Articles Posted in Outside Counsel

Recently I put myself in the shoes of an opponent of competitive bids to select firms and came up with six arguments, in quotes below. Let me now unlace those shoes (See my post of Sept. 22, 2010: opposition to competitive selections.).

1. “The process risks disclosure of too much sensitive information about the company’s external counsel spending and legal profile.” Non disclosure agreements protect you. Furthermore, most of the data in an RFP has little competitive value, if any (See my post

2. “Responses from the firms, while proclaiming uniqueness, all sound about the same. Marketing polish has homogenized proposal material.” Often true, but you can always ask fresh questions or insist on specific metrics. Along with that, prohibit generic marketing material in the proposal.

All general counsel complain that their budget this year is swollen by some anomalous and uncontrollable charges. Their company bought another company and whacking big legal fees came with that acquisition. The plant closing of four years ago erupted discrimination claims. A crazy class action came out of the blue. Each year usually brings a costly surprise or two that was not predictable (See my post of Aug. 9, 2009: eight myths procurement professionals harbor.).

Despite these budget body-blows, what we might call “baseline spend” by legal departments holds fairly steady most years in relation to corporate revenue. The unusual usually happens against the background drone of the typical. The world of law departments needs a defined, consensual term such as “baseline external spend” for the normal pace of spending. Aside from the unpredictable volatile matter, baseline legal spend explains a good portion of external legal spend (See my post of Oct. 2, 2006: base spend.).

Firms bill more when settlement discussions are underway. That is the belief of some in-house litigators. When a responsible partner realizes that the trough may soon be emptied by resolution of the case, lots of thirsty timekeepers crowd in to drink deeply.

Alternatively and legitimately, the time immediately before settlement brings much work, late hours, demands for specialists, and high bills just naturally, somewhat like fees spike in the period just before and during trial. In fact, settlement discussions and pre-trial frenzy often happen at the same time (See my post of May 6, 2009: does the burn rate rise the longer a case lasts; and May 20, 2005: burn rate jumps during trial.).

The former general counsel of Bombardier urges in the ACC Docket, Sept. 2010 at Supp. 7, a link in addition to relationship partners between a legal department and its primary law firms. Daniel Desjardins “believes that it is equally important – for both the firm and the law department – to have direct channels of communication between the GC and the firm’s managing partner.”

Necessarily this would apply to only a few firms given time commitments on both sides. Necessarily this requires coordination between the general counsel and the oversight lawyer inside so that they don’t contradict. Necessarily this means more briefings and preparation. All things considered, I would not consider this necessary or a worthwhile idea.

Rather than paraphrase, here is the surprising quote from an interview with the former general counsel of Bombardier: The Canadian company’s GC “requires key firms that work with his law department [to] invest in whatever systems they need to provide the Bombardier law department with the data and information it needs – at no cost to Bombardier. This should be part of how the firm does business.” Quite an in-your-face position!

This provocative quote is found in the ACC Docket, Sept. 2010 at Supp. 8. Its premise stands up acceptably – expect more from you primary firms – but its scope troubles. No law firm can genuinely commit to invest from its own purse in whatever software capabilities a client would like. Such an open-ended promise should alarm the partnership (See my post of Aug. 4, 2008: interventions with three posts and 40 references.).

Serengeti’s survey data from 2009 shows that “the use of law firm extranets decreased again this year with only 8.7% of the respondents using an extranet provided by at least one of their firms (continuing to decline each year from a high of 30% in 2003).” The explanation given in the short item in the ACC Docket, Sept. 2010 at 16, is that in-house lawyers “find it inconvenient to have to go to multiple law firm extranets to find their information.” While that bother may explain some of the decline, other factors might also be at work.

For example, mergers and acquisitions fell off dramatically during 2009 so one major impetus for using an extranet – due diligence – also declined. Second, and a less likely cause, could be convergence. If your department uses fewer law firms, the likelihood of one of them having and offering an extranet drops some. Third, other methods of storing documents for collective use may have edged out extranets, regardless of extranets’ convenience or ease of use. Fourth, relative to substitute methods, extranets may not have fallen in cost as much. Finally, if the implication is that legal departments have increasingly hosted their own extranet, that may not be true if specialist providers other than law firms have offered better value propositions (See my post of Sept. 8, 2010: extranet services.).

Evaluations of long-serving law firms by inside lawyers who work with them inevitably shift to high scores and little differentiation in results. If the lawyers did not like the firm, they would have used them less or not at all, barring political over-rides that mandated use. It becomes rating your favorite deserts – all are tasty: what is gained from cleaning when the pool is already carefully filtered?

A more fruitful use of time might be for in-house lawyers to evaluate the fringe firms, the ones that have not embedded themselves through good service over a period of time. The risk of that approach wears the face of complacency, beams alike on law firms and internal lawyers when relationships reach the maturity of long-standing and short attention.

This blog frets quite a lot about entrenched law firms and their sense of entitlement matched by declining effort (See my post of May 1, 2005: the dark side of partnering; Dec. 16, 2005: complacency among entrenched firms; Feb. 15, 2006: panel selections in Europe; Nov. 11, 2007: don’t praise firms so that they don’t become settled; Oct. 10, 2008: competitive bids attack entitlement; Dec. 14, 2008: low rate of firing entrenched firms; and Feb. 22, 2009: ten clues to the onset of complacency by your primary law firms; and April 16, 2009: incumbent firms with 11 references.).

Here is a speculative suggestion. Double blind evaluate a few matter budgets of outside counsel and the outcomes of those matters. Follow the bouncing red ball below.

A lawyer who was not involved in the matter should rate the success of the outcome, from what was reasonably known and anticipatable when the budget was first submitted, on a scale of 1 to 10 where a 1 was a complete success. Someone else also not involved should rate adherence to the original budget on a scale of 1 to 10 where 1 came in well under budget. The ideal matter achieved its purposes fully for less than the firm anticipated at the start it would charge – a total of two. A complete mess, a matter that went to hell in a hand basket and the basket overflowed with huge invoices, would be a twenty.

This periodic, objective appraisal and quantification should be part of a post mortem on why results and costs were or were not in alignment (See my post of May 27, 2008: post mortems with 7 references; and April 27, 2010: post mortems with 7 references.).

A piece in the NYSBA J., Sept. 2010 at 28, by Silvia Hodges, includes the ubiquitous sentence: “Ever-increasing cost pressure in companies has shifted the power from the law firms to the clients.” Wait a minute.

What about management skills increasing among in-house lawyers? What about greater transparency in data on external counsel spend? What about greater sophistication in the tools for selecting and supervising outside counsel and a less docile, colonized state of mind? What about a shift in the view of what the role of the law department is and how it should function? What about incursions by the sourcing function of companies? All these are reasons other than cost pressure for changes in the relationship between buyers and sellers of legal services.

If clients wield more purchasing clout now, itself a debatable proposition, it may flow from the barrel of more knowledge and skills, not simply a ham-fisted demand for fewer dollars in fees.

Wicker Park Group last year announced that it had surveyed general counsel at major companies and found that “100 percent of respondents visited a law firm’s website when evaluating and purchasing legal services.” That unanimous finding boggles me but given the infrequency with which general counsel get involved in the selection of a firm, perhaps the au courant tool, Google and time on a website, has that much currency.

More realistically found Wicker Park, “90 percent said that the attorney bios section is the most important section of a law firm’s website – and the one they visit most.” (italics in original). The quoted text comes from Strategies, July 2010 at 11. It is logical that what the online inquirers want to learn is about individual lawyers, not the firm as a whole. Law departments hire lawyers.