Articles Posted in Outside Counsel

At ACCA’s 2001 Annual Meeting, the General Counsel of FMC Technologies (Jeffrey Carr) explained that his company asked law firms to include their internal costs (presumably phone calls, faxes, copies, messengers, legal research) in their rates. A few costs, such as out-of-state travel and court reporter fees, are exempt from this requirement. See also his article in the ACCA Docket, Jan. 2001.) (See my post of April 18, 2005 estimating 10% of invoices are for disbursements.)

A book based on interviews of 787 Chicago lawyers in 1994-5, “Urban Lawyers: The New Social Structure of the Bar,” offers some data that is meaningful for law department managers (Legalaffairs, Nov./Dec. 2005 at 61). “Partners at major law firms told the study’s authors that approximately one-third of all proposed clients had to be referred outside the firm because of conflicts between the interests of the proposed clients and existing clients.” (id at 62) One supposes litigation matters account for most of the disqualifying conflicts, but other kinds of representation may also fall afoul. Also, the smaller the law firm, presumably, the lower the odds of a conflict.

Even if you identify a lawyer at a firm that you would like to handle a matter, there is close to a 33 percent chance that conflicts will bar that lawyer from taking it on. If directionally correct today, that fact alone makes convergence of law firms exceedingly difficult.

I don’t think so, despite this sentence in a summary of Corporate Legal Times and Dickstein Shapiro’s Survey of CEOs, “40 percent of CEO’s are ‘very involved’ in their company’s selection of outside counsel, while only 23 percent leave the decision entirely to the company’s head lawyer.” (Oct. 2005 at 50). (See my post of Sept. 13, 2005 about the Board of Carey choosing counsel.)

Almost two thirds of the survey population were CEOs of companies smaller than $500 million. From the small companies dominating the survey, several speculations follow. Those companies mostly have only two or three lawyers, at most, so the CEOs thumb on the scale weighing outside counsel might well be heavier than in larger departments. Second, the lawyer in a smaller firm advising the CEO is likely to be less experienced than the CLOs of major companies.

A third reason for the 40 percent finding could be that the CEOs of smaller companies dominate decisions generally, not just in the legal sphere; they founded it, they made it, and by golly they run it! Too, the CEOs who responded remember the times they were consulted or picked a law firm, but they may not know all the times the CLO chose a lawyer without fuss, bother and CEO consultation. Finally, checking off “very involved” strokes the egos of CEOs.

Faegre & Benson has 55 permanent staff in its internal consulting firm, “which develops and implements document strategies,” and is somewhat loosely named its Client Technology Services. According to a post dated Sept. 12, 2005 at Minnesota Lawyer, the group’s members advise on processes, analysis of data, performance metrics, accountability and other aspects of handling documents.

The brief mention limits me on commenting further, but I am impressed that this law firm has such a capability. Surely, taking for granted comparable legal prowess and competitive economics, in an era of discovery-cost landslides this capability should distinguish the firm in the eyes of law departments. The group allows the firm to offer something special, and to create enviable “stickiness.”

That law firms are demanding more billable hours from their associates has become received truth. Whether law departments are paying more because the firms they use have pressured their lawyers to bill with a heavier hand remains unclear.

Perhaps law departments should ask their key law firms to state at year’s end the total hours billed by each lawyer who did a significant amount of work for the department. If it got that data, could it legitimately conclude anything useful?

What if the ten lawyers who charged the department the most hours all billed more than 2,000 hours? That killing pace doesn’t necessarily dilute the quality of the hours they billed the department or suggest padding. After all, busy lawyers are those thought well of by partners. Still, it might cause a law department to wonder about bench-strength, delegation, burnout, and team effectiveness at the firm.

Norman Bradburn, a Senior Fellow at the National Opinion Research Center, explains in an article (Legalaffairs, Nov.-Dec. 2005 at 24) differences between ranking and rating. (See my posts of April 27, 2005 on ranking knowledge management techniques, May 4, 2005 on forced ranking of employees, and Aug. 27, 2005 on ranking constraints to growth.)

Take a law department that decides to rank the top 50 firms it uses on such attributes as cost effectiveness, quality of legal work, responsiveness, diversity, knowledge of the company, inter-personal appeal, and technology prowess. The department’s lawyers assess the firms they have worked with using a score of 1 (low) to 5 (high) on each factor. Adding all the scores for all the firms lets the department rank them, with the highest ranking firm having the most total points.

Four problems crop up. The ranking suggests that the distance, for example, between the top ranked firm and the second is the same as the distance between the second and third ranked firms, when in fact the scores may be further apart or closer together.

Previous posts have explored payment on the lack of effect on law firm’s cost consciousness (May 4, 2005), law firms generally rejecting prompt payment discounts (Aug. 24, 2005), the logistics of earning such discounts (Aug. 27, 2005), and net 30 terms (Sept. 14, 2005).

Three additional points merit comment. Only a handful of law firm relationships – the most significant, long-term ones — justify consideration of discounts for accelerated review and payment of invoices (the saying comes to mind of “horses for courses”). Point two is that a law department might achieve the same end by negotiating a monthly retainer payment that likely covers 80 percent or so of the typical monthly billings. It is also true that law departments, despite good intentions and readily achievable savings, may not be able to push accounts payable to speed up the payment cycle.

Law firms, facing the retirement or career slow down of a relationship partner to a major client, give thought to grooming a successor, but do they plan for that eventuality jointly with the client law department? Probably not.

Chemistry and trust and long-familiarity have a tenuousness, a personal adhesion, that makes the baton pass problematic. If the client is running the race with the firm, however, a smooth transfer is more likely.

Some lawyers in firms harbor mistaken notions about their law department clients. What follows is a sample:

“They see our firm as unique providers of high value work.” Bubble-burst: To most senior lawyers in law departments, many firms seem fungible, equally good at handling much of the work sent outside and virtually undistinguishable from each other.

“In-house lawyers are inferior, since they couldn’t make it at a law firm.” Bubble-burst: Many fine lawyers go in-house to avoid Sisyphean selling, to see Apollo (not just Stygian darkness) every now and then, and because the Achilles heel of external counsel is distance from the actual business.

What if a small practice group at a very large firm were handling a significant number of matters for a company? If that group seceded, and continued on but with much lower overhead and assurances from the law department of a steady flow of work, the newly-formed firm and the law department would both benefit. More profit for the former; lower costs and established talent for the latter. The arrangement would not have to be exclusive.

Since many departments do not have enough work of their own to sustain a break-away firm, another possibility arises. I can imagine two or three law departments combining to promise the fledgling firm a steady supply of work, in return for considerably lower rates and even more devoted attention.