Articles Posted in Outside Counsel

Saul Ewing, a Philadelphia-based firm, launched its “cost certainty commitment” in June 2009. Many law firms have agreed to work on various types of matters for a fixed fee, but I cite this particular one because of the publicity surrounding it and because of its specificity. A partner describes the firm’s first two “packaged alternative fee arrangements” in Legal Strat. Rev., Summer 2009 at 7.

Saul Ewing started with (1) “due diligence work for potential mergers and acquisitions” as well as (2) “administrative hearings before the Pennsylvania Insurance Department.” Research by the firm had shown that the firm handles many matters like these, the hours required were fairly predictable, the services could be described and systematized, and there was sufficient market demand.

To complement what this one firm has done, general counsel need to push more of their firms to establish flat rate work – accurately described and based on data analysis research – and then to publicize the initiative (See my post of March 1, 2008: fixed or flat fees with 36 references.).

This memorable quote struck me, but struck me as misguided. The rhetoric, in the sense of the underlying assumptions and method of persuasion, invokes at least these six points.

a) Hire the army connotes big matters. Most legal matters are tactical strikes at the largest, small skirmishes more likely, and do not need more than two people – a partner and an associate.

b) Hire “the army” speaks of army in the singular. The more a general counsel directs work to a small number of law firms, has converged in other words to rely on a few legal armies, the closer the match between the firm and the partner. But convergence is a battle far from won.

Few in-house managers blithely transfer matters underway from one law firm to another, but it happens – or it ought to happen (See my post of Sept. 12, 2008: transfer matters to new counsel with 8 references.). Under various circumstances, including these eleven, switching firms midstream makes sense.

1. Poor service (See my post of Feb. 19, 2007: fire law firms with 8 references and my article.).
2. Unacceptable cost (See post of July 17, 2009: once you “learn the firm’s strategy”.).

From an onging discussion on LinkedIin about secondments, I extracted two ideas offered by in-house attorneys. I added the bold font to highlight the comments:

“I think the only way to begin to secure a free secondee is when you are having a major overhaul of your external providers. Depending on your annual external spend, if you make it clear that you are only going to award work to sufficient firms to ensure they are likely to get at least between £500k and £1M a year there should be enough of an incentive to ask them to include a newly qualified to 2 year pqe [[post-qualification experience], for at least six months a year, as part of their bid submission.”

Another lawyer, also from the UK, added the idea of tiering secondments to fees paid. “We have a standard panel of law firms that goes out for renewal every 2 years. As part of the pricing structure, firms are required to provide a free secondee per a certain amount of legal spend. … Some firms have reached out and offered an hour a week of free advice to help maintain relationships while legal spend decreases overall.”

“Similarly, the parties can and should consider termination premiums in the event that a client abandons the project midstream or, having learned the lawyer’s strategy, opts to engage less-expensive counsel.” This sentence, from Law Practice, Vol. 35, June 2009 at 53, is riddled with quarrelsome points.

No client should owe a law firm anything more than the fees incurred or agreed to be paid, even if a client ends a project, settles a case, or changes direction. No client owes anything to a law firm for future work taken away.

I also think it fanciful that a law department would “learn a strategy,” and then implement it with cheaper counsel. Strategy and implementation are not divorced, I would point out. Further, the idea raises a whole new basis (unlikely though it may be) for when to transition cases (See my post of Sept. 12, 2008: transfer matters to new counsel with 8 references.).

A recent white paper cites an article that says “in order to correctly anticipate potential risks to clients, firms can implement competitive intelligence (CI) programs.” Later, Future Law Office: Delivering Value-Added Legal Services in Challenging Times (Robert Half Legal 2009) at 8, adds that “A law firm CI program should be alert for any developments, trends or regulations that could affect the client adversely. Counsel can then bring these issues to their clients before there is an actual problem” (See my post of May 6, 2009: data mining by law departments and law firms with 10 references.).

A solid lawyer should be eager to tell a client about something spotted on the horizon. Clients appreciate warnings. If this be competitive intelligence, fine, but the term CI gives a sense of much grander activity. It combines client service, differentiation, and indirect marketing.

A series of experiments has found that the more participants there are in a competition, on average the less hard people try. The studies are described in the Economist, July 11, 2009 at 82. It’s as if people have an intuitive sense of their odds, and they ratchet up their effort when the odds are better, slack off when the odds worsen.

If you tell law firms that you send an RFP the names of the other firms, therefore, it should have some effect on their effort. If only three other firms are in the mix, each firm’s proposal team should judge their chances to be better than if there were 25 teams competing (See my post of March 30, 2008: RFP with 22 references.).

Likewise, these studies suggest that the more direct reports there are to a general counsel, the less hard – on average – each one of them will strive to become the next general counsel. Perhaps a bit far-fetched, but there is intuitive plausibility: “My odds are lower/higher, so my ambition will be tempered/heightened.”

1. According to one source, the top 200 law firms in the US earned $84 billion in 2008 (See my post of July 7, 2009: 200 largest US law firms and their revenue in 2008.). I have not seen estimates of what portion of these firms’ fees come from corporate entities – let alone corporations with legal departments, but it seems plausible that 90 percent comes from them (about $76 billion).

2. Another source announced that “The US corporate legal services market generates $96 billion per year in spending of which spending on outside counsel accounts for $64 billion” (See my post of Feb. 26, 2008: estimates total US law department expenditures.). come from the US law firm revenue in their international operations? I have no idea how much revenue the international branches generate, but at least 15 percent might be reasonable.

3. In 2008, the Fortune 500 companies surpassed $10 trillion in revenue. If we assume 0.5 percent of their revenues went to legal costs (excluding fines, judgments and settlements), a benchmark percentage that is middle-of-the-pack, that means about $50 billion, of which roughly 60 percent typically goes to outside counsel — $30 billion (See my post of Oct. 12, 2008: estimate of legal spend by Fortune 500.). Many companies outside the Fortune 500 use external counsel, but surely these giants account for a large portion of US law firm fees.

“Even if a firm has the expertise, if their business and communication style isn’t compatible with ours, it doesn’t really help.” This quote from a general counsel of a small company in Canada comes from Future Law Office: Delivering Value-Added Legal Services in Challenging Times (Robert Half Legal 2009) at 5.

“Business and communication style” conflates impressions of the firm’s billing approach and chemistry (See my post of July 4, 2009: modest value ascribed to “chemistry”.). The more specific aspect is how the partners communicate: quick calls, emails, memos, treatises, in-person, frequently, big picture first or details first …. For some in-house lawyers, however they perceive and value “communication style” is important. De gustibus non est disputandum.

Previous metaposts have compiled my comments on various aspects of law firm marketing: beauty contests, brands, cross-selling, and marketing (See my post of Nov. 28, 2007: law firm brands with 11 references; Jan. 28, 2008: brands, marketing, and cross selling; Dec. 21, 2008: beauty contests with 8 references cited; Feb. 20, 2009: cross-selling by law firm partners with 7 references; and Nov. 5, 2007: law firm marketing with 8 references.)

Other topics written about here highlight various ways law firms seek to market their services, to present themselves well to prospective clients. The truth is, too many topics fall into the bucket of “marketing” for me to sort them all out. Here are just a few examples to show why the distinction is difficult (See my post of June 18, 2009: blogs by leading firms; and July 14, 2009: monthly marketing meetings.): CLE training, consulting, joint recruiting, practice groups, and technology support. It is hard to draw a line and say, “This activity is marketing.”

Some posts straddle other topics, but have significant marketing components (See my post of July 17, 2008: secondment with 12 references; and Jan. 23, 2008: secondments.).