Articles Posted in Outside Counsel

An article in the Economist, Sept. 12, 2009 at 82, cites projections that the lawyers and others who will be awarded fees in the bankruptcy of Lehman Brothers might reap nearly $1 billion, “well above the $757 million they received after Enron’s demise, the record for a bankruptcy case.” Then comes the zinger.

“It is frustratingly hard to say how much value for money these professionals provide.” That statement should give pause to proponents of value billing.

Chapter 11 reorganizations follow well-understood paths; the firms that represent creditors committees and debtors in large bankruptcies are very skilled and possessed of deep experience; specialized judges assess fee requests and ponder the studied objections of creditors and others. Even so, the article makes clear it is very difficult for judges to assess whether the debtors and other parties receive equivalent value in services for the huge fees awarded.

The question is, how can a general counsel know what a bedrock cost is to handle a set of services? I have advised previously not to tell firms in an RFP what you spent historically, because that will frame their thinking around the numbers you provide. I thought it a better practice to tell approximately how many hours of lawyer service the historical workload required (See my post of Dec. 5, 2005: use hours of lawyer work, not amounts paid.).

Unfortunately, both dollars and hours may be misleading guides because they may have been swollen with inefficiencies. It should not be a triumph to say, “Our competitive process knocked eight percent off the extrapolated trend of hours or dollars,” since the fundamental number – what would the most efficient firm require today to handle the work competently – is still lost in the mist. Historical data that oozed from inefficient management should not frame competitive pricing and processes for the future.

My previous posts about the ACC Value Challenge have presented various facets of it, but not fundamentally challenged its value, so to speak (See my post of Oct. 22, 2008: normal fees for high quality work; Oct. 19, 2008: complaints about law firm associates; Nov. 21, 2008: deconstruction of its definition of value; April 25, 2009: reciprocal commitments; April 25, 2009: asymmetric commitments; April 29, 2007: not game changing; and Sept. 9, 2009: “move away from RFP mentality.).

Then a comment showed up on my blog, from a general counsel. “I find the ACC Value Challenge appalling. I want no part of it. They define “value” wrong — a fancy, multi-faceted relationship. In fact, value is a good outcome at a good price. Period.”

Hmmmm. As I reflect further on the covenants, they do seem oriented more toward meeting the needs of law firms than of law departments. Managing partners want full-range, deep and lasting relationships; they give much shorter shrift to how to corral the stupendous costs of corporate legal services. The commenter hit the nail on the head.

These ten questions to answer will help you shape a successful secondment. They come from Mark Prebble, Managing In-House Legal Services: Providing High Value Support for Your Organisation (Thorogood 2009) at 73 .

1. What should the outcome of the secondment be in terms of benefit for the department, its secondee, and the firm?

2. What is this secondee going to be doing?

Let’s tap on the shoulder some of the dancers that contend for the honor of the most effective way to lower spending on outside counsel. The winning dancer pirouettes at the end.

Sourcing and procurement techniques. No matter how skillfully a legal department, perhaps working with sourcing brethren, selects counsel and negotiates rates, there remains the far more determinative management of the firm during the matter.

Technology. Armed to the teeth with software and hardware that is the latest and greatest, a law department can easily end up significantly over paying external counsel. Software alone won’t save.

Having considered the infrequent reasons why legal departments select firms in Asia, let’s look at the infrequent concerns the same survey respondents expressed about dealing with law firms (See my post of Sept. 9, 2009: long-tail reasons for selecting firms.).

The bottom ten of the 16 total reasons were “work performed slowly/inefficiently”; “Missed deadline”; “Lack of involvement by partners”; “Frequent turnover of associates”; “Ethical conflict”; “Change of responsible partner”; “Personality conflict”; “Deteriorating brand name/reputation”; “Other reasons”; and “Bad firm publicity.” These reasons come from a survey by and published in Asian-Counsel, e-edition, Vol. 7, July/Aug. at 28.

Is an “ethical conflict” worse than a “conflict of interest”? Is a “deteriorating brand” different than “bad firm publicity”?

A survey conducted by Asian-Counsel e-edition, Vol. 7, July/Aug. at 26, published findings about the factors which most influenced the respondents’ choice of outside counsel. Many times I have written about the leading factors (expertise, responsiveness, fees, reputation and the like); only rarely have I mentioned the long tail of other factors. To remedy that slight, here are the ten factors that had the lowest percentage of respondents who chose them. The percentages decline from about 22 percent to about 3 percent.

“Free know-how”; “Lawyers with certain cultural/language skills”; “Company list of approved counsel”; “Brand name of firm”; “Size of firm”; “Other reasons”; “Low turnover”; “IT utilisation”; “Reach/office location”; and “Requirements of insurance company.”

Two comments. Given the polyglot jurisdictions across Asia, lawyers fluent in certain languages would certainly be a plus. Turnover rates stand out for me because I do not know how a legal department could have comparative data; then again, if a firm they are using suffers from chronic exoduses, there is no need for a comparison.

An article in Strategies: J. of Legal Marketing, Vol. 11, Aug. 2009 at 4, offers thoughts by Susan Hackett Hackett@acc.com about the ACC Value Challenge. Along the way she explains that the initiative is trying to move away from the billable hour, and then continues with a sentence that seems out of touch with the real world. “Likewise, we will push for a movement away from the RFP mentality of too many law departments. Some of these departments have forgotten it is necessary to reward firms that respond to the client’s call for value-based practices and make large-scale institutional changes to their business methods, staffing, compensation service models in order to provide them.” (emphasis added)

Reward firms? More business is a firm’s reward and RFPs help decide which of them deserve it. Law department managers do not toss off RFPs as trivial exercises, a ho-hum way to pick counsel. From conferences, reading widely and consulting, I sense nothing like an “RFP mentality” prevalent among US law departments. If “RFP mentality” means an effort to bring more market knowledge and discipline to selection of law firms, yes, that is slowly arriving and long overdue. Well-run firms should not bleat and moan.

Were general counsel to find a law firm that in meaningful ways embodied in its business model more cost consciousness and value delivered than is normally found among firms today, those general counsel would be glad to forgo RFPs and turn more extensively to that law firm.

For many years, and possibly continuing today, Law Office Management & Administration Report (LOMAR) published a cost-of-living index for about ten major US cities. As I recall it, the monthly table used prices in New York City on a certain date as the index of 100, and showed the other cities as a percentage of that index.

A legal department that studies the effective billing rates of its law firms could use the LOMAR cost index or a comparable one to see whether the rates of the various firms are comparable after adjusting their primary city’s cost of living. One difficulty with this match up is that larger firms provide services from lawyers in multiple cities. Still, cost-of-living indices serve as a tool to normalize effective billing rates.

We too often resort to factually emaciated RFPs, doling out facts on an as needed basis, restricting the questions that can be asked, and limiting due diligence. Telling the firms who are proposing too much takes time, runs risks, and leads to little gain, supporters of limited information would argue. The law firms that bid feel starved for enough data.

A different approach is to sit with key partners of a trusted and familiar law firm, share with them completely your ledgers and matter management information, and hammer out an arrangement based on both sides equally analyzing and understanding the available data.

Moreover, an RFP process can consume huge blocks of time; to circumvent it by negotiations with a known service provider can be very efficient, although it mutes the market discipline of competition. Still, to be able to offer the portfolio of work to other firms always hangs in the background should the negotiations fall through.