Articles Posted in Outside Counsel

At the start of their Martindale-Hubbell entry, many law firms parade some of their prominent clients – or that is the impression given. Yet all that those lists show are the names of the companies, so it is impossible to know whether for any one of them the work was sizeable or repeated or recent or in more than one practice area. The partners who ran the projects might have retired, changed specialties, or left the firm.

I wonder whether the firms obtain permission from their clients to cite them (See my post of Sept. 21, 2005 on the carrot of allowing firms to use your company for publicity.). I doubt that clients ever confirm the accuracy of the claims.

I do not like this practice. The first law departments to deploy this weapon, back in the mid-to-late 80’s, may have gained some data and leverage, but later adopters ran into resistant law firms, overly-aggressive auditors, fewer egregious billing practices, a surfeit of poorly trained auditors trying hard to sell work, and costly services (See my post of Jan. 10, 2006 about its use in a patent infringement case.). The residue of the erstwhile trend remains in insurance and in litigation over legal fees incurred (See my post of Nov. 25, 2006 about OxyContin.).

There are bubbling disputes over attorney client privilege at risk if a third party looks at invoices on cases. But that concern is not my complaint.

I dislike routine bill auditing – in the normal course of operations, not during litigation that involves legal fees – because the firm-department atmosphere poisons and degenerates to adversarial (See my posts of May 4, 2005 on bad blood between carriers and insurance defense firms; and Nov. 14, 2005 on audits not being “strategically sound.”). Fly specking invoices long after the work was done undermines the management responsibility of the in-house lawyer all the while the firm was toiling away.

Law department managers ought to carefully refer to an arrangement with law firms as “virtual.” At least five variant applications have surfaced in this blog.

Some in-house managers say it’s “virtual” when they put in-house lawyers and paralegals on a project team with an outside law firm and expect the combined forces to work as one (See my post of June 5, 2006 for this usage.). Some say it’s virtual when they collectively manage several law firms – and possibly vendors – in an undertaking (See my post of Nov. 6, 2006 regarding a “crisis team.”). Others describe an arrangement as “virtual” if they retain lawyers at different firms to work in a collective team (See my post of Dec. 5, 2005 about Cisco). Another application of the term encompasses the traditional national coordinating counsel role, with the firm in that role overseeing many other firms (See my post of Nov. 25, 2006 on the OxyContin pyramid; and Dec. 3, 2006 on the benefits.). A fifth definition assumes that a “virtual team” of law firms is an orchestration of several firms that have equal involvement (See my post of July 16, 2005 on the term “multi-sourcing.”).

Many law departments that are bedeviled by a swarm of lawsuits hire a single law firm to coordinate the defense. If cases are pending throughout the country, then the so-called national coordinating counsel will handle cases in jurisdictions where the firm has capable litigators who are admitted, and will turn to local counsel for the remaining cases. A coordinating firm rides herd on the other firms, unlike a virtual team of firms or a multi-source group of firms (See my post of July 16, 2005 on this term.).

Principally, national coordinating counsel strive to maintain a consistent approach by the company to discovery requests and strategy. They prepare standard forms of documents and pleadings, they serve as a research clearing house, and they respond to skirmishes across the entire battlefront.

“US general counsel have long utilized their position to stipulate certain pro bono demands along with hourly fees when appointing external counsel,” intones Michelle Madsen in Legal Week, Nov. 23, 2006 at 10. No, they haven’t.

To my knowledge, no general counsel on this side of the Atlantic has ever stipulated that a law firm undertake any kind or amount of pro bono involvement. That would be overbearing intrusion.

Except, general counsel push diversity improvement on their firms (See my posts of May 7, 2006 on morale at Computer Associates and pro bono; and Sept. 10, 2005 on some pro-bono thoughts.) and they insist on some technology investments, so perhaps the line is not clear at all regarding how far law departments can pressure their law firms.

If your law department wants to obtain a fixed-price bid for a large block of work, it must needs deal with large law firms. Those firms with, say, 800-plus lawyers can take on an entire portfolio of work. Massive firms can absorb more financial risk, they can deploy the specialist and grunt talent as needed, they can systemize their procedures, and they can invest in software and other resources. Increasingly, as more law firms pass the thousand-lawyer mark, these gargantuan ones can risk relatively Lilliputian bundles of corporate work.

The tradeoff law departments will have to make is between a higher cost structure and more certainty for the budget.

Most outside counsel guidelines devote a disproportionate amount of costs and energy to law firm disbursements, disproportionate because the out-of-pocket expenditures by law firms that clients pay for are typically less than ten percent of the total bill. That attention is misguided.

“Show me the money” directs us properly to focus on fees, not faxes (See my posts of Sept. 13, 2006 and Oct. 24, 2005 on fixed fees and their inclusion of disbursements; Sept. 13, 2005 and online legal research costs; May 31, 2005 and disbursements in Canadian law suits; April 18, 2005 and May 30, 2006 on the cottage industries that give rise to disbursements; and Aug. 20, 2006 for how law departments can negotiate cost reductions with vendors.). Only in egregious circumstances – recall the infamous Skaddenomics – should a law department squander its resources on disbursements.

Once more into the lists I go, to joust with this knight-errant technique (See my posts of April 23, 2006 criticizing UTBMS codes; and May 1, 2006 on their decline in popularity.). The charger I ride now carries five favors (court ladies gave their valiant knights favors – handkerchiefs – to honor and inspire them).

Lawyers in law firms are less than scrupulous about accurately sub-dividing their time into code tasks and activities. Then too the codes are rigid – as are all descriptive taxonomies – and exact a Procrustean toll on the multifarious, emergent services forced into them. As the third favor, lawyers in the department still have to review the bill, even if it is adorned with task codes. Fixed fee arrangements, as the fourth argument goes, reduce the need for task codes on commodity work. And, as the fifth favor, it is not tasks that make a difference in costs and value, but staffing and management.

In this tilt, the UTBMS codes are once again unfavored and unsaddled.

By one definition, equity partners in a law firm (1) own some portion of the firm, share responsibility for its liabilities, and earn distributions that rise or fall with the earnings of the firm, (2) contribute capital to the firm, and (3) earn 70 percent or more of their income from the firm. Does any of that matter to a law department (See my post of Sept. 5, 2005 on Dupont’s concerns in this area.)?

The quality of a lawyer’s work and the associated cost are all that should concern a law department. Not titles, roles, longevity, or equity ownership – all are irrelevant.

Mergers of companies with law departments change the mix of law firms retained. The change occurs only in part because the merged law department culls some firms.

For many other reasons a remix of law firms that serve the company might result from a merger. Some of the reasons are the more sophisticated legal problems the larger company encounters favor different firms; the increased skill of the in-house counsel who survive the merger (See my post of Sept. 13, 2005 about the layoffs after the mergers of Oracle and Honeywell.); the relocation of the company’s headquarters; the new constellation of company executives and their preferences; heightened sensitivity to cost control efforts after the merger; and new conflicts of interest among the incumbent firms.