Articles Posted in Outside Counsel

Cheryl Solomon, general counsel of the Gucci Group, leads a team of 30 lawyers and paralegals worldwide. I interviewed her recently about a number of management topics. One was my belief that general counsel only occasionally get involved with retentions of external counsel. So I asked about her situation (See my post of May 30, 2005: GCs often not part of firm selection; and April 4, 2008: GC’s limited role in firm selection.).

“About once a year I travel to meet my inside counsel and review with them the big ticket matters and get a feel for them and the firms they are using,” she said. “Otherwise, if they think I ought to know about a firm selection, they come and discuss it with me.” Or if they feel she has some knowledge of the firms that might be chosen, e.g., litigation, they will solicit her views. Sometimes she and her team have ongoing discussions about whether they are using the right firm for a particular matter.

Solomon pointed out that “A lot of my reports report to me functionally, not directly, so I could not easily mandate which counsel to use or to change counsel.” Gucci Group is a very decentralized company so sometimes it is hard to know what is a retention of counsel, e.g., trademark agents or firms just for anti-counterfeiting work. Do they each count as a retention?” Also, since “I do plenty of hands on work, I choose counsel for what I work on although, often, we have developed long-term relationships with certain lawyers in particular specialties.”

When lawyers at GE Canada rate external counsel, they state how likely they would recommend the external lawyer to someone else. As explained in the ACC Docket, Vol. 27, Oct. 2009 in an ad supplement by Ogilvy Renault after page 64, lawyers use ratings of 9-10 (“likely to recommend that lawyer to someone else”), 7-8 (“unlikely to recommend”), and 0-6 (“absolutely not”) (See my post of Nov. 8, 2009: overall performance questions on surveys.).

Once all the ratings are in for a firm, someone discards ratings of 7-8 and then subtracts the ratings of 0-6 from ratings of 9-10 to arrive at a net rating score. Ignore the middle, then subtract the low scores from high scores. This methodology applies Frederick Reichheld’s widely used Net Promoter Score (See my post of Oct. 18, 2006: net scores combined.).

“Consumer surplus is the aggregate net benefit that consumers receive from using goods or services after subtracting the price they paid.” This definition of an economist’s term, from MIT Sloan Mgt. Rev., Vol. 51, Fall 2009 at 95, hearkens back to what I have written about the effort to measure and generate more value from law firms (See my post of Aug. 21, 2009: value compared to fees paid with 22 references.). Consumer surplus, in other words, is what general counsel who authorize payments to law firms want to maximize.

Law firm partners, too, should be as much interested in pinning down value (aka consumer surplus) as are general counsel. They would like to keep the consumer surplus from going too high as the cost of legal information and some services sink toward zero on the Internet. The cost will also drop, and consumer surplus rise, due to offshore competition, new models of law firms, pricing pressure, and disruptive technologies – but the shift in consumer surplus will be gradual and each change has precedents.

I often see, and as often doubt the value of, one particular question at the end of forms for in-house lawyers to evaluate the firms they use: “Overall, how would you rate the firm?”(See my post of Nov. 16, 2005: evaluations of law firms with 9 references.).

If you have asked direct and comprehensive questions about manifestations of firm performance, you can easily compile those responses and create an overall rating. To ask for an additional, all-in rating is over-kill. Furthermore, such a grand appraisal hardly seems very reliable as it must be an agglomeration of disparate impressions. Better, in my opinion, to analyze the more specific ratings and even weight them.

Rather than distribute hardcopy updates to outside counsel guidelines (environment forbid!) or even tediously email them items that have to be updated, move into the 21st century. Insert where appropriate in your guidelines language to the effect of “We expect your firm to check our online update to these guidelines” and include a URL to a site where you publish changes (See my post of July 11, 2008: guidelines for outside counsel with 16 references.).

One situation for this technique is updates on policies regarding disbursements (See my post of Dec. 1, 2006: disbursements of law firms with 7 references.). Another is a list of corporate entities for firms to use to check conflicts. A third could be revisions to budget forms or task codes.

Among the deepest and darkest secrets of law department land, what they recover in malpractice claims lies hidden and buried. Law firms want nothing to come to light and law departments for their part are probably embarrassed. Even preening departments that strut around claiming to be profit centers do not wish to tack on settlements from wrong-footed law firms. Given the delicacy of malpractice claims and recoveries, we have a very long time to wait for benchmarks.

Nevertheless, for readers who wish to delve into what this blog offers, I have collected eight prior posts (See my post of Nov. 24, 2007: advantage of inside counsel is no malpractice premium; Feb. 16, 2006: malpractice recoveries and the billing rate gap; Dec. 28, 2006: insurance policies back up formal opinions of counsel; March 11, 2007: contract lawyers affect a firm’s malpractice insurance; Nov. 10, 2007: arbitration clauses that govern fee disputes with outside counsel; Jan. 10, 2008 #1: a large US firm that can’t arbitrate fee disputes; Oct. 8, 2007: IBM, retired lawyers and malpractice; and Oct. 22, 2009: law firms dislike giving oral advice.).

Long, long ago I zeroed in on law firm assessments (See my post of Nov. 16, 2005: evaluations of law firms with 9 references.). Since way back in ’05, this blog has accumulated many more posts on the topic. Examples of specific law departments and their evaluation process or forms number seven posts (See my post of March 10, 2006: NCR and its evaluations of firms; May 19, 2006: BP’s 30-factor evaluation form; Feb. 25, 2007: Caterpillar’s evaluation process; May 17, 2006: Exelon’s three-survey process; Nov. 20, 2006: law-firm evaluations at FMC and inducements to inside lawyers; July 2, 2007: six attributes to evaluate; and April 15, 2009: FMC’s six-factor form.). A couple of elements to be evaluated include budgeting and diversity (See my post of Dec. 19, 2006: predictive accuracy of outside counsel on budgets; and Dec. 5, 2008: diversity performance.).

Other posts of recent vintage tackle uses of law firm evaluations and challenges to them (See my post of May 14, 2006: evaluations of law firms; Aug. 20, 2006: evaluations as part of an index of performance; Nov. 20, 2006: at FMC, lawyers can’t close a matter without an evaluation; May 18, 2007: relationship manager best positioned to do evaluations; May 24, 2006: 20% of large law departments do not evaluate firms; Oct. 22, 2006: law departments poorly analyze firm performance; May 23, 2008: client satisfaction surveys only obliquely judge outside counsel; and April 16, 2009: abandon formal evaluations.).

Finally, this would not be a metapost without some stragglers (See my post of April 25, 2009: an asymmetric commitment under ACC Value Challenge; May 16, 2009: prediction market as to highest evaluation of law firms; and Oct. 22, 2008: published law firm ratings with 11 references.).

E-billing software applies rules to invoices, such as “no person can bill more than 10 hours in a day,” or “time of unapproved billers will be rejected.” But rules are made to be broken, and some in-house lawyers consistently break a lot of rules.

One measure to take against flagrant rule flouters is to have the software track which lawyers let slide which rules, how often, and for how much in fees or disbursements.

If a general counsel approves of monitoring the monitors, it gives the rules teeth; they are not gummy guidelines that one can disregard with impunity.

We are all defensive, so if a law department lawyer criticizes a law firm, the partner who hears the criticism (and tries dutifully to acknowledge it, appreciate it, take it to heart as constructive advice) inwardly may seethe and deny. The partner wishes deeply to hear a real instance of the problem.

The wish deserves granting. Make sure your lawyers sprinkle through their evaluations comments on specific situations that justify the criticism, not just conclusory, high-level remarks. “On the X brief, the Y memo and the Z letter you got the draft to me too late for a careful review” backs up a criticism much better than does “You’re often late.”

As well, useful assessments offer a comparative view: “Your firm was the weakest of our primary firms on delegation of work.” Sometimes feedback relies on measurable characteristics such as effective billing rates, cycle time, or percentage use of core staff. Benchmarks give even more crunchiness to firm-to-firm evaluations (See my post of Nov. 16, 2005: evaluations of law firms with 9 references.).

If you ask your lawyers to evaluate the importance of various attributes of law firms – responsiveness, knowledge of the law, creativity and the like – you should also ask your lawyers to indicate the importance to them of the attributes.

This extra question addresses the same reason you should ask on client satisfaction surveys for ratings on the relative importance of your department’s performance attributes (See my post of Oct. 26, 2005: gap analysis of rating and its importance; and Nov. 28, 2008: relative importance of measurements on a balanced scorecard.). Scores on attributes make only as much difference as the attributes are important. A high score on penmanship doesn’t counteract a low score on the ability to achieve results (See my post of Nov. 16, 2005: evaluations of law firms with 9 references.).