In his comments for Global Counsel, Sept. 2003 at 23, Ulrich Niessen, AXA’s general counsel, remarks on engagement letters that law firms furnish (See my post of Nov. 3, 2005 and its reference to US engagement letters.).
“Firms sometimes send us their own engagement letters, in which case we will negotiate on fees or liability limitations. On the rare occasions when a firm has refused to negotiate they have not been awarded the work.”
I should hope so!
Interviews of law firm partners indulge in flattery and exaggeration, but what should law departments make of two assertions, in Met. Corp. Counsel, Vol. 14, May 2006 at 44, by an Eversheds partner (Paul Smith). Smith says that “Increasingly we’re doing more and more of our work on a fixed fee rather than an hourly basis,” and mentions M&A as well as “litigation in its various phases.”
Then he drops the bomb. “The hourly rate isn’t dead, but certainly, as far as we’re concerned, all of the work we do is moving rapidly toward a fixed fee basis.”
Bravado? Maybe. Self promotion? Certainly. Reality? I would guess the UK giant agrees fewer fixed fees than he claims. The glacier of hourly billing melts oh so slowly.
Exelon’s legal department, according to its general counsel, William Von Hoene, Jr., pulls off a triple play every year. Von Hoene briefly lists three surveys in Met. Corp. Counsel, Vol. 14, May 2006 at 43; each provokes an observation.
The department surveys nearly 500 internal clients and asks them for feedback on the department and its outside counsel. The scale of this survey boggles my mind, as it goes out to nearly a half-thousand clients. What is even more unusual is its inquiries as to what clients think of Exelon’s outside counsel.
Second, the lawyers survey their outside counsel and “ask for their evaluation of the relationship between the Exelon Legal Department and outside counsel.” Few law departments take this salutary step.
The quote comes from a Missouri private practitioner speaking in the Report of the Missouri Bar Alternative Billing Methods Committee, Sept. 15, 2003 at 19. It probably reflects a common fear among law firm lawyers, one which they may not balance against their ability to perform the services quickly and effectively yet still earn the same fee.
One way to mitigate this fear of being taken advantage of is to create collars (See my post of Dec. 7, 2005 on this technique.), another way is to state assumptions clearly (See my post of Oct. 31, 2005 on this point.), a third is to build performance milestones, and another is to build a level of mutual, professional fairness that corrects for over-reaching or drastically unexpected conditions.
What if several matter management systems allowed in-house users to rate their law firms on a handful of common criteria? What if there were an industry standard for what those criteria mean and the scale on which to rate them? What if periodically each law department stripped out any confidential information but shared the evaluations through a third party?
A third party could pool the evaluations, keeping confidential which law department gave which firm a particular rating, and everyone could learn from the consolidated results (See my post of July 21, 2005 on an effort to do something like this on a website.). The logical next step would be evaluations of individual partners.
A piece about John Bellinger, the “senior legal advisor to the U.S. Department of State,” in the Nat’l L.J., Vol. 28, April 24, 2006 at 8, mentions that “security concerns preclude the retention of outside counsel.” The 165 attorneys under Bellinger, augmented by 140 professionals and support staff, for that reason perform all the Department’s legal work in-house, “with the use of consultants under limited circumstances.”
Law departments that support other government agencies have similar shackles on their entitlement to retain outside counsel, and thus must become self-sufficient. Yet I have never seen research that compares the morale, technology, culture, organization or budgets of similar law departments that have the choice to use outside counsel, but I suspect that if you could factor out other differences (notably for profit vs. government), the comparative management circumstances would be profound.
A recent post entertained the idea of a law department that refuses to pay higher rates for associates one or two years out of law school than it pays for the law firm’s paralegals (See my post of April 30, 2006 and citations.). As I wrote that item, I assumed that the department’s refusal was based on the hourly rates of the junior associates not being matched by commensurate legal experience. Never assume!
In the Wall St. J., May 2, 2006 at B6, Ashby Jones writes that “some law-firm executives fear that uncommitted associates are failing to put out the top-quality work that’s expected of them.” Associates who haven’t drunk the Kool-Aid of partnership pursuit “are less focused on crossing T’s and dotting I’s.” Maybe that law department sensed not only inexperience but also lower attention to quality.
The UPS legal department, with about 40 lawyers worldwide, spends nearly 95 percent of its annual spend on outside counsel fees, as noted in InsideCounsel, April 2006 at 77. UPS employs up to 150 law firms globally each year, but “25 core law firms represent more than 80 percent of its costs.” (See my post of March 24, 2005 on concentration of spending.).
Based on published benchmarks of approximately $350,000 per attorney for the inside budget, that would leave an inside budget somewhere in the range of $14 million (40 times $350K), which is 5 percent of $280 million. If 25 firms garner 80 percent of $266 million, that’s a mouth-watering $8 million or so per firm!! Talk about partnering!
Law firms that merge announce that they do so in response to their clients’ demands. I am dubious how often a general counsel says, “Firm, we need you to add a roster more of lawyers and offices.” More likely, what drives rapid growth by merger comes down more to ego, keeping up with the Joneses [Days?], or lack of any compelling alternative strategy.
A slew of posts offer different perspectives on law department attitudes toward law firm size (Meta post: see my posts of April 2, 2005 on responses to the merger of a preferred firm; April 18, 2005 on reactions to behemoth firms; May 10, 2005 on “two score huge firms”; Sept. 10, 2005 regarding the connection between law firm size and ratings on league tables; Sept. 10, 2005 on relative growth of firms and departments; Oct. 23, 2005 on large-firm overhead; Nov. 13, 2005 on convergence and mergers scratching each others’ backs; Jan. 3, 2006 and the degree of attention paid by national powerhouses; and March 15, 2006 as to one-stop shopping.).
Kevin Groman, a lawyer with PetSmart Inc., explained at a seminar how his law department chooses which litigation counsel to retain (See my post of April 10, 2006 about questions one lawyer proposes to be asked of potential patent litigators.) As summarized in InsideCounsel, April 2006 at 51, PetSmart “asks all firms 50 questions about their litigation approaches and uses the responses to construct an evaluative matrix.”
That’s an awesome battery of questions, but certainly a disciplined approach, especially if law department weights some of the questions and answers as more important than others.
Law Department Management Blog