Articles Posted in Outside Counsel

A long article describes Pfizer’s dramatic move to have 19 law firms handle more than three-quarters of its US spend on fixed fees. The article is Corp. Counsel, Vol. 17, Jan. 2010 at 66, 70. (See my post of March 1, 2008: fixed or flat fees with 36 references).

Embedded in it are two points worth highlighting.

The first is that the firms like their newfound freedom to allocate resources as they choose – it’s their own dollars they are investing, after all. Harnessed to the yoke of hourly billing, clients are wont to intervene much more in how law firms get their work done. When the payments are fixed, firms enjoy much more latitude.

Moves are afoot to rate law firms (See my post of Dec. 14, 2009: good ideas from an ADR rating system; and Nov. 5, 2009: collective assessments by law departments of their firms with 10 references.). It’s a laudable goal, but naturally there will be some slips twixt cup and lip.

One slip that hasn’t been mentioned is the neutrality of rating classification systems. An excellent article in Admin. Sciences Q’tly, Vol. 54, Dec. 2009 at 555, discusses how US brokerage firms rate and classify producers’ securities. This stock is a “buy,” that one a “hold.” For law firms, for example, classification schemes might be “A 5-star firm, a 4-star firm …,” “a practice area champion,” “Top 25 in the country,” etc.

The main point of the article is that raters use their classification schemes –– to further their own organizational purposes. Not surprisingly, “Although rating systems facilitate exchange between producers and audiences, they also have particular value for rating organizations themselves.” Rather than seeking an objective, transparent formula, the raters alter aspects of their work to serve themselves. No one is disinterested, everyone wants an edge, and as we enter a period where there are multiple systems striving to evaluate the performance of outside counsel, we should recognize that those systems compete and that competition will influence how they rate, whom they rate, and the rating system itself.

The General Counsel Survey 2009 from the Belgium-based consultants, FrahanBlondé, delves thoughtfully into the relationship partner system. I am going to blog on portions of it, but to purchase a full copy of this excellent report, please email Antoine Frahan.

The authors make the point that preferences vary among general counsel. “Some want the relationship partner to be heavily involved in the caseload, some prefer one with a more detached position.” I lean toward involvement but I appreciate that detachment serves both sides well. The more detached, however, the more you serve mostly as a neutral conduit, which takes time and may distort the message of the client. Ultimately, the client service partner will want specifics and will want to explore ways to respond.

The other aspect that the Survey comments on is the level of formality of the arrangement. Some general counsel “like a well-structured framework, while others prefer informal contacts.” Here, I lean toward clear expectations but loose arrangements. Both sides should understand clearly the purpose and powers of the relationship partner arrangement but how it actually functions month to month can and should change with circumstances.

Research on reputations of law firms among corporate purchasers of legal services confirms previous findings and adds a couple of unusual ones. The research, from Strategies: The J. of Legal Mkting., Vol. 11, Nov./Dec. 2009 at 14, aims to “examine the role of reputation in the purchasing process and to understand how reputation judgments are made.” The three authors confirm that a law firm’s reputation “is a key determinant in a company’s decision to retain that firm, as well as to the decision to maintain and grow an existing relationship.” Also, they contend, the partner’s renown is often as important as the firm’s.

One unusual finding is that clients importantly form judgments about a firm’s reputation based on its “good corporate citizenship,” which is “the degree to which the firm is perceived to support its community.” I’m surprised, having never heard of that attribute. Moreover, that aspect of a firm must primarily depend on the firm being local to the client so that the client has some way to assess the firm’s contribution to the residents around it.

Another dimension of reputation “involves the extent to which the firm is perceived to maintain high ethical standards.” Similarly surprised by this attribute, I do not know how a legal department can make objective, comparative judgments about the ethical standards of the firms it uses. Ideally clients would take integrity and moral behavior into account, but I doubt that in-house attorneys do this more than in a fragmented, anecdotal way, if at all (See my post of Nov. 28, 2007: brand and law firms with 11 references.)

An article in Acad. Mgt. Perspectives, Vol. 23, Nov. 2009 at 71, breaks down more than 2,000 mergers or acquisitions announced in Europe between 2001 and 2007. Among the many findings, one table shows the average number of days it took to complete a transaction, broken down by deal sizes in five ranges. The timeframes ranged from 123 days to 161 days. Other breakdowns give average days to completion by country, type of transaction, and payment method.

A legal department that retains a firm to assist it on such a transaction will be much better informed with information along these lines if it tries to fashion an incentive arrangement for the firm (See my post of Feb. 25, 2008: practice area benchmarks with 24 references.). Not all performance measures need come from law departments or law firms.

Results from the 2009 AIPLA Economic Survey at 138-141 show that the cost of the average patent lawsuit, $5 million in 2007, has increased 10 percent to $5.5 million. The same article in Met. Corp. Counsel, Vol. 17, Dec. 2009 at 26, by an Akin Gump partner, notes some other spending metrics. Sanford Warren writes: “Since 2001, the cost of patent, trademark and copyright lawsuits has risen 48 percent, 38 percent and 73 percent respectively.”

Those cost increases, on the order of 5-8 percent a year, do not strike me as outlandish, not when inflation ran around 2-4 percent a year and e-discovery’s volcano erupted during this period (See my post of Aug. 19, 2009 #3: six metaposts on intellectual property.).

A recent post mentions a survey by Coca-Cola of its law firms on their diversity practices (See my post of Dec. 7, 2009: diversity survey; and April 4, 2006: GE collects diversity metrics from its law firms.). Another post describes a survey by a law department of its firms’ views on e-billing software while a third refers to a survey of a department’s firms on technology tools (See my post of March 26, 2005: help with technology decisions and support.).

Law departments could unleash all kinds of other well-meaning surveys on their legal service providers, such as questionnaires about pro bono, energy conservation, secondments, ethics, flex-time, and in fact any management initiative (See my post of Aug. 20, 2009: statements by general counsel in support of good actions; and Aug. 21, 2009: pro bono statement.).

Distributed judiciously, surveys can benefit law departments without unduly burdening law firms. Overdone, they impose on firms. What I urge general counsel to do, if they issue a survey, is to share the results and to explain how they believe they will act on the data. Second, be sure to fill in your share of surveys of law departments.

An IP litigator at Ogilvy Renault, Patrick Kierans, understands the relationship between the length of litigation and the fees paid: “The cost of litigation is directly proportional to the length of time it takes to complete it.” This quote, from Lexpert (Guide to Leading Cross-Border Litigation Lawyers), Nov. 2009 at 24, leaves the math wonk in me unsettled. I don’t doubt that litigation fees rise over time but I do doubt that the increase is a smooth linear relation. Periods of dormancy, settlement negotiation, court-ordered schedules, and frenetic activity mix together to disrupt a smooth climb (See my post of March 5, 2008: cycle time with 18 references.).

That said, with a group of similar lawsuits it does seem sensible to talk about average monthly burn rates (See my post of May 3, 2009: burn rates of outside counsel with 6 references.). If burn rates make sense, then some formula can capture the upward slope of spending.

Jay Shepherd, who blogs at The Client Revolution, attacks the term “alternative billing.” His comments are at least clever, if not correct. A shortened version follows:

“It’s a terrible term; one that does injustice to the concept. As I’ve said before, it has a seamy connotation to it, like “alternative lifestyle.” It seems vaguely Berkeley or Brookline or (gasp) Vermont, which makes tradition-bound lawyers very uncomfortable. We need an alternative for “alternative.”

And I don’t like the “billing” part any better. First, it makes it seem like the issue is about invoice styles, which makes it more boring than the Tax Code or, say, professional soccer. (“Woo! Another one-nought blowout!”) Second, it places the focus on the law firm and its administration, rather than on the client and the value it is getting.”

If you are interested in a copy of my compendium of posts on management of law firms retained, visit the website of Mitratech, the legal technology company.

Mitratech has graciously agreed to send a copy of the blook to those who visit their site. If you would like to know more about the contents of the blook, please spend a moment on my website. It contains 471 selected posts in 203 pages. The six chapters cover when do you need outside counsel, how do you find them, what billing arrangements make sense, how do you manage them, how do you evaluate their performance, and what other considerations apply. Within each chapter, the posts are organized according to a two-level taxonomy.