Articles Posted in Outside Counsel

Qwest Communications’ General Counsel, an independent thinker for sure, will have none of this alternative fee arrangement stuff. He pours scorn on them in Corp. Counsel, Dec. 2010 at 68, particularly for the complex cases that make up the bulk of Qwest’s legal spend (See my post of March 16, 2010: Baer’s four objections to AFAs and my counters.).

Although I part company with Baer on his objections to AFAs, I like what he suggests about litigation cost drivers. Baer writes memorably that “in litigation, everything can be broken down into the Killer B’s: bits, bipeds, briefs, and bastards.” By that clever mnemonic he means that the drivers of cost and complexity in large cases turn on (1) the amount of megabytes of e-discovery (bytes), (2) the number of witnesses (bipeds), (3) the number of pleadings (briefs), and (4) the aggressiveness of the other side (bastards). Note also that the first three can be quantified readily and that the fourth, obnoxiousness, can be put on a scale. That done, statistical analysis will someday test the relative influence of Mr. B’s swarm.

I have thought that commercial contracts embody the most important legal skills of a department. A core competency, to put it differently, surrounds the preparation, review, negotiation, and interpretation of contracts for the sale of a company’s goods and services (See my post of Dec. 15, 2010: article cited that wonders about contracts.). It therefore surprised me to read in the ACC Docket, Canadian Briefings at 5, that Bell Canada’s legal department has retained an outside firm to “handle its commercial telecommunications agreements on a value-based [fixed] fee arrangement.” Under the three-year deal, the department pays a set quarterly amount for a certain volume of contracts. The department and the firm agreed that if volume is less than 10 percent or more than 20 percent of the negotiated volume they will discuss resetting the threshold.

The piece does not say whether the volume is a block of hours or a number of contracts or some mixture but the department does review hours logged by the firm. The law department is studying whether its in-house lawyers are sending the “right” work to the firm – the temptation would be to load the firm with everything imaginable. The point is also made that turnaround time can shorten if a law firm’s pool of talent can come online during crunch times.

Small companies spend such a high percentage of their revenue on legal matters because of the importance of legal services and their cost. The 2010 ACC/Serengeti Managing Outside Counsel Survey found that companies with less than $100 million in annual revenues spend 0.94% of it on outside counsel. I assume the figure is a median. “For medium companies ($100M to $1B in revenues), the corresponding percentage is much lower at .30%.” As to companies larger than $1 billion, the survey found that they drop the outside counsel percentage another third, to .21%.

Small companies, reluctant to bring a lawyer onboard, rely on outside law firms and perhaps don’t manage them well, so their percentage of spend outside dwarfs that of larger companies that have added a lawyer or more on staff. Data from the General Counsel Metrics global benchmark survey clearly shows a declining trend line for total legal spend as number of lawyers and revenue climb.

The ACC Docket, Nov. 2010 at 12, includes findings from the most recent Serengeti survey. Pay attention to the definition in the one sentence: “Many in-house counsel believe that convergence (i.e., reducing the number of law firms with which a company works on a regular basis) is an effective way to control legal spending.” On a regular basis? I use the term “convergence” to mean a marked reduction in the number of all law firms used, not just a reduction in the regular stable of firms.

A law department could concentrate its spending on fewer key firms but still retain hundreds of other firms for specialized or localized needs. In my dictionary of law department terms, that would not be called “convergence,” but might be called “concentration.” I happen to favor concentration of spending and care little about the total number of firms retained (See my post of Dec. 29, 2009: UTC and 13% get 75% of the spend; March 29, 2010: Dynegy’s concentration of legal spend; and May 29, 2009: measures of law-firm use concentration with 9 references and 1 metapost.).

When law departments mean what they say, “Law firms, bill us on time,” they generally include in their guidelines something like “Invoices that are submitted more than 75 days after the date of the earlier time record may be delayed or not paid.” Another method to make the point is to take a discount, such as 10 percent, but go ahead and pay the invoice.

Should the discount apply only to the late time or to all the time? I would suggest the entire bill because that creates more clout. You could also have discount tiers, such as 15% for 90 day laggards.

When this technique came up at a recent conference, the law department that applies the ten percent discount said that it did not apply that stick to bills from law firms outside the United States. Billing discipline weakens beyond the borders.

A general counsel explained four rules law firms need to follow “to get and to keep us as a client.” (1) “Be extremely smart and know your subject matter.” (2) “Do perfect work.” (3) “Tell us the truth; we can handle it.” And (4) “Charge us the right amount for the project.”

These rules disgruntle me. Very few people are “extremely smart” and no one does perfect work. Most partners in law firms likely possess above average intelligence, but that is at best a wide notch below outstanding intelligence. Most professionals do good work, often very good work, but perfection is unattainable here on earth. Contrary to my experience, this high-standards general counsel writes in the ACC Docket, Oct. 2010 at 33 “There are lots of really smart lawyers out there with teams of associates who do perfect work.” Feels like an inflated Lake Woebegone effect.

These first two rules, nettlesome and exaggerated, perturb me less than the honesty rule. The example given of an “unvarnished truth” is when a partner confides that the company’s position in a law suit may be vulnerable. Such a truth! In litigation all positions have vulnerabilities, so the bombshell honesty feels false.

In a variety of circumstances a general counsel has to decide whether to stick with a particular partner who leaves a firm or to keep matters with the abandoned firm. The cause of the rupture might be a merger (of the law firm or of the company), internal changes within the law firm such as decline of a practice group or loss of clout by the partner, collapse of a firm; conflicts of interest, or most commonly the resignation of a partner to join another law firm. Do you move your matters along with the departing partner or do you stay with the prior firm?

This blog has accumulated a substantial body of posts on the topic. Several metaposts address the decision directly (See my post of Nov. 29, 2010: move work when partner moves with 6 references; Aug. 4, 2008: loyalty to law firms with 6 references; and Sept. 12, 2008: transfer matters to new counsel with 8 references.).

Sometimes, what may appear to be a client dumping (firing) a firm may result from the defection of one or more key partners (See my post of Feb. 19, 2007: fire law firms with 8 references and my article.).

One of the five initiatives undertaken by the 40 lawyers of media company ITV was described briefly by the Financial Times. The law department won the newspaper’s annual award for being the most innovative law department. The initiative of note to me was that when ITV slashed its panel from 45 law firms to 9 “the team negotiated a ‘first call’ with its partner firms for free.” Nothing more appears about this benefit in the squib published online but what I presume ITV negotiated could be quite valuable.

I can imagine that a phone call to a partner to outline a possible issue or ask a question about it could be the “first call” – perhaps even the last call. Brief responses, no research required, no associate time, no meetings or memos, just straight from the lip of an experienced partner, ought to be part of a commitment by the handful of firms that get the most of your legal work (See my post of Oct. 12, 2010: all-you-can eat retainers.).

As I read through the thumbnail descriptions of why 18 law departments were singled out as innovative, two initiatives jumped out at me. Convergence was cited for three of the law departments (ITV shrank its rolls from 45 firms to 9, Network Rail reduced its panel to 5, and Ladbrokes pared its panel from 85 firms to 10) yet the law department at Novo Nordisk bucked the pattern as it “uses smaller law firms to better control external legal costs.” It may be that the tide of convergence continues in, but I believe it creates a costly undertow.

Legal process outsourcing figured in the citations of three departments. Novo Nordisk “developed a captive outsourcing function” in India, Carillion began an arrangement with an LPO provider, and Unilever’s trademark group is “using Baker & McKenzie’s Manila operation for 24-hour outsourcing.”

The law departments of the companies mentioned above had other qualities that earned them high rankings, but certainly these are two signs of the times that some law departments are transforming their relationships with external service providers.

Pulling together my most recent posts on partnering gave me occasion to reflect on points I have not covered previously. The notion of partnering leaves me dubious, but more can be said, especially from the law firm side, than just criticisms.

You need to consider the law firm side. Does a partner get origination credit or billing credit for your account? If so, it is harder to see the firm as a whole partnering with you.

Only if there are multiple partners working significantly with multiple in-house lawyers does the term partnering seem to make sense. Connections at multiple contact points over time create genuine closeness between a firm and a department.