Articles Posted in Outside Counsel

Yes, hourly billing rates near $1,000 draw the ire of in-house lawyers. But at an Ark conference this week, a general counsel panel made the point that general counsel often wish they could get more time from the very same, expensive partner. It is that lawyer’s judgment and ability to change direction (innovate) that provides so much more value than all the lower-cost drudges churning away below.

Something like the borscht belt joke about the food being so bad and the portions so small, senior lawyers inside moan about the meter ticking so fast and that they get so little time.

Everyone spends most of their time discussing expensive, large-scale matters staffed with platoons of lawyers, with the apotheosis being the “bet-the-company” lawsuit. Rare events, those, and thank goodness (See my post of Feb. 28, 2006 chastising the over-use of that term.).

It occurred to me at a recent Ark conference that we do not have data on the percentage of matters handled by outside counsel where 75 percent or more of the time is logged by a single partner together with a single associate or paralegal. My hypothesis is that more matters are thus thinly staffed than we realize, possibly more than half of all matters. One riot, one range applies more often than we may think. But I have no numbers to back up my guess.

Is this a defensible hypothesis? Has any reader seen any data to refute or support it?

I modified the header from a quote in an article to be published by Mitt Regan, Co-Director of the Center for the Study of the Legal Profession. The article discusses offshoring legal services (at 113) and whether distinguished firms fear to tarnish their reputations if they stoop to using offshore resources. Part of Regan’s comments revolve are his perception that law departments today rely less on reputation and status and more on objective, quantifiable assessments. “Firms also may believe that clients are starting to rely more on metrics than reputation or status in evaluating law firms’ services.” These metrics include internal rating systems, external league tables and comments, and benchmarks.

Some slight inroads may have been made by metrics, but overwhelmingly subjective impressions about a firm and its services carry the day. A reputation, however earned and manifested, and a firm’s status, whatever ranking ladder is used, means a great deal when a general counsel calls a firm (See my post of Nov. 14, 2005: survey and reputation as an attribute; March 13, 2006: partner reputation more important than firm reputation in survey; May 4, 2007: general counsel don’t hire a law firm because of the firm’s “prestige”; May 23, 2007: firm’s reputation makes a difference, but it must sway senior executives; Dec. 17, 2007: incumbent advantages; Jan. 21, 2008: unconvincing difference between brand and reputation; Sept. 12, 2008: the ethical reputation of a law firm; March 25, 2009: more survey rankings of reputation; and Jan. 5, 2010: corporate citizenship and ethical standards as part of reputation.).

Whatever a clever law firm devises, competitors will soon learn and sooner thereafter adopt. This inability to capture the major rewards may discourage law firms from incurring the cost of developing innovations. This obstacle comes from an article to be published by Mitt Regan, Co-Director of the Center for the Study of the Legal Profession, that discusses offshoring legal services (at 143). In his view, since law firms enjoy no intellectual property protection for any innovations they develop, they don’t bother to come up with significant new advances. Firms are also torn between publicizing their progressive steps and protecting those steps from competitors.

The article mentions another reason why law firms might be reluctant to test new arrangements. “[L]aw firm financial structure may discourage investment in innovation. Firms distribute their profits to partners at the end of each year. Many do not hold back the equivalent of retained earnings for investment in the firm, in part because of fear that profitable partners leave for more lucrative options and other firms.” If a new idea takes capital or defers profit, the compensation expectations of partners (“right now!”) discourages both.

A gloomy picture, this, in terms of legal departments hoping for new thinking from their law firms (See my post of May 4, 2005: law firms not being innovative or being rewarded for new thinking; Sept. 10, 2005: law firms are not first movers; Feb. 11, 2007 on the lack of creativity by law firms; Oct. 30, 2005 #3: survey data on creativity; May 16, 2006: more survey data; and July 21, 2005: the low value law departments place on law firm creativity.).

Consider this quote from a law review article. “Furthermore, the allocation of responsibility has shifted over time, as junior partners now do what senior partners used to, senior associates do work formerly done by junior partners, junior associates the tasks that used to be done by senior associates, paralegals taking on responsibilities formerly borne by junior associates, and technology substituting for some tasks paralegals used to do.” It comes from an article to be published by Mitt Regan, Co-Director of the Center for the Study of the Legal Profession“ that discusses offshoring legal services (at 113).

Delegation to the lowest-cost, capable person (or software) is exactly what general counsel want. But iff the pattern has been for law firms to move work down the experience and cost ladder, it makes the increases in external legal costs over those years even more startling.

A survey of corporate lawyers conducted by Serengetti asked them to scale their own resistance to alternative fee arrangements (AFA) and their perception of law firm resistance to AFAs. On the scale given, a 1 means “no resistance”; a 3 presumably means moderate resistance; and a 5 a “great deal of resistance.”

The corporate lawyers overall gave themselves a 1.7, indicating relatively little resistance. But they clobbered law firms: 3.2. As I might phrase it, “We are open to AFAs, you partners are Luddite refusniks!” This finding, embellished a tad by me, comes from the ACC Docket, April 2010 at 12, which offers no additional explanation.

It is unclear whether the question asked respondents to consider US law firms as a whole, or it might have limited the respondents to law firms they work with.

Very few general counsel try to have their key law firms cooperate with each other. The exceptions that prove the rule, notably DuPont, don’t share their methods to evaluate the degree and usefulness of their firms sharing information and playing well in the sandbox.

It would be possible for a law department to ask each of its key firm two questions: (1) “Please describe any instances in the past six months where you sought material assistance from another key firm and name the firm.”

(2) “Please describe any instances in the past six months where you materially assisted another key firm.”

Squire, Sanders & Dempsey offers it clients, at no charge, “periodic detailed case reviews by senior litigation leadership.” As presented in the ACC Docket, March 2010 at 10, “litigation practice leaders and others periodically meet with case team leaders – at no additional cost to clients – to discuss case themes, staffing and budget and to address client concerns and questions.” Does this imply that clients are present during the meetings? I would think not.

Trust me, this is a solid idea to improve client service. Law departments might consider requesting something like this on major matters.

Not one to mince words, the general counsel of Cisco, Mark Chandler, dropped that grenade on an audience primarily of law firm partners at the recent Georgetown Law Conference on Law Firm Evolution. He explained that efforts by partners to persuade him to hire one of their colleagues “have more to do with money than expertise.”

Lest there be any doubt, he quoted an old chestnut: “Never believe a vendor unless they say, ‘I can’t’.” (See my post of Feb. 20, 2009: cross-selling by law firm partners with 7 references.).

An unpublished paper by Michele DeStafano Beardslee and three co-authors at the Georgetown Conference on the Future of Law Firms at 4, emphasizes the baleful effects of information asymmetry regarding the quality of service provided by law firms. She takes the perspective of an economist and stresses that “credence goods” like legal services pose problems because “quality is not verifiable ex post.” (I think she means “ex ante,” or before the service is obtained.) (See my post of Sept. 7, 2008: information asymmetry with 7 references.).

While it is true that an in-house lawyer who hires a partner to accomplish something cannot touch and feel the service to be gotten, that lawyer can talk with the partner from the beginning of the matter, get budgets, look at work product, review bills, and direct the service. It is a credence good but it gets shaped and evaluated every day, or can be test every day if the in-house supervising attorney is so inclined.

Moreover, the partner does not know and understand 100 percent what the in-house lawyer wants and needs. The asymmetry exists to some degree on both sides. But both lawyers share in the creation of the legal service.