Articles Posted in Outside Counsel

Thanks to Ron Friedman for this pointer: the American Lawyer (July 2005) reports that the General Counsel of FMC, Jeffrey Carr, plans to create a Web site to rate law firms. I think that’s a great idea. We would not want it to become like voting for baseball All-Stars, a matter of anyone logging on and adding ratings. There needs to be some assurance that the raters are disinterested. Ay, there’s the rub.

About 18 months ago, BTI Consulting Group surveyed more than 180 Fortune 1000 corporate counsel. One question on this topic gave respondents 11 choices.

The number one response, with 23% selecting it, was “share information electronically.” I presume this means that in-house counsel gain productivity and skill – perform better — when their law firms provide electronic forms or precedent documents. Secondarily, if a memo of law, an update on developments, or guidelines on how to do something comes electronically, it can be filed, found readily, and improve the in-house lawyer’s productivity. (I do not think the phrase was meant to cover electronic bills.)

Next most frequently chosen as what law firms could do to help their counterparts perform better was “offer training” (14% — which could be for the corporate lawyer or for their clients, I wager). Five actions tied at 9% each: “work efficiently,” “understand my business,” “be responsive,” “partner with me,” and “reduce overall costs.” The final four were tied at 5%: “provide quality,” “improve yourself,” “be more creative,” and “use collaborative technology.” Some of these choices are silly (work efficiently, improve, think).

Bruce McEwan’s thoughtful blawg, Adam Smith, Esq. describes Allen & Overy’s disclosure of its GAAP-compliant, full description of its financials – including partner compensation.

If such financial transparency gains a following, clients may appreciate it. Clients will have reliable data on which to assess some aspects of law firm performance. Then again, disclosing gross profit margins like A&O’s 36.7% may mean that honesty is punished when law departments seek discounts and savings from what they perceive as swollen profits.

Kevin Silverang is the EVP and Chief Legal Counsel of O’Neill Properties Group, which handles environmental cleanups, as well as the senior partner of a four lawyer firm that handles O’Neill’s legal work. He is a corporate executive and a law firm partner. Silverang’s firm can serve select other clients; Silverang also retains outside counsel for specialty work in which his firm lacks expertise, such as litigation, tax, labor and zoning.

This hybrid of a senior company executive also running the firm that does most of the company’s legal work somewhat resembles outsourcing (ala Continental Bank in 1991) and somewhat resembles arrangements like Ted Tetzlaff, who was both a partner at a firm and a company executive. More details in GC Mid-Atlantic, June 2005 at 24.

I can’t help but feel that conflicts of interest will bit this arrangement. To warp a hoary saying, “Too many hats ruin the broth.”

A thoughtful book on the consulting industry, Business Consulting, by Gilbert Toppin and Fiona Czerniawaska, introduces this buzzword to describe the situation where “some clienta are encouraging consortia of [consulting] firms to work together on a more equitable basis, with their own staff taking on the central coordination role.” (pg. 168). Interesting, but not apposite for law firms.

Coordinating counsel, such as one firm to ride herd on hundreds of similar drug cases around the country, often using local counsel, would be a cousin of multi-sourcing. True multi-sourcing, however, would be equal firms paired to achieve an end, such as a good litigation firm teamed as an equal with a good IP boutique in a patent infringement case or a Delaware corporate firm teamed with a securities law specialist firm for a hostile takeover. Multi-sourcing of law firms hasn’t surfaced much, to my knowledge. (Although I suppose huge problems bring in slews of firms, think Exxon Valdez; the key idea of multi-sourcing seems to be, however, that the firms work closely together.)

The 16th annual CLT survey gushes, “peace at last.” If this be peace between firms and departments, I would hate to see war.

Aside from two inconclusive questions on alternative billing , four others aim directly at cost control efforts by law firms. For each the 295 law department respondents agreed, disagreed, or chose “neutral.” For example, “Most law firms pad their bills” had 36% agreeing, 37% disagreeing, and 28% neutral (with rounding). Those who answered neutral did not have any view either way? How does it sound if someone asks “Is your spouse cheating on you?” and you answer, “I’m neutral.” This is to say, “I’m neutral” about most law firm’s cheating on their bills is to damn with faint impartiality. And, when to “reduce costs” is the “single most important thing your primary law firms could do to improve their relationship” got 48% of the votes, how could respondents be agnostic on cost control questions?

But I won’t press this negative impression that neutrality conveys. Ponder the answers to other four statements. “Law firms understand my budget constraints” – 46% disagree (18% neutral), which denies law firm’s sympathy with cost controls. “Most law firms are actively seeking ways to reduce the costs of legal services they provide” – 65% disagree (22% neutral), which means firms couldn’t care less about the size of their fees. “Do your firms generally adhere to budgets you set on matters?” – 42% disagree (14% don’t know), which means if you set limits, they generally bust through them.

According to a recent study we completed, three actions these days are most favored for controlling law firm costs. Three most common cost-control measures:

• Preferred counsel lists, requiring special permission for a corporate lawyer to deviate from it

• Discounts from standard billing rates, whether based on volume, from handling certain kinds of matters, or across the board

The home page of @Court, provider of a “nationwide, Legal XML-compliant electronic filing service,” presents figures about a technique for litigation cost reduction.

Every year, @Court states, more than 370 million documents are filed in state and federal courts, yet only a tiny fraction are filed electronically. Further, “of the $260 billion spent in 1999 on litigation, over $20 billion was spent on support services that include processing, delivering and filing legal documents.” Specifically, “lawyers spend an average of $90 per filing on copying documents, processing checks for payment of court fees, preparing documents for distribution, delivery via couriers or other paper-based system, and related overhead costs.” @Court offers to file electronic documents for $15.

It strikes me that law departments ought to request from their litigation counsel a report on counsel’s use of electronic filing, as well as what they can do to reduce costs by electronically filing more litigation papers.

Legalaffairs (May/June 2005 at pgs 10-12) discusses sending legal work to Indian firms. The editor who wrote the piece, Daniel Brook, notes that “third-party outsourcers … remain popular mostly with corporate legal departments, which use outsourcing to keep costs down.” (He mentions GE and Microsoft.)

He then cites a law professor (Thomas Morgan of GW University Law School): “Bar association ethics rules require law firms to pass on to clients cost savings from outsourcing.” I did not know about such an ethical requirement. If there is one, why would it not apply to cost savings achieved in other ways, such as through investments in technology, training, systems, cost control measures, knowledge management, practice group efficiencies, and more?

Brook’s piece does not pursue this wallet-busting notion, but closes with a different clincher: “In theory, at least, it would take only one big firm looking for a competitive advantage to start a bidding war that could change the cost of buying legal advice in the U.S.” It is already reported that Milbank Tweed has moved word processing work to Chennai, India.

Like many disjunctives, the excluded middle comes closer to the truth. A general counsel leans toward a name brand law firm for matters that put the general counsel at serious risk. No top lawyer furthers his career by pinching dimes but pouring outside counsel fees down the hole of a lost case or failed acquisition.

For more routine work, with lower risks, general counsel – or more likely the direct reports who actually choose which firm to retain – usually think in terms of hiring a particular lawyer, regardless of that lawyer’s firm.

When law firms talk of laterally hiring a new partner, they assume the partner’s clients will follow. “Our firm just hired Chris Jones, who brings a book of business of $2.5 million.” The hiring law firms put their trust in the accuracy of “hire the lawyer.” The opposite of what happened in Jerry McGuire. But firms also market the firm as a whole, putting their trust in branding. Hence, the choice we started with is in fact a spectrum.