Articles Posted in Outside Counsel

Corp. Counsel, June 2010 at 18, contains an interview of Susan Blount, the general counsel of Prudential. She explains the nascent Inclusion Initiative. The “11 large corporations that have signed on have committed to spending a portion of their legal budgets with women- and minority-owned law firms.” The Inclusion pool has reached $30 million so far. With administrative assistance from the National Association of Minority and Women Owned Law Firms (NAMWOLF), the launch group includes Accenture, American Airlines, Comcast, DuPont, Exelon, General Mills, GlaxoSmithKline, and Microsoft.

If the members of the Inclusion Initiative focus on law firms as a whole, the effort will cut against convergence initiatives since they will need to hire a wider set of firms. It will also make retention decisions somewhat more time-consuming and even contentious. Then too, issues with the definition of a qualifying firm will crop up. But the goal of diversification and fairness is admirable. Further, given the smallness of most minority-owned firms, costs will likely decline.

One post begets another, so having just seen off six ways of thinking that favor alternative fees (See my post of June 2, 2010: mental models conducive to non-hourly billing.), my marginalia jottings came up with three more.

Profit model of law firm – partners need to reorient themselves and their firms from selling hours to selling value and results.

Technology – the more that software and telecommunications are enabled to contribute, the more assembly-line production of hours by humans can recede.

“To this day, we are surprised at how many lawyers delegate the coding of their time entirely to their administrative assistants without any attempt to ensure that the resulting output is accurate or useful.” These are the plaintive words of General Electric’s Brackett Denniston and Alex Dimitrief.who updated Bob Haig’s Successful Partnering chapter 14 on billing. Shocking, yes?

No, and let’s be blunt. If in-house lawyers who purport to review bills never slap the wrist of such careless lawyers, or lawyers who write their time entries but make little effort to provide useful information, the sloppy practices will continue. Why bother to detail what was done or the benefit of it if you are not paid to do so and if dereliction has no consequences?

Besides, if the reviewer of a bill spends much time at the level of individual time entries, and doesn’t attend mostly to the overall accomplishments in light of fees, the in-house lawyer is wasting time.

Data comes recently from a survey that had 367 general counsel who responded and whose company had averaged at least one lawsuit per year for five years. “On average, respondent companies were plaintiffs in 18 percent of their cases, defendants in 70 percent of cases, and non-party respondents in 12 percent of cases.” The finding comes from a survey by the Institute for the Advancement of the American Legal System (IAALS), an organization that is part of the University of Denver. The report, which has excellent methodology, is available online. www.du.edu/legalinstitute/form-chieflegal-success.html

I had thought US companies were defendants far more often than this. Partly, however, this finding may be due to the small size of many of the respondents. Large companies may defend cases far more often than initiate cases. It is also surprising to me the relatively high number of cases in which the company is not even a party.

One final fact: “On average, two-thirds of company cases were in state court (66%), while one-third (34%) were in federal court.”

“Our vote for the next important step [in law firm billing] is user-friendly Intranet sites on which clients can secure real-time access to their lawyers’ billing entries.” Part of the advocacy sections on task-based billing, in updated chapter 14 on billing written by Brackett Denniston and Alex Dimitrief of General Electric, I am surprised at this vote.

Only in the most costly matter, where the in-house lawyer genuinely seeks to manage costs – and has the ability and clout to make tough calls – might next-day billing data help the cause (See my post of Oct. 31, 2005: real-time bill information through JennerNet; May 19, 2006: disparages real-time billing information; Oct. 31, 2007: one of my predictions for the future; Dec. 16, 2007: quick review of bills by a third party; Jan. 3, 2008: increase frequency of bills on costly matters; Aug. 28, 2008: cell phone tracking of real-time billing; invoices; and Sept. 28, 2009: who needs “quick look” billing summaries.). Bob Haig’s Successful Partnering series

Bob Haig’s Successful Partnering series has an extensively updated chapter 14 on billing written by General Electric’s Brackett Denniston and Alex Dimitrief. Sections 3 and 4 run nine pages in support of task-based billing. The authors advocate it and see the use of code sets widely: “the decidedly majority view is that task-based billing benefits corporations and law firms in a number of different ways.”

As benefits they cite the “logical format for uniform budgets and bills” that tasked-based billing provides. The accumulation of historical databases of information provides value. Third, in-house managers of outside counsel “are able to group like matters together for purposes of comparison.”

Much is written and said about the UTBMS codes (See my post of Dec. 21, 2008: UTBMS with 8 references.).

Behind selection of the key partner to handle a matter, the most effective way to moderate costs is for thoughtful in-house lawyers to shape, narrow and target the legal services provided by the partner. “Take only those five depositions.” “Don’t draft or negotiate over the risks of the joint venture’s jurisdictional basis.” “Accept indemnification to the maximum of twice annual fees.” “Research no more than three hours on force majeure.”

Decisions to have the law firm that represents you leave some stones unturned will lower your external costs, often dramatically, but somewhere later one of those decision will bite you. Life is too complicated for that not to happen and people are too human not to want to blame, point fingers, and evade accountability.

Unfortunately, the fear of retribution and the urge to toss the hot potato of mistake will clobber cost control efforts going forward. Since effective cost control of outside counsel means decisions, some level of misjudgment – always spotted after the fact – must be tolerated.

My friend Bob Haig, the indefatigable editor of West’s Successful Partnering between Inside and Outside Counsel, kindly sent me the updated chapter 14 on billing. Written by Brackett Denniston and Alex Dimitrief of General Electric, it summarizes nicely the current state of play on law firm billing.

In Section 2, the authors propose six “relatively modest changes” that “will go a long way toward comforting clients that they are sensibly buying value by the hour.” The second change is to “decompress billing scales.” In essence, they urge “a healthy dose of gradualism at all experience levels without an artificial ceiling on the rates for the very best experienced lawyers.”

On their view of an acceptable higher ladder, with more space between the rate rungs, partners who really know what they are doing may well be worth and bill at more than $1,000 an hour. However, firms should not bunch less qualified partners just below the presumed ceiling rate of their best partners and they should slash new associates’ rates. The wisdom of this recommendation is welcome.

Preliminary findings from the 2010 Real Rate Report to be issued by CT TyMetrix in September disabuse us further of the notion that law firms maintain standard billing rates for individual timekeepers.

A handout at the SuperConference about the Report drew on more than $4 billion of bills and 3,448 timekeepers with multiple clients. The headline finding was that “seventy-eight percent of timekeepers bill different rates to different clients.” In some instances the differences were hundreds of dollars an hour.

Be not shocked. A rigid hourly rate for a lawyer – $425 an hour – regardless of the complexity of the services performed, the relationship with the client, the competitive realities, and the varied levels of experience of the lawyer makes no sense (See my post of May 1, 2006: signaling function of standard rates; Aug. 15, 2008: rack rates accounted for 20% of fees; March 5, 2009: de jure “standard hourly rates” but de facto “discount crazy quilt”; March 5, 2009: Serengeti data on “standard billing rates”; and March 20, 2009: six advantages of discounts off standard rates.).

CT TyMetrix recently announced its 2010 Real Rate Report which will issue in September. Meanwhile, a handout at the SuperConference provided data on the 2009 median, weighted, partner hourly rate in the United States. Based on more than $4 billion of bills covering 17,548 law firm partners, all weighted by the number of hours billed by each partner (rather than an average of each partner’s rate, by contrast), the figure after discounts was $340 an hour.

That figure — $340 an hour – may strike some readers as low, but that is because our mental frame, the barrage of news reports we get, harps on $900+ rates of the costliest partners in the largest firms. Those stratospheric charges contrast sharply to the generally prevailing and modest rates in other firms in other parts of the country. Even at that median rate, half the partners bill less (See my post of April 30, 2009: billing rates of partners with 14 posts.).