Articles Posted in Outside Counsel

Law departments need to appreciate that law firm partners often look at potential work in terms of its degree of leveragability. To wit, if the matter is likely to be partner intensive – it is sophisticated, fast-moving and requires much judgment – some partners feel they need to charge higher hourly rates than if the work enables them to deploy many associates (See my post of Feb. 16, 2006 on net income per partner depending, inter alia on leverage; June 19, 2006 about data showing 40% partner hours on average; Aug. 21, 2005 about a surprising lack of paralegal leverage in firms; but see my post of Sept. 25, 2005 on the risks of too much leverage.).

Most firms set their hourly rates the same across the firm for all lawyers at a certain level but in truth different practice groups or lawyers should have choices of different rates due to whether they leverage their work. Aware of these operational features of law firms, law departments ought to adopt more nuanced views on billing rates; certainly, one-size-fits-all billing rates is tailor-made for dissatisfaction.

A senior partner of a law firm I have consulted to mentioned that sometimes his partners sense that the references they give to prospective clients give a report on the firm that is not as favorable as they thought was deserved. Maybe those partners have delusions of grandeur.

But maybe an uglier possibility exists, and one that seems to discredit law departments. The reason for the tepid reference (or worse), some partners suspect, is that the reference client does not really want the law firm working for other companies, especially companies in the same industry (See my posts about references on law firms of April 10, 2006 and how to select a patent firm; Oct. 16, 2006 about the punch of personal references; and Oct. 29, 2006 about firms asking clients to serve as a reference if the firms grant discounts.).

Having written this, I could argue that in-house counsel act quite rationally when they protect a valued, finite resource from dilution or depletion. Who should expect them to praise a firm or partner if doing so risks a reduction of benefits to themselves?

From my consulting projects, I observe, and advocate, allocations of the following percentages of importance to the key factors.

• 50 percent to the experience of the firm in whatever area of law is covered by the RFP. Experience depends on how much work of a similar kind the firm has done, how recently, and whether lawyers who will work on the department’s matters did that work.

• 30 percent to staffing, which includes personal chemistry (See my post of Feb. 5, 2007 on the inclusion of psychometric data in proposals.) and the backgrounds of the specific lawyers who will work on the matters. Institutional experience and knowledge is important, but human beings will actually work on the upcoming matters.

One barrier to entry for a law firm that tries to crack into the work of a new client is that the client’s lawyers know, and probably like or at least get along with, the lawyers of the incumbent firm. How can a newcomer demonstrate the likeability of its lawyers? Not enough of chemistry leaches through in a structured and stilted presentation.

A creative approach for a firm might be to include in its proposal some facts about the psychometrics of the lawyers who would provide most of the services. The firm could say that it is vitally aware of how important personal chemistry is for the relationship between the firm in the department and so it is providing data about its core team members’ Myers-Briggs scores, Grave scores, Caliper profile. etc.

Some people might feel that level of disclosure an invasion of privacy or meaningless socio-psychological mumbo-jumbo, but others might see it as an innovative attempt to paint a fuller and more personal picture of those whom the law department lawyers would be working with.

If a law department were adamant about maintaining a core team at a law firm that works on its matters (See my post of Dec. 6, 2006 about this technique.), the department might experiment with a variation on this tough decree.

If any core-team timekeeper spends less than 50 percent of his or her time on the client’s matters over a six month period, assuming enough work goes to the firm, the billing rate of that timekeeper reduces by whatever the actual percentage is less than 50 percent. Thus, if an associate has a billing rate of $300 an hour but spends in a given month or time period 40 percent of her time on the client’s matters that would mean a 10 percent reduction in the lawyer’s billing rate, down to $270 an hour.

Let fly the brickbats! But remember, I’m just raising an idea.

A law firm consultant, Patrick McKenna, reasonably pushes law firms “to communicate to your client what’s being achieved as a direct result of retaining you.” But he recommends a bridge too far, in Law Practice, Vol. 33, Jan./Feb. 2007 at 14, with his conclusion: “At the end of every matter and to truly satisfy clients, your job involves identifying a specific value outcome for each legal service you deliver.”

Would that were possible! If law firms could accurately state the dollar value of the services they render, there would be no need to bill. The firm could invoice for a percentage. Competitive bid processes would wither into mathematical comparisons of percentages to be charged. Law departments would barely need to evaluate law firm performances; the benefit obtained minus the fees paid (plus some recognition of timeliness and desk-side manner) would tell the tale of the tape.

But it is not possible. In many instances, law firms simply cannot say what the cash value is of the advice or services they rendered. Even where revenue or cost streams might be estimated it doesn’t follow that the firm can quantify its contribution. To draft, negotiate, and close a lease that results in payments of $3 million over 15 years (if even that stream of income or expense can be quantified to that degree) is not worth $3 million.

Commenting on my recent article in Legal Times on how to analyze invoices Tom Collins morepartnerincome.com reviews some of the things a savvy client could interpret from a law firm’s bills. One of them was “More than 30 percent partner time means I’m paying partner rates for associate and paralegal level work.”

With all due respect, that is a very broad rule-of-thumb. The ratio of partner time to associate and paralegal time can quite properly range from 100 percent to none. Eye-dropper advice on a sophisticated tax shelter under time pressure might well deserve only senior partner time; by contrast, a review of the 25th franchise agreement might be work that is mostly paralegal and a bit of review time by a fifth-year associate. The 30 percent guide holds best with large-scale, leverageable work at a major firm.

A few readers might have missed this news. Outsourcing a legal department – like Continental Bank did to Mayer Brown back in 1991 – thrives globally. In admiration of its lapidary prose, in part because my command of Czech isn’t what it never used to be, but mostly because I cannot reproduce even a fraction of the diacritical marks, I quote at length from a release:

“Jiří Kučera, 36, is the head of new law office Kučera & Associates, the former legal department of electronics firm Foxconn CZ, a Czech affiliate of Taiwan based Hon Hai Precision Industry Co. Kučera joined Foxconn CZ in 2001 as its legal department head. Previously, he worked for law firms Žižlavský & Partner and Kocián Šolc Balaštík a spol. Kučera graduated from the Faculty of Law at Charles University in 1997.”

From a survey, Maguire Consulting reports in Legal Mgt., Vol. 26, Jan./Feb. 2007 at 8, that “30.4 percent of the respondents have been partners at two law firms, 5.9 percent have been partners at three law firms, and 2.9 percent have attained that status at four or more firms.” Hence, almost four out of ten partners have been a partner at more than one law firm.

If law departments depend on partners to be the repositories of knowledge about their company’s business and ways of practicing law, this level of mobility throws a spanner in the works. Associate turnover is even higher, so the net effect is a depleting level of institutional knowledge (See my post of March 15, 2006 on institutional knowledge as a valuable asset.). The second consequence is that law departments may frequently have to choose between sticking with a peripatetic partner or the law firm left behind (See my posts of Aug. 14, 2005 and July 21, 2006 about transitioning matters; and June 13, 2006 on the decision to hire the firm or the partner.).

The era of specialization is upon us, so it should surprise no one that a laser-focus firm such as Medical Research Consultants (MRC) flourishes. MRC, according to Met. Corp. Counsel, Dec. 2006 at 18, provides nurses who are trained to support defendants in mass tort and personal injury litigation. MRC’s staff understand how to analyze the conditions alleged by plaintiffs, how to assemble pertinent medical evidence and records, and generally how to complement with medical knowledge the legal skills of law firms and the technology skills of lit support vendors.

MRC is but one of a large number, I am sure, of targeted litigation vendors. The existence of these satellite providers, revolving around law firms and law departments, allows for unbundling aspects of litigation. They also highlight the importance of litigation management: effectively bringing to bear in large cases a team of service providers (For more candidates for this team, see my posts of Oct. 20, 2005 on settlement counsel; of Nov. 14, 2005 and Sept. 18, 2006 on offshore document-review teams; Oct. 24, 2005 on decision analysis specialists such as Bruce Beron and Marc Victor; Feb. 9, 2006 on document discovery vendors; July 4, 2006 on litigation and trial consultants; July 11, 2006 on court reporters; and July 14, 2006 on class-action claims firms.).