Articles Posted in Outside Counsel

“The one-stop shop is not a proposition of great interest to in-house counsel globally, nor is it believable,” is the conclusion reached by E. Leigh Dance and Deborah McMurray, “10 Things We’ve Learned from In-House Counsel in the US and Europe.”

According to the authors, the majority of in-house counsel feel that the service and work product is often inconsistent among offices of international firms. Those in-house critics tell stories about working with lawyers from one firm in differing offices, where the lawyers had never met and had strikingly different approaches. I am sympathetic to this view as it is hard to achieve consistent quality of legal service, let alone across languages, cultures, and legal systems where, to top it off, your firm has acquired groups of lawyers.

LexisNexis Martindale-Hubble, using Cogent Research, obtained responses from 635 in-house counsel, 461 of which were from the United States (Counsel to Counsel, March 2006 at 15). Of the nine criteria available for selection, the first ranked was “lawyer expertise” – with 87 percent – while “firm expertise” was third at 48 percent. [I am unsure of the methodology, because the percentages total 288, so it appears respondents could choose more than one factor.]

Even for high-stakes matters, which presumably could include staff-intensive projects like major M&A or class actions, the lead partner’s prowess is valued twice that of the partner’s firm. Further confirmation of the criticality of the partner relative to the firm is found in the fourth-rated factor, “lawyer reputation” at 34 percent. It came in well ahead of “firm reputation” at 24 percent.

When law departments must put their heads on the block, they look for rescue not to a faceless firm and its luster but to an individual lawyer’s expertise and renown.

Law departments ought to demolish rigid billing rates, according to which Partner X charges $410 per hour regardless of what that partner does during the hour. The fifteen minute conversation with a senior partner that cuts through complexity, integrates years of experience with many clients, and leavens it all with judgment and brains may be a bargain at $2,000 an hour.

The six hours that same partner charges during which she reviewed drafts of associates, figured out who was available to do research on three points of law, re-read the regulations, and scheduled the next status call may be too pricey at $200 an hour.

Logistically a nightmare and beset with subjectivity, differential rate billing still comes closer to matching the value of a lawyer’s work to the fee charged. I do not like hourly billing for many reasons, but if a firm could devise a method that clients would accept for a billing system that matches fees charged to worth delivered, that would be the marketing coup of the decade. Even if lawyers assigned their time to tall, grande and venti rates it might impress clients and start bucks rolling in..

A somewhat dated article, NYLJ, Nov. 10, 2003, describes the competitive bid process that General Electric Commercial Finance set in motion on Sept. 29, 2003. J. Keith Morgan, the general counsel of GECF, hosted the various “competitive bidding rooms” on a site managed by Atlanta-based Procuri.com.

At the article’s end, a spokeswoman for Procuri.com said the company had hosted other legal service auctions, involving bankruptcy and due diligence services. The results from those electronic auctions services “saved an average of 24 percent.”

How did those early adopters calculate the savings? Surely it was not the difference between the lowest bid and the highest bid. Had the companies soliciting the bids done enough similar work before that they could determine the average cost, and found that the bid they chose was a quarter less? (See my post of Feb. 1, 2006 adding to my article on law department auctions.)

Sketch two axes that intersect in the lower left. The horizontal axis describes work sent out to law firms on a scale of legally simple to complex (well-known law applied to straightforward facts in one state or country on up to multiple areas of law that intersect, sophisticated structures or issues, several jurisdictions) while the vertical axis is a scale of scope (single lawyer and paralegal can handle over several weeks on up to phalanxes of associates and partners and support staff needed for years).

The lower left quadrant (not complicated and modest effort) is standard fare for local law firms; the lower right quadrant – more complex but moderate scope, the stuff regional firms handle well. The upper left quadrant, where complexity is much greater but the scope is still manageable falls to boutiques, while the upper right – broad of scope and sophisticated in demands — would be the realm of the national or global firm.

When hammering out a legal issue, the trick for a law department is to match the firm to the forge.

You might have missed this news. To handle a case that was adjourned after only five days of argument, the Office of the Attorney General of Kenya – more precisely, its State Law Office that includes 50 lawyers – unilaterally and secretively retained and paid six lawyers equal portions of Ksh72 million ($1 million). It was not just any case, but was high-profile litigation arising from a major financial scandal, and it was the government defending itself from a suit to have the Kenyan parliament stopped from taking over the constitutional review process. The article in the East African, Feb. 27-March 5, 2006 exposes the arrangement and surfaces several concerns .

The four issues raised by the critics of the arrangement should resonate for any law department. Did the law department need to hire so many outside lawyers? Did the government’s law department get value for the amount it paid? Should the retention have been done through an open tender system (competitive bidding)? Does the practice of commonly hiring external counsel weaken the development of the law department’s own staff?

This is the kind of blog post that worries me. Am I going to offend the very lawyers I depend on for work? Am I merely being provocative, with no substance? Does this world need to pull any more heroes off pedestals?

I view one of my contributions to be to pull the curtain back on topics not normally addressed (See my post of March 26, 2005 on executive search firms and compensation data, March 7, 2006 on general counsel who hire their former firm, Dec. 9, 2005 on questionable ADR metrics, and Jan. 27, 2006 on dubious calculations of value added by law departments.)

Provocative blog posts are the métier of blogsters. In your face, controversial, over-the-top – let’s rattle the cages, OK?

Sorry, no answer to this. The question came to me as I considered a client of mine where the recently appointed GC had been a partner at a major firm.

I wish someone could study a number of law departments that hired a GC from a firm the department had been using. Then, compare the payments to the former firm for the two years before the GC arrived to the fees paid in the two following years. Wishing for such data, I can nevertheless anticipate some outcomes.

First, fees rise, because the GC trusts that firm, knows the strong partners and associates, and feels a natural affinity for the firm.

BDO Stoy Hayward benchmarked profit per partner at leading law firm in eight European countries, as reported in the Fin. Times, Jan. 16, 2006 at 19. Median profits per partner jumped from €337,900 ($410,000) in 2004 to €406,300 ($493,000) in 2005 – more than 20 percent! The article credits “the return in big-ticket M&A work,” better management in firms, as well as high fee-earner leverage. Leverage ratios in Italy, for example, average 6.4 non-partner lawyers for every partner. For all the haranguing and hand-wringing about holding the line on outside counsel fees, the campaign has faltered at the dare I say high end in Europe.

What might further surprise most Americans, who only hear about Magic Circle firms, is that the Italian law firms are far and away the most profitable. Their partners average €800,000 ($971,000) compared to median UK partner profits of €529,800 ($643,000).

Finally, litigation accounts for the plurality of legal spend on this side of the pond; in Europe last year, however, M&A and banking transactions accounted for 49 percent of the German firms’ work.