Articles Posted in Outside Counsel

The National Law Journal reports a new requirement from Wal-Mart’s legal group on its outside counsel. “Law firms must have flextime policies if they want to do legal work for Wal-Mart.” Associate general counsel Joseph West told an audience at the annual meeting of the Association of Corporate Counsel in Boston that his his company will add the flextime requirement to its current list of criteria used to evaluate [and I presume to select] outside law firms.

“We’ve found that even those firms that have flextime policies haven’t communicated to attorneys in the firm that it’s OK to use them without fear or shame,” West said.

Here, then, is yet another imposition by a well-meaning legal department on how its law firms should operate. I have written extensively here and in an article about the uses and abuses of interventions (See my post of Aug. 4, 2008: interventions with three posts and 40 references.). This one strikes me at the abusive end. What about nursing rooms, or carpool policies or recycle?

We are in the midst of another broad-scale effort to compile law department evaluations of law firms. This time the Association of Corporate Counsel leads the charge, and claims early in the battle to have lots of cavalry behind it. I have my doubts about the war’s success, but I support the effort.

A long trail of posts here discuss what may be a mirage of collective evaluations by law departments of their law firms (See my post of July 21, 2005: Zagat-style ratings for law firms; April 6, 2007: risks of crowd-hacking on evaluation systems; May 14, 2006: collective, confidential assessments; Nov. 19, 2007: shared ratings of firms; March 20, 2009: benefits to general counsel of pooled ratings of firms; Jan. 25, 2008: Martindale-Hubble and shared assessments; May 12, 2009: pooled evaluations; June 9, 2009: further thoughts on ratings of firms contributed by law departments; Aug. 5, 2009: favorable byproduct of convergence; and Aug. 13, 2009 #3: Kenneth Arrow’s impossibility theorem.).

As with tracking time, entering data into matter management systems and capturing know-how, in-house lawyers see very little benefit to themselves, individually, for their administrative effort of evaluating law firms. They know who they like and don’t like and the rest is a time sponge with no redeeming benefit. Slacking off and disgruntlement are endemic.

How can a general counsel encourage lawyers to complete evaluations, to agree to the importance of consistent effort, and to thoughtfully give insights into the relative performance of law firms?

No inducements or threats really do the trick. A few steps might help. General counsel must do some evaluations themselves and they should consistently and publicly recognize those who submit evaluations. General counsel should create as user-friendly a system as possible, and demonstrate publicly with the data obtained that the time invested makes a difference. Ultimately, they need to strive to create a culture where everyone sees value in it and does it somewhat willingly. A system imposed on lawyers is less likely to prevail than one that the lawyers have a hand in crafting.

“Average reported savings from using matter management systems were 36.8% of outside legal spending.” Incredible, and not to be believed.

The claim comes from the 2008 ACC/Serengeti Managing Outside Counsel Survey, which obtained survey responses from hundreds of ACC-member law departments. I have twice before challenged similar claims drawn from this survey, and won’t repeat my criticisms here (See my post of Aug. 5, 2005: average savings on matter management systems from survey of more than 250 law departments in 2002 was 16%; and April 13, 2007: from same survey in 2006, “average reported savings from using matter management systems was 11% of outside legal spending.”). Little of this do I believe can be substantiated.

I will add three points, the first being that the purported average savings last year doubled the savings of the two previous reports. Doubled! Rob Thomas, who runs the survey for Serengeti and is thoughtful about these operational points, advised me that the average over the past several years has been closer to 10 percent, so last year’s anomalous bulge may be some artifact of the process. Perhaps medians would be more realistic than averages.

Those legal departments whose attorneys grade law firms most commonly do the exercise every six months or once a year. As an alternative choice, departments can follow a policy of evaluations when major matters end.

My objection to semi-annual or annual reviews comes down to mélange. Everything that happens during the period goes into the stew pot. Good, bad and indifferent swirl together in a dimly remembered mix. Whereas, at the end of a matter, the evaluation focuses on one team, doing one kind of legal service.

Unfortunately, that neatness comes at a cost – long time delays, sometimes. You can’t very well evaluate a litigation firm after four years of work on a case (See my post of Nov. 16, 2005: evaluations of law firms with 9 references.). You may not even know that a matter has concluded. For those reasons, the best solution is to evaluate matter by matter when enough has been spent on a firm to create useful insights, or on a schedule, whichever comes first.

“Am I competent to handle this problem or should I check with outside counsel?” Regrettably, some in-house counsel choose poorly. More regrettably, the less competent lawyers choose the most poorly.

“When we lack a particular skill we not only overestimate our capabilities, but we are also blissfully ignorant of our failings.” A harsh finding of psychology researchers, but as summarized in ACC Docket, Vol. 28, Sept. 2009 at 124, in-house lawyers may fall prey to believing they are sufficiently experienced to cope with a situation, when the better course would be to call a partner who truly knows the law.

The column doesn’t mince words about our intellectual hubris: “The worse someone is at a particular task, the more likely he is to have unwarranted optimism about completing it. The greater a person’s skill, the more accurate his predictions will be.” Know what you know and know what you don’t know, and have the wisdom to recognize the difference (See my post of Sept. 9, 2009: tough-guy, we can do it, attitude of inside lawyers.).

“Comparing individual law firms’ forecasts against the company’s actual spend with those firms is a useful key performance indicator.” That belief – matter budgets compared to actuals tell something – comes from an article in the Practical Law J., Vol. 1, Nov. 2009 at 70, about the 100-lawyer department of Computer Sciences Corporation (CSC). CSC asks law firms engaged by it to “forecast their likely billings on a monthly basis” and then pores over how the forecasts turn out.

If you make a fuss about the accuracy of a monthly forecast, firms are likely to forecast high, because it is better to come in below the budget than to break it. But budgets that are consistently overly-generous harm the fiscal integrity of the process. The goal is not to predict high spending but to better manage spending and even reduce it.

On the downside, a firm knowing its budgets are being watched may bump up its hours to hit its budget for a month, a pernicious practice akin to companies smoothing out their earnings to hit quarterly projections. The end run distorts the ends sought. Law departments ought to be pleased if firms accomplish the services needed from them for less than they had anticipated.

One senior in-house lawyer I know likes to get invoices in draft form. His defense of that practice is that once a firm sends a bill in final form, any write offs or changes cause internal problems for the firm. Secondarily, he believes that the draft reminds them that a bill is subject to law department review and scrutiny.

But his two-step process takes more internal time for it requires a double review (See my post of March 2, 2008: bill review with 25 references; and April 13, 2009: signing off on bill review with 6 references.). Far better to get final-form bills, many of which are approved as submitted, and let law firms deal with those few bills sent back marked down or corrected (if the firm even wants to submit a revised bill).

Some large law departments have set up teams whose job it is to review bills of outside counsel. I don’t favor that approach.

First, anything a team can do should be something e-billing software can do, such as checking for arithmetic mistakes, mis-billings, staffing infractions, and violations of guidelines.

Second, review teams suffer from the same problem as third-party bill auditors: they become overly aggressive. When someone unfamiliar with the particular matter reviews bills, and is measured on how many dollars are cut, the result degenerates to over-slashing and ill-feeling.

The ACC Docket, Vol. 27, Oct. 2009 on an ad after page 64, describes a cost saving result for outside counsel expenses that is nothing short of astonishing.

When Bruce Futterer became general counsel of General Electric Canada in January 2007, “he went to all the law firms that he knew or suspected were being used to provide services” for the company. Along with that effort, the law department identified “21 practice areas (or ‘rooms’) of legal services to be provided, narrowed the scope of external law firms providing those services, aligned them by “practice room” and achieved significant value creation along the way.”

In different words, Futterer converged his firms and focused them by areas of law. Each area of law has seven or eight firms that provide services. What amazed me is the next line. “Futterer shares that the law department also realized a 23% incremental value creation during the first year of this new strategic provider program.”