. If “most” retentions of outside counsel “involve a reverse auction” – with real-time bids submitted online and revised downward, I’ll eat my hat. The Wall St. J., Aug. 1, 2011, which published this in an article about the purported rise in reverse actions, should know better. A vendor’s self-serving, ambiguous, preposterous assertion should not be printed unchallenged.

As the primary source of data on legal spend, both inside and outside, the accounts payable function services many law departments. Especially small departments, one and two lawyers, turn to their finance group for what totals and breakouts they can obtain. It is the stand-in for matter management software or for spreadsheets and home-grown databases.

My most recent column online for InsideCounsel, published under Morrison on Metrics on July 18th, considers some of the difficulties of that arrangement.

From the standpoint of a law department, you could say the ultimate value-based arrangement obligates payment only when and if the law firm accomplishes just what the department wants. With inventions suitable for patent protection, what could be better for a law department than to pay the law firm only if it obtains the patent? This was the arrangement described, in so many words, by Amar Bhidé, The Venturesome Economy: how innovation sustains prosperity in a more connected world (Princeton Univ. 2008) at 85.

To be sure, the payment was almost certainly more than hours worked times rates charge, because the patent prosecution firm took on the entire risk of the patent being rejected. I suppose also that the firm had the right to decline to prosecute a patent.

Bill Henderson, Director of the Center on the Global Legal Profession and a Professor of Law at Maurer School of Law, co-authored an article in the ABA J., July 2011 at 41. The authors credit three interconnected forces with testing and stressing the legal market. None of them fit from the law department side.

“1. More sophisticated clients armed with more information and greater power to rein in costs.” The collective managerial nous of general counsel in the United States has risen in the past decade, including because more information pertinent to management has become available and with lower access costs. Whether this translates into dramatic internal changes or buyers’ leverage, however, is unclear

“2. A globalized economy, which increases the complexity of legal work while exposing U.S. lawyers to greater competition.” The overall impact on lawyers in US companies of increased global trade is unclear. For some law departments, worldwide trade and laws dominate, but for most that is peripheral. Exports have accounted for only about 10-13 percent of gross domestic product in the past few years and less than that from the massive services sector. More competition from providers of legal services around the world, such as the giant UK law firms or LPOS, can only benefit law departments.

Your law department has used a firm satisfactorily for years, but nevertheless seeks bids from it and other law firms to handle certain matters. The incumbent firm comes back to you with all kinds of new ideas and potential concessions or advantages. How do you respond?

Some inside lawyers might bluster and snap back: “Why didn’t you propose these ideas before? For all these years were you ripping us off? Were you complacent and feeling entitled?”

Wiser heads empathize and understand that not many service providers volunteer to reduce their fees or profit and that competitive juices fire up the imagination. If they were honest with themselves, those wise heads might look in the mirror and ask “Why didn’t I think of these improvements and request the firm to oblige?” If you invite an incumbent to propose, appreciate and welcome that the firm has to offer something new.

The other day I heard an argument new to me for an extended fixed-fee period. The period was three years. Three years seemed right to this general counsel because law firms could not afford to run at a loss (low-ball) for such an extended period. For one year, they might write off chunks of time to buy their way into a prestigious client; for three years, the pain would be too great. By the way the fee did not have to stay the same each year.

My concern would be that a three-year commitment probably brings with it a built-in premium just for the length of time. Like a 30-year mortgage rate topping a 15-year mortgage rate, there are more unknowns for the law firm so the fee proposed rises.

A few days ago I ventured to list in order of respectability why legal departments don’t aggressively control costs of their law firms (See my post of July 21, 2011: 14 reasons.). I am gratified two readers added their thoughts.

John Conlon pointed out “that many of the corporate in-house attorneys come from the very firms they are supposed to be ‘regulating’ or come from big firms with the same billing models. Thus, they truly do not know any better.” I would add that it is hard to crack the whip on your former partners, be they former authority figures or colleagues.

Conlon added that “the very idea that legal bills could be reduced somehow is perceived as a challenge to an in-house counsel’s ability as a lawyer. It is as if someone says, ‘you have not been doing a good job as a lawyer.’” Again, I agree. If you give good instructions to a law firm and keep on top of their efforts, how often should you have to ask them to cough up time?

As I came up with this list, it seemed useful to put them in declining order of legitimacy. In other words, the first few make sense, toward the end they make poor excuses.

1. The lawyers like the services they get from the firms and feel the value delivered for the cost paid is acceptable.
2. No one is pressuring them sufficiently from within the corporation to chop costs.