Articles Posted in Outside Counsel

Steadily, steadily e-billing software handles more and more bills from law firms (See my post of Jan. 4, 2005.). The largest firms, those in the AmLaw 200, are the most likely candidates to invoice electronically, and indeed the 116 that responded to a recent survey, published in Law Firm Inc., Sept./Oct. 2006 at 58, catalogue their use of more than a dozen software packages (See my post of July 16, 2006 on this cottage industry.). I list the packages, but note that some firms rely on multiple products.

The two most common are CT Tymetrix (Tripoint/Direct Invoice) used by 31 firms and Serengeti (Tracker) used by 29 firms. Next most common is DataCert (17 firms) followed by LexisNexis (Counsellink, Examen) at 14 firms. Another drop in frequency of use reaches BottomLine Technologies (8 firms), Bridgeway (eCounsel), Oracle/PeopleSoft (eSettlements), Thomson Elite, Eliot, and Litigation Advisor (the least with a usage number: 4 firms). Custom software is at a few law firms and 28 firms use other packages! An amazing efflorescence of software, which is sure to be pared down by mergers and failures.

What struck me most from the data was not the proliferation of packages but the fact that 29 huge firms reported that they use no e-billing software. If 25 percent of the largest US law firms have not put their toe in the e-billing water, years after the protocols have been standardized with LEDES98b, this particular technology has a long row to hoe. But my interpretation may be wrong, because elsewhere (at 53) the article states that “Almost 90 percent of survey respondents say that 1 to 25 percent of their clients require the use of an e-billing program.”

Based on 165 responses to its survey this fall, Altman Weil, in partnership with Lexis Nexis Martindale-Hubble, found that personal references were the leading method by which Chief Legal Officers find a law firm to meet a need.

If personal references don’t turn up a firm, “CLOs turn first to law firm websites, closely followed by legal directories.” It’s not surprising that Martindale-Hubble found that directories were effective.

But I have some questions. How many times a year did the CLO’s hire a new firm, per billion dollars of revenue? Of those new hires, how many did they locate through online websites of firms or legal directories? Inquiring minds also want to know where articles and presentations at conferences stood in the list of resources. Senior in-house lawyers pay attention to which lawyers publish useful articles and are selected to speak on topics that matter in-house.

Based on 165 responses to Altman Weil’s recent survey, conducted in partnership with Lexis Nexis Martindale-Hubble, the two firms made much of the drop from previous years in the “fired or considering firing” percentage. At 30 percent, the figure dropped significantly from the approximately 50 percent figure of previous years. The analysis attributed the drop mostly to steps outside firms had taken to improve communication, reduce fees, partner with law departments, improve staff assignments, and provide free training.

I wonder whether another set of forces are at work. Perhaps convergence has gone on so long that many law departments have culled out their under-performing firms. Perhaps with bigger firms serving some departments there are more ways to resolve dissatisfaction than firing the firm. Perhaps law departments regard simply not using an unsatisfactory firm as different than “firing” the firm. Perhaps a quite different group of CLO respondents replied to this year’s survey.

I doubt that law firms in the US, taken as a whole, have so dramatically upped their game.

Some results of research undertaken for LexisNexis Martindale-Hubble during August 2006 appears in InsideCounsel, Oct. 2006 at 96. The research, which gathered responses by an undisclosed number of in-house counsel, shows how that group evaluated eight attributes of outside counsel. Since 90 percent of the respondents chose “Lawyer responsiveness” while at the other end only 74 percent chose “Lawyer’s predictive accuracy in a legal matter’s outcome,” the lawyers must have been asked to check all the attributes they thought were critical. That method is less revealing than ranking, allocating points, or even choosing the three most critical (See my post of Oct. 17, 2005 for more discussion on question style.)

In between the highest rated and lowest rated attribute were “business knowledge” (85%), “proactive advice the lawyer offered” (83%), “quality of service” (82%), “innovative solutions” (82%), “mitigate a client’s risk” (81%) and “listening skills” (79%).

“Quality of service” encompasses all the other attributes, so the attributes are not mutually exclusive (See my post of Dec. 20, 2005 on techniques for choice lists.). Also, the list had choices for neither cost effectiveness nor knowledge of the law. Listening skills are important (See my post of April 15, 2006 on its importance.) but hardly the only non-substantive legal attribute, while “predictive accuracy” hardly applies in transactions. All in all, a strange survey.

During May 2006, 162 readers of InsideCounsel responded to a survey by a law firm, Butler Rubin Saltarelli & Boyd. One question asked why alternative fee arrangements do not occur more frequently, with the results provided in InsideCounsel, Oct. 2006 at 53.

Two reasons were most commonly selected: “outside counsel hasn’t approached me about alternative fee arrangements” (49.2% selected this response) and “lack of experience to see if such arrangements work” (47.6%). It is disappointing that so many law departments are so passive; they should insist that their firms propose arrangements other than hourly billing. As to inexperience, just do it!

The remaining reasons were much less frequently chosen. “Under no pressure from management to control legal spending” (11.1%), “Not willing to take risks with my company’s case matters” (23.8%), and “Other” (30.2%). To the reason that “management” has not pushed cost saving, I am disappointed again; a good general counsel should seek cost efficiency whether or not the CEO and other peers press for that goal.

In the Fin. Times, June 28, 2006 at 5, the chairman of Marks and Spencer, Paul Myners, ruminates on the role, selection, and rationale for investment banks. His thoughts parallel much of the prevailing wisdom about law firms. Translate one of his tips: “Choose the people not the bank” echoes “Hire the partner not the law firm” (See my post of Dec. 3, 2005 about first hiring the partner, but then clinging to the firm.).

Or a second tip: “Big is not necessarily beautiful. If it is advice that you want, then the important thing is the intellectual firepower of a few people. Scale, therefore, is irrelevant.” We are reminded of “Retain the smart partner, not the firm.”

Third tip: “The term ‘independent,’ when applied to a boutique, is largely meaningless. All law firms, especially smaller ones, depend on deals and clients. This brings to mind the realities of law firm objectivity and remomve (See my post of Feb. 19, 2006 which questions the relative objectivity of firms and corporate counsel.).

A group of esteemed in-house counsel met for the Third General Counsel Roundtable, sponsored by the Economist Conferences on Nov. 30-31, 2005. Among the many interesting comments in the proceedings, two isolated remarks chimed for me.

The Chief Legal Officer of Bayer, George J. Lykos, warned that “companies should be wary of false economies in hiring outside counsel.” Lykos raised this alarum in the context of retaining outside counsel to help deal with a crisis (at 17). A page later, during a discussion of how to deal with restatements and the costs of counsel, a second participant advised, “Don’t feel that you’ve failed if those expenses are enormous. They often exceed the amount of the restatement – often by a multiple. Legal fees are secondary when the integrity of the company is at stake.”

Two instances, the same message: outside counsel budgets go out the window if the legal issue reaches a certain level of importance, such as the C-suite.

During a conference held January 23, 2003 in Paris, the European General Counsel of DANA Corp., Michel Cloes, described that company’s strategy to balance cost control with the need for clients to obtain timely external legal advice. According to Connections, Vol. 3, Summer 2003 at 8, managers at DANA “have the discretion to go straight to an approved outside lawyer for advice, but only if it involves less than four hours’ work.”

Note the conditions: the law department has approved the outside lawyer beforehand, and possibly even for certain kinds of legal work only; only managers presumably of a certain level can exercise this limited right; and both the law firm and the manager are accountable for the four-hour limit and therefore costs. So long as the law firm knows about this deputization, if it bills for more time, its hours beyond four could be subject to rejection.

I endorse this strategy, with two small suggestions. A dollar amount might be better, as it would encourage clients to seek a firm whose cost structure befits the legal advice sought. And, there ought to be a time frame in which the ad hoc advice can be sought, without law department involvement, such as no more frequently than once a week.

After being spun off in 2005 from Bayer Chemicals Corp., LANXESS had a legal department of seven attorneys. Not having enough capability in intellectual property the new department obtained from the US law firm Pepper Hamilton several seconded staff. The secondments included “IP attorneys, an IP paralegal and patent agent – on a full-time basis.” The terms of the arrangement are not further explained in GC Mid Atlantic, Sept. 2006 at 9.

The same magazine (at 30) describes how Philadelphia-based Duane Morris recently seconded an associate to its client Minerals Technologies “when the company was short a patent attorney and overwhelmed with work.” The secondee spent six months at Minerals.

Seconded attorneys usually work at lower rates than the firm’s standard rates, and the client and the firm can negotiate all manner of flexible time and fee arrangements that benefit both parties.

What if law firms create for each invoice a coversheet, one with little bubbles filled in that give a summary, much as tests or SATS that are scored electronically from answer sheets? All of the factual information about an invoice could be electronically coded and read by an OCR device; these facts would include dates, hours, billing rates, initials of timekeepers, and UTBMS task codes.

This idea sounds like electronic billing which uses LEDES (See my post of April 14, 2005 on this standard in Europe and Sept. 18, 2006 about electronic legal invoice delivery.), but would not require special file structures, encrypted communications, and third-party fees.

What couldn’t be scored so easily from bubbles filled in are descriptions of activities. Perhaps there is a way to encode text so that it is as easily machine readable. Our Post Office can do this.