Articles Posted in Outside Counsel

“Under more traditional relationships, firms have to pay lawyers retaining fees while they are not using them.” This astonishing glimpse into the past comes from Reactions, May 2004 at 3. The retainer fee actually reserved the right to use the law firm even if there was not a need for the firm during the period of the retainer. If at one time this was a customary relationship between clients and law firms, it casts a different light on the meaning of the term “retainer” (See my postsof Oct.30, 2006 for speculation on the difference between “retain,” “engage,” and “hire”; of Aug. 26, 2005 about yawns from law departments on retainers paid quarterly in advance; and of Oct. 14, 2005 on retainers and prompt payment.).).

The article contrasts retainer arrangements with what it terms “outsourcing arrangements,” whereby companies only pay for a lawyer’s services when they need them.

A belief that animates many convergence programs is that a large number of law firms and partners can handle much of the legal work. That belief in fungibility s generally well-founded. It is a different matter if the area of law is specialized.

“Specialists for international industrial insurance and reinsurance law across different lines of business (property, casualty and engineering) are extremely difficult to find.” This observation, from a poll in 2004 of companies around the world in those industries, cited in Reactions, May 2004 at 3 brings home the point (See my post of Feb. 12, 2006 about how hard it is to find acceptable law firms in some countries.). Sometimes it’s a seller’s market.

The Philadelphia-based firm Duane Morris has an ongoing secondment program with the law department of nearby Icon Office Solutions. Each year a first-year associate works at Icon as a secondee for a one-year stint. According to law.com the firm seconded another associate to Minerals Technologies Inc. for about six months (See my posts of Sept. 21, 2005 on secondees and Oct. 26, 2005 on reverse secondments.).

This tidbit leaves me wanting more, much more. How does Duane Morris select the associate? Does Ikon have any say? How have the returning secondees fared back at the firm? Is there any supervision of their work by a partner? Whose idea was the arrangement?

For years I have shown a slide that lists the top five relationship mistakes law firm partners can make. The worst error on that slide is “patronizing attitude.” In-house audiences always titter nervously when I show that slide, but no one disagrees with its statement. Support for it comes from a

poll in 2004 of insurance and reinsurance companies around the world. As quoted in Reactions, May 2004 at 2, one US corporate counsel put the grievance this way: “Recognize that we are the client and stop paying lip service to the fact.”

It is politically incorrect to express the residual belief by many outside counsel that if you are in truth a really good lawyer you practice in a private firm. Brains, experience, discipline, and a willingness to work crazy hours distinguish outside from inside counsel. I believe, by contrast, that there are different sets of skills and characteristics that distinguish the two sides, and neither is privileged.

The pedant in me stubbornly insists that English has no exact synonyms, so off to the sophistry of hair splitting I must go. If “retention” carries with it a notion of a retainer – an amount paid each month against which fees are charged, then perhaps an “engagement” is simpler: “We hired you to represent us.” Then, oh readers who enjoy the rabbit hole into verbal Wonderland, what sorts out “engage” from “hire”? The former sounds snootier; hire sounds like day workers.

A poll in 2004 of insurance and reinsurance law departments around the world gave respondents 10 qualities of law firms and asked them to choose the three characteristics they value the most when selecting a law firm. Four qualities were selected the most (shown with the percentage that selected it in their top three in parenthesis): expertise/ability (88%), knowledge of the industry (55%), responsiveness (40%), and “value of money” (30%). These four present no surprises

The fifth quality on the ranking list, however is unusual: “honesty/transparency” (25%). The article that describes this survey and question, in Reactions, May 2004 at 1 www.reactionsnet.com , gave a brief gloss to this quality. It appears to be the willingness of a law firm to confess to its prospective client that it is not sufficiently skilled in an area of law to take on a particular matter. Don’t, in other words, except an instruction if your firm lacks “expertise/ability.”

Here are the remaining qualities: “reputation/professionalism” (15%); “promptness,” “efficiency,” and “reliability” (each at 13%); and “long-standing relationship” (8%).

A retention letter usually transmits relevant documents of a single matter (See my post of Aug. 24, 2006 with definitions and distinctions.) whereas outside counsel guidelines lay down ground rules for all matters (See my post of Sept. 25, 2006 that compares these letters to outside counsel guidelines.). The two documents leave an information gap.

The missing information includes (1) a list of acronyms used within the company, (2) the names of key business clients and their roles in the matter, (3) a short history of the business circumstances around the matter, and (4) names and roles of relevant in-house lawyers and paralegals. Supplementing the letter and the guidelines, this context document will help ground a law firm new to the company.

Larry Bodine, a respected marketing consultant to law firms, riled me when in Law Practice, Vol. 32, Oct./Nov. 2006 at 12 he writes that “a lot of RFPs are simply fishing expeditions that result in nothing more than wasted time for the firms that respond to them.” Larry, throw that one back!

His “red flags” for worthless RFPs are bull. “If the company won’t reveal its legal budget, it may mean that the company is losing money, can’t pay its bills and is just kicking tires to attract a lowball bid.” Wrong. The company does not want law firms to frame their bids in light of what the company has been paying, but rather in terms of what the firm would charge for the anticipated work.

“If the company won’t answer any questions — such as what it wants to see in the bid, who else is bidding, or who will decide the winner and when that will happen — the RFP is probably wired and you’re just window dressing.” Mostly wrong. Bodine exaggerates (“the law department won’t tell you anything”) and then pummels the over-statement. Law departments, to be sure, need to tell firms enough that the firms can propose intelligently and they ought to give a sense of their timing, but they have no obligation to answer everything firms might like to know.

“In seeking new business, your last resort should be to discount fees,” intones Patrick McKenna in Law Practice, Vol. 32, Oct./Nov. 2006 at 16. If law departments force their law firms to discount fees or rates, the firm “must extract a reasonable quid pro quo in exchange.” After all, McKenna asserts, giving something away will only cause the law department to attach no worth to it.

He offers four compensatory demands that law departments might face when they insist on discounts. (1) The department could award the matter to the firm as a result of the concession. (2) The department could pay the firm electronically within two business days of receiving the invoice (See my posts of May 4, 2005; Aug. 24, 2005; Aug. 27, 2005; and Oct. 14, 2005 on prompt payment schemes.). The department could provide staff to do some of the mundane work of the transaction. (4) The department could agree to serve as a spokesperson for the firm or as a reference with interested prospects (See my post of Sept. 21, 2005 on publicizing firms.).

Most law departments are deficient in formal evaluations of their outside counsel (See my posts of March 6, 2006 on NCR and its evaluations of firms; and Nov. 1, 2005 on the poor quality of these evaluations.). In-house counsel have little training on how to review bills; they rarely use the analytics available in matter management systems (See my post of May 1, 2006 with its questions about the ability of in-housers to review invoices well.).

One reason for low rates of turnover in outside counsel (See my posts of Oct. 4, 2005 about loyalty; and Dec. 14, 2005 about the arrival of a new general counsel.) the absence of critical scrutiny and tough-minded analysis. For one consulting project I developed a guide for inside counsel on management of outside counsel (See my post of Aug. 24, 2006 on guidelines and material.). The guide offered ideas on how to improve evaluations of outside counsel. There are many other ways to improve evaluations.