Articles Posted in Outside Counsel

A consultant I know argues that a law department can’t just hire Robin, a partner at a firm, because Robin (or the firm) will insist that the entourage of junior partners and associates who orbit and serve Robin also work on Robin’s matters.

I disagree. The inside lawyer who manages Robin’s matters can very easily specify that only Robin may bill on the matter, presuming the matter falls into the category of legal advice and counsel where no research, document review, or drafting is needed. In other words, where legal counsel and advice dominate, the mind of one person is all that is needed. That kind of retention you could call cherry-picking, but the term is pejorative while the practice is not.

Several years ago, a very large law department appointed one of its lawyers to serve as the conflicts maven. Enough issues arose with firms seeking waivers or encountering potential conflicts that the general counsel thought it best to concentrate the department’s learning and to coordinate its responses. Not that the lawyer untangled knots full time, but when an interpretation or decision was called for on a law firm potentially being crossways to the company, that lawyer, the conflicts SME, decided what to do (See my post of April 20, 2008: conflicts of interest with 24 references.).

During the 30 months since my first metapost on law firm conflicts of interest, another metapost has coalesced (See my post of Sept. 7, 2008: alternative fee arrangements and conflicts; Jan. 11, 2009: companies retain plaintiff’s counsel to defend them; Feb. 18, 2009: blanket waivers and conflicts policies; Feb. 26, 2009: banks agree among themselves to lighten conflicts rules; April 25, 2009: ACC Value Challenge and reciprocal commitments; June 4, 2009: secondments and conflicts of interest; Sept. 9, 2009: ethical conflicts compared; April 16, 2010: loyalty defined by Tom Sager; April 21, 2010: agency theory; and Sept. 9, 2010: Sony Ericsson’s deliberate efforts to conflict firms out.).

Several years ago, a very large law department appointed one of its lawyers to serve as the conflicts maven. Enough issues arose with firms seeking waivers or encountering potential conflicts that the general counsel thought it best to concentrate the department’s learning and to coordinate its responses. Not that the lawyer untangled knots full time, but when an interpretation or decision was called for on a law firm potentially being crossways to the company, that lawyer, the conflicts SME, decided what to do (See my post of April 20, 2008: conflicts of interest with 24 references.).

During the 30 months since my first metapost on law firm conflicts of interest, another metapost has coalesced (See my post of Sept. 7, 2008: alternative fee arrangements and conflicts; Jan. 11, 2009: companies retain plaintiff’s counsel to defend them; Feb. 18, 2009: blanket waivers and conflicts policies; Feb. 26, 2009: banks agree among themselves to lighten conflicts rules; April 25, 2009: ACC Value Challenge and reciprocal commitments; June 4, 2009: secondments and conflicts of interest; Sept. 9, 2009: ethical conflicts compared; April 16, 2010: loyalty defined by Tom Sager; April 21, 2010: agency theory; and Sept. 9, 2010: Sony Ericsson’s deliberate efforts to conflict firms out.).

Back in the day, outside counsel made in-house calls. They came to the offices of corporate clients. Back then they plied calling cards in pay phones, admired correcto-type on Selectrics, smoked in offices, and licked stamps on envelopes. Proximity mattered in the kindler, gentler and slower eras gone by.

Today, with BlueTooth devices, texting, instant messaging, PDFs shot by email, voicemail automatically forwarded or transcribed, e-rooms, videoconferences, holographic virtualization (just wanted to see if you were actually paying attention), PDAs of every kind, built in webcams …Who even knows or needs to know where the peripatetic counsel is at this moment? The location of a partner matters hardly at all once you have met someone a couple of times and worked with them on a couple of matters.

Liking law firm partners for quality of work, cost-effectiveness, and results can blur into liking partners personally, or degenerate to liking them because of reasons not related to their merits. Rewarding friends, doling out fees for benefits, indulging in favoritism: it happens.

How might a general counsel guard against selections of counsel that are not merit based (and, by the way, the more senior the lawyer the more opportunities and fewer guards)? You can have choices of counsel vetted by a more senior lawyer; you can set strictures against the use of incumbents; you can make sure evaluations of law firms come from several lawyers; you can look at patterns of use in matter management systems; you can mandate new blood for some percentage of fees. Then too, you can hire scrupled lawyers.

In the end, the inside lawyer remains responsible for the performance of the outside partner. Poor choices of partners, driven by reasons apart from quality and cost, will at some time burn the retaining lawyer. As the general counsel, you don’t want bad results to spotlight favoritism in hiring firms, so consider some of the precautions noted above.

One of the speakers at the DataCert conference, J. L. Novak, General Counsel of AOL Paid Services, devoted a few impassioned minutes to explaining why vendor accruals and their accuracy are important to him. Evidently, if he misses an accrual, he is forced to walk through the CFO’s hot coals, and this he does not like!

His advice to peers: make sure your accrual figures are pretty close to the actual amount of the bills that arrive later and therefore push your law firms to save you from the coals (See my post of Oct.1, 2006: keep executives and CFO advised; Aug. 24, 2005: accruals; Sept. 17, 2005 #4: accruals; Dec. 21, 2008: should your produce monthly accrual figures?; March 11, 2009: Calgon GC possibly fired for blowing a big accrual; and June 1, 2009: US legal departments have to report incurred but unpaid legal fees.).

The peripatetic Richard Susskind keynoted the recent DataCert conference, Generals of the Revolution. During his remarks he said that Thames Water had outsourced its entire legal department this year to the UK firm Berwin Leighton Paisner (BLP). The law firm agreed to provide the utility with all its legal services for a fixed annual fee.

Shades of Continental Bank in 1990 closing down its 63-lawyer department and signing on with Mayer Brown!

Based on its website, the law firm has crafted a partial arrangement with another client. Emboldened by its experience with Thames Water, “BLP has taken over on an exclusive basis the management of all employment law services to Colt, Europe’s leading information delivery platform.” General counsel would do well to explore arrangements like this with the law firms they trust.

Rich Baer, the general counsel of Quest, spoke last week at DataCert’s Generals of the Revolution. He explained that he had organized a group of general counsel in the Denver area to meet and discuss best practices regarding reserve setting. That was innovative, simply to pull together the experience of peers, so even more impressively he went further. He urged the attendees to invite a litigation partner so that their experiences could fold into the mix.

I commend this approach for both aspects: collective efforts by law departments and integration with law firms. In this situation, the law firm partners probably loved the chance to mingle with potential clients.

Richard Susskind, the author of The End Of Lawyers? Rethinking the Nature of Legal Services (Oxford 2008), spoke recently at the DataCert conference, Generals of the Revolution. As he sees it, law departments under pressure to control costs and spending have two basic choices. They can follow an efficiency strategy whereby they cut both labor and line items (headcount and spending), commoditize work, or engage in what he calls multi-sourcing. Perhaps this also includes triage and it certainly includes technology.

Alternatively (or simultaneously) they can follow a collaboration strategy. They can share certain costs of legal services with other law departments, they can harness the power of information technology, or they can gain embrace online communities. Perhaps this includes collaboration with internal clients, either through self-service methods or preventive law training.

A veteran in-house lawyer ruminated on the importance of law firms accumulating familiarity with their clients business, strategies, and employees. In his view, for one-off major law suits such background history and knowledge may have almost nothing to add. The fact of the case have to be learned so previous encounters with the client and learning about the company tip no scales.

In contrast, securities law filings, anti-trust analyses, patent applications, and FCPA compliance, to name a few areas of representation, fare better if the firm handling them brings to bear some background on the client’s operations and history. So too with widespread litigation of similar cases; being steeped in the pre-litigation past and the wave of lawsuits brings powerful benefits.

The presumed depth of understanding law firms accumulate has been considered here (See my post of March 15, 2006: convergence and purported institutional knowledge; July 21, 2006 disputing the putative losses from transition to a new firm; Dec. 6, 2006: retrograde effects of institutional knowledge; Feb. 1, 2007: institutional knowledge at law firms, yet much mobility of partners; and Nov. 19, 2009: transaction cost economics and institutional knowledge.).