Articles Posted in Outside Counsel

At the recent Georgetown Law Conference on the evolution of law firms, a panelist from Clifford Chance (Sally Fiona King) explained that the firm now requires associates who are considered for partnership to have passed one of two requirements. Either they have worked for significant amounts of time in another Clifford Chance office or they have succeeded at a secondment to a client of at least six months, if not a year or more.

What a change the secondment option (actually, a requirement choice) will bring about if many law firms institute that policy! Heretofore, law departments drove secondments, primarily as a way to fill a temporary hole in their ranks, but increasingly as a cost-reduction method. In future, if many law firms clamor to place their partnership-track associates inside for extended periods, the incidence of secondment will jump and the costs to legal departments will plummet.

A few days ago I tackled four objections of Rich Baer, Qwest’s general counsel, to fixed fees, and perhaps brought them to the ground (See my post of March 16, 2010: criticisms of billing arrangements that are based on fixed fees.). If he reads my blog and wants to rebut, I welcome his comments and of course those of readers.

But Baer did not mention three other drawbacks that plague fixed fees: does your legal department have enough projected work in an area to justify fixed fees, how do you set the figure, and might the transaction costs and delays snuff out the benefits.

Volume: A rule of thumb I have used as a consultant is that a law department needs to foresee external fees of at least $400,000 a year to justify the hire of a new lawyer to handle that work. It seems plausible to me that a similar volume has to be in prospect over a period of at least two years for a fixed-fee arrangement to make sense to the department and to the firm it selects.

A study I wish someone would do would compile several lists of “who represents corporate America.” Each company on the list would have a number for their position on the Fortune 1000 list. Each law firm listed as representing a company would have a number for its position on the National Law Journal 250 list. Firms not on that list would have a number that extrapolates from the NLJ 250 based on the number of lawyers in the firm.

My hypothesis is that company size and average law firm size significantly correlate. If for each company you average the rankings of the law firms it turns to the most, I predict that as you move up the Fortune 1000 list the average law firm rank increases in step. Obviously, we don’t know the amount spent on each law firm, but the overall trend lines should rise in parallel.

If my hypothesis holds (See my post of June 24, 2009: the null hypothesis.), it is even more surprising that total legal spending shrinks as companies grow.

In a recent presentation, a senior lawyer of a major manufacturing company described his law department’s model for how to staff a lawsuit. More, he described the approximate percentage of time and cost the company believes is appropriate for each role.

It starts with a lawyer they call a “barrister,” a senior trial lawyer who sets strategy, heads the team, and can be either an inside lawyer or a partner from a firm. Next on the team is a “solicitor,” who coordinates discovery efforts, trial preparation, and serves as second chair at trial. The solicitor might likewise be from either the department or a firm even if the “barrister” is an outside counsel.

A combination of a “case manager,” who serves as a project manager to some extent, one or more contractors armed with e-discovery software, and an LPO provider constitute a third part of the team. Fourthly, there is a role for a staff attorney or paralegal to do research, draft motions and pleadings, and handle exhibits.

Richard Baer, general counsel of Qwest Communications, recently made several points against fixed fees. He gave four reasons for his opposition to them in an interview by Corp. Counsel, March 2010 at 18. His points don’t persuade me.

Baer begins with the view that a firm operating under a fixed-fee agreement may be misaligned with its client’s goals “because the firm wants to do as little as possible to maximize its profit margins.” Yet just a paragraph before Baer argues that with hourly billing, good lawyers don’t gouge because they want to be retained over and over in the future. The same logic applies to firms that represent a company under a fixed fee.

Second, Baer frets that the firm might “use people who may not be qualified to do the work.” But a legal department that negotiates a fixed fee does not thereby abandon the choice of staff to the firm. Rather, as with hourly billing, it can select the core staff that it wants to see on the matter and propose a rough distribution of their time.

Lawyers in-house who manage law firms may want to consider a network of firms in some circumstances. Here are two more of them.

“Law Europe EEIG is a group of 25 law firms, principally located in Europe but with members in the United States, Brazil and India. With more than 600 lawyers, the group is able to offer a full cross border service to clients. … [M]embers of the group meet regularly at conferences hosted by one of the member firms. In addition there is an inter-firm lawyer exchange programme to develop a wider understanding of the different legal systems. Law Europe is committed to the highest standards of professional ethics, and one of its board’s principal functions is the supervision of quality control. …

Currently Law Europe is expanding its membership to provide representation not only in every European jurisdiction, but also in major financial centres outside Europe.”

One of the provisions in the Council on Litigation Management’s Litigation Guidelines (Para. XIV) establishes the right of a legal department to go back over bills even after the department has paid them. “These audits may be conducted at your office or we may request that specific files and documentation be shipped to a different location.” There are several other entitlements covered and the clear statement that “Expenses associated with the preparation of the files for the audit is [sic] not billable.”

It’s hard to imagine when a general counsel would invoke such a right unless there were reason to suspect severe billing irregularities (See my post of Dec. 27, 2008: bill auditors with 15 references.).

Inside lawyers squawk about internal conferences at law firms and how timekeepers bill for them. Partners squawk back, because they understand that it is valuable to consult with peers, delegate work, and share knowledge, the purposes, that is, of internal meetings and conference calls.

Even so, general counsel have rolled out a number of techniques to try to limit opportunities for what they perceive as abuse from padded intra-firm gatherings.

1. Only one person can bill at an internal conference, even if that person has the highest hourly rate. Or limit the billing to the second highest rate.

An interview of Stasia Kelly, the controversial general counsel of AIG who recently resigned, appears in Fortune, March 1, 2010 at 48-49. Kelly explains her relationship with Bob Willumstad, who took over as CEO and was her boss. One critical event was a meeting between Tim Geithner (than head of the NY Fed) and Willumstad about whether AIG, an insurance company, might qualify for government assistance. A few legal issues were present, just possibly? But did Kelly even know about the meeting? Listen to Kelly:

“Not directly. Bob operated mainly through outside counsel. That was unusual. I’ve got to be honest with you: I’m used to being consigliore, and I wasn’t. It’s hard to have outside counsel knowing more than you do but that was Bob’s style, and as CEO, he got to do what he wanted.”

That must be the resigned position of many general counsel: the boss does what the boss wants to do. Meanwhile, tell me again who is held responsible for legal problems and the legal budget?

In Met. Corp. Counsel, Vol. 18, Feb. 2010 at 11, a partner at Weil, Gotshal & Manges (James Quinn) summarized one of the insights the firm derived from a client satisfaction survey. The firm identified “an overwhelming desire on the part of clients to get to know and work directly with our associates. The sophisticated clients understand that the associates of the ones doing a lot of the work. They want to know who they are, meet them and judge their competence for themselves.”

It makes absolute sense to know the lawyers charging time to your matters, including the associates. We mostly read about prohibitions on firms’ use of first and second year associates (See my post of May 11, 2007: complaints about associates with 13 references.). But I also hear in-house lawyers commend the use of associates who are five-to-seven years out of law school because they often provide excellent value. In any case, if you have a core team of lawyers at a firm, you should make an effort to know them not only professionally but also personally. Finally, and somewhat snarkily, a huge firm like Weil Gotshal operates with leverage, so they want to hear that clients want to work directly with their associates.