Articles Posted in Outside Counsel

While I gathered my cites for a post on Linde’s convergence program (See my post of June 18, 2007.), I came across several posts that refer to the British law firm Eversheds. As with many topics dealt with here, this one surfaced unbeknownst to me: that firm has made a name for itself with a number of efforts that benefit law departments.

Eversheds holds itself out as in favor of fixed-fee arrangements (See my posts of May 17, 2006 on its stance generally; and April 22, 2007 for its specifics with Tyco.). It has included on its staff people who are trained in project management (See my post of Dec. 22, 2006.). It has staked some of its reputation on a program called RAPID Resolution (See my post of Nov. 13, 2006.). Eversheds has made use of sophisticated software, such as rules-based drafting software (See my post of April 8, 2007) and an online knowledge repository known as “@work” (See my post of Feb. 16, 2006.) For years the magic circle firm has been a Preferred Provider for DuPont. Finally, Eversheds at least talks about using Six Sigma techniques (See my post of May 28, 2007.).

I am deeply suspicious of the findings of BTI Consulting Group regarding the frequency with which corporate clients “fire” their primary law firms. The latest BTI doomsday message, from Law Firm Inc., Vol. 5, May 2007, at 11, purports to be based on 250 corporate clients with revenues of $1 billion or more. According to BTI, 61.1 percent of them “fired one of their two primary law firms in the last 18 months.”

My consulting experience with more than 200 law departments disagrees emphatically with such a finding. To the contrary, if by “primary law firm” is meant a law firm that a law department has used significantly for several years, loyalty is very high. If a “primary law firm” is merely one that received very large fees, it may be that the particular lawsuit or major acquisition ended, and the firm hired for that purpose became unnecessary. But that is not the common meaning of the term “fire” (See my post of Feb. 19, 2007 about “firing” and references cited.).

The apocalyptic pronouncements of BTI make me wonder whether it suits their consulting practice to scare law firms into seeking advice on how to avoid a self-serving finding. Any critic of the BTI gloom-and do metrics is at a disadvantage because almost nothing is known about the company’s methodology in its surveys.

Legal Week, Vol. 9, May 17, 2007 at 10, reports on a major convergence by the gas and engineering giant Linde, a European-based company that reported group revenue for 2006 of €12.4 billion (about $15 billion). The article did not give any information about how much the company spends each year on outside counsel, but benchmarks from US companies would suggest a range between 0.1 and 0.2 percent of revenue, or $15 to $30 million.

In February 2007 Linde named five firms to its worldwide panel. One of the firms, DLA Piper “secured 80% of the company’s legal work across Europe, Asia Pacific and the US” (See my post of April 22, 2007 regarding Tyco and Eversheds as its choice of a single firm; and May 9, 2007 for Northrop-Grumman’s similar convergence.). Could that mean DLA Piper is likely to take in more than $10 million a year from the panel arrangement?

By contributing author Brad Blickstein, Blickstein Group, on legal service providers:

Often overlooked by those involved in electronic discovery is the fact that energy expended on it can often be detrimental to the case itself. A careful look at the results of a recent LexisNexis survey on early case assessment shows how.

The survey reports that respondents claimed that, on average, performing early case assessment results in a favorable outcome in 76% of cases–among other benefits. But 64% also said that time is the greatest barrier to performing an effective assessment. Respondents also listed the most important elements of early case assessment as: an initial review of case facts, collecting key documents, looking at case law, interviewing clients and creating a fact chronology.

In the fall of 2006, the 16-lawyer department of Circuit City Stores decided to speed up payment of law firm invoices in return for a discount on fees. According to Corp. Counsel, Vol. 14, June 2007 at 17, the trade-off was payment within 20 days of receipt of an invoice in return for a 3 percent discount.

Assume the typical client takes 75 days to process an invoice. Assume that one of those clients lops 55 days off that payment. On a $100,000 bill for legal services, if the law firm reduces it $3,000 it can invest the $97,000 at money market rates of 6 percent or so, 0.5% a month. The $3,000 discount shrinks by about $300.

The general counsel of Circuit City, Reginald Hedgebeth, said that every firm except one agreed to knock the 3 percent off its bills. The lone holdout preferred to be paid fully, later.

I jumped all over the notion that law department lawyers strongly favor admired and well-known law firms (See my posts of May 4 and May 23, 2007 about prestige firms.). A German research team in 2006, however, “announced that it had discovered that when people hear or see popular brands, the parts of their brains linked to self-identity and reward light up. Well-known brands — regardless of the product — activated parts of the brain associated with positive emotional processing; less familiar or unknown brands activated parts of the brain associated with negative emotional response.”

This finding comes from the Conf. Bd. Rev., Vol. 45, May/June 2007 at 22. Neuroscience may have foiled me. If they retain a name-recognition firm, a “popular brand,” in-house counsel may enjoy a dopamine rush. Unproven, no-namers cause downers.

An article in CCCA Mag., Vol. 1, March 2007, at 62, advocates a set of financial and non-financial metrics for demonstrating the efficacy of a legal department. Most are typical, but of the seven financial metrics, one I do not support.

The authors recommend “’new matters sent to outside counsel.” Their rationale for the metric is that it will “provide a clearer understanding of which areas of law are most frequently outsourced to external lawyers, and why.”

For several reasons I reject this metric as a benchmark. One is that there are no reliable metrics from comparable law departments. Every department defines matters differently, some do not even have a matter management system or a way to count matters. Even what constitutes a matter is hardly set in stone (See my post of April 17, 2006 on definitions of “matter.”). Even if many law departments could clear those hurdles and share their data, it is obvious that not all matters are created equal.

A partner from an illustrious Midwest law firm sat next to me during a recent flight. He litigates IP cases for big stakes. We chatted and I quizzed him about topics that have to do with law departments and their interactions with outside counsel. A number of his comments deserve mention.

He said that his firm turns down two out of three cases of companies that come to it seeking representation. I was amazed, because selling work is the hardest part of many partners’ (and consultants’) jobs, and to have the luxury of picking and choosing makes me envious. On the other side, many general counsel must be disappointed. He did not say that conflicts of interest drove that low acceptance rate; it seems more that the firm wants to represent the right kinds of clients in big, winnable cases (See my post of Oct. 23, 2005 citing a figure of one out of three firms are conflicted out.).

This partner also said that his firm’s clear rule is to charge full rates; there are two committees that exist “to turn down requests for alternative billing,” he somewhat joked. Small wonder that alternative billing arrangements find little traction among well-known firms.

Which is the more stressful job: general counsel of large company or partner in large UK firm?

“More than a third (38%) of City lawyers questioned thought their job was no more stressful than that of a leading general counsel.” So almost two-thirds think their job is tougher! That patronizing result comes from a Legal Week/EJ Legal Big Question survey, as reported in Legal Week, Vol. 9, May 10, 2007 at 8.

The lead to the story heightens the contrast: “A head of legal in a FTS 100 company has an equally stressful job as a senior equity partner in a City law firm.” Who would have thought otherwise?

The new editor of Legal Week, Alex Novarese, does not mince words. “The evidence is now incontrovertible that in the vast majority of sectors in which they have been deployed, panels have been a dismal failure at cutting costs.” Writing in Legal Week, Vol. 9, May 10, 2007 at 2, Novarese doesn’t bother to offer any of the incontrovertible evidence, but rushes on to condemn panels on other charges.

Panels have “contributed to the breakdown of loyalty between clients and law firms.” The “mandate chasing” has “resulted in ethical compromises.” His list of far-from-ideal developments that have emanated from panels continues: “liability capping, client dumping, non-exclusive arrangements, and rows over conflicts of interest are linked to the panel system, or at least to the broader shifts in adviser/client relations.”

Many general counsel probably disagree. Panels (usually thought of as “convergence” in the US) can heighten loyalty because there is more commitment on both sides. I can’t speak to ethical slippage, but I suppose if you criticize the strained objectivity of an employed lawyer then you can likewise question the objectivity of a panel firm beholden to one client for millions of pounds of work. The connection between panels and the liability of law firms in the UK to third parties, which liability caps seek to limit, is unclear (See my post of Nov. 9, 2006 on such caps.). “Client dumping” could be a wise and worthy effort to reduce conflicts of interest.