Articles Posted in Outside Counsel

Do some law firms charge different rates in different cities for partners who have the same levels of experience? I have heard that some law firms have offered to implement a cap on the rates of their higher-end partners (See my post of Dec. 31, 2006: cost of living and partner rates.). More appropriately for this blog, what would the repercussions be if a general counsel decreed that the law department would not pay more than the median billing rate of any group of similar partners?

A policy such as this might incur higher travel costs, assuming distant partners with lower rates chip in, but that is a small price to pay (See my post of Sept. 21, 2005: law departments can internally arbitrage compensation differentials; and June 15, 2006: the use of associates from lower-cost cities.). To start this technique, ask for the rates of comparable lawyers in different locations.

Firm managers try to grapple clients to the entire firm: “BigCorp is a client of BigFirm!” Firm partners strive to become the trusted advisor of a person: “LitAGC turns to me for BigMatters and Small!” General counsel come down on both sides of the debate: sometimes firms, sometimes partners. Note that the ACC Covenant with Counsel sides with the firm managers: “[Clients will] help nurture an enduring relationship with the firm, not just individual lawyers” (See my post of April 27, 2009: exegesis on the Covenant.).

General counsel favor big name law firms (ergo, big firms) for big matters. Non-lawyers are more likely to be impressed (and if things go wrong, possibly consoled) by a name-brand law firm than by an individual partner. Admittedly, a handful of partners reach marquee stature, but in general, to pick the firm over the partner plays to the small number of law firms that executives, Board Members, and institutional shareholders recognize. The well-known choice plays best for major league matters.

Efforts to cement an institutional connection between a firm and a department start on the law firm’s side with the relationship partner (See my post of July 26, 2008: relationship partners with 8 references; and Feb. 19, 2007: fire law firms with 8 references and my article.). Efforts to cross sell, if the general counsel buys, depends on the allure of the law firm more than the charms of an individual lawyer (See my post of Feb. 20, 2009: cross-selling by law firm partners with 7 references.).

Two years ago, David Munn reported that the law firm Morgan Lewis had adopted Six Sigma in its mortgage loan practice. A detailed presentation on Morgan Lewis’ methodology can be found on Garrett Worley’s blog.

Separately, while doing some research for another post, I found a law firm in India, Luthra & Luthra, that markets itself as an “ISO 9001 Registered Firm.” That distinction comes from showing that the firm’s systems meet certain international standards.

Third, other law firms have pursued project management credentials (See my post of Dec. 22, 2006: Eversheds; and April 28, 2009: a law department applies project management; June 24, 2007: project management with 5 references; Aug. 15, 2008: perceptions of usefulness of project management software; Oct. 2, 2008: can project managers co-exist with litigation managers; and Dec. 12, 2007: project management software and litigation.).

My previous comments about the ACC Covenant with Counsel addressed those eight commitments that are symmetric (See my post of April 25, 2009: reciprocal undertakings in the Covenant.) and six unilateral commitments that ought to be bilateral (See my post of April 25, 2009: asymmetrical undertakings in the ACC Covenant.).

The set of 33 covenants present several other points to ponder.

1) “Understand our relationship is built on mutual trust; unless we tell you otherwise, we don’t need or want a “no stones unturned” approach (Client 1). This is the only covenant that has two parts, the first about trust being fundamental, the second about thoroughness being secondary.

Among the 16 commitments by clients and 17 by law firms in the Covenant with Counsel, part of the Association of Corporate Counsel (ACC) Value Challenge, are eight paired commitments, both sides agreeing to related undertakings (See my post of April 25, 2009: mutual, related promises.). In contrast, several of the commitments run one way only, yet they too deserve paired undertakings.

“Evaluate your performance fairly and regularly” (Client 6); law departments should seek from their law firms candid feedback about how the department could improve (See my post of Nov. 16, 2005: evaluations of law firms with 9 references.).

“Conduct ‘after-action’ reviews at the end of each matter to help continuously improve performance” (Client 7), yet there is no counterpart pledge by law firms to contribute to the post mortems (See my post of May 27, 2008: post mortems with 7 references.).

The Covenant with Counsel, issued as part of the Association of Corporate Counsel (ACC) Value Challenge, sets forth 16 commitments by clients and 17 by outside counsel. Eight of them fit together as pairs, as golden rules for relationships, as reciprocal commitments. My list of them is in order of the client commitments.

“Define our objectives in the engagement and advise you if they change” (Client 1) meshes with “Learn your business and strategic objectives and apply that understanding to your matters” (Firm 1).

“Use value-based terms to reward success and efficiency” (Client 3) meshes with ”Proactively offer value-based alternative fee structures” (Firm 5).

Having launched my first blog poll in late February (See my post of Feb. 26, 2009: Vizu poll on overall percentage reduction in bills reviewed in past six months.), having summarized the results a week later (See my post of March 6, 2009: “nearly a dozen responses”), and having left the poll open, I can now update the findings.

Six weeks ago, the dozen respondents produced these results: 0-2 percent reduction (41%); 6-8 percent (8%); 9-11 percent (16%); and 12+ percent (33%). As of April 22, 2009, 38 people had completed the poll. The new results show 0-2 percent reduction (36.8%); 3-5 percent (26.3%); 6-8 percent (2.6%); 9-11 percent (23.76%); and 12+ percent (10.5%). Hence, two-thirds of the respondents knocked off five percent or less of the total billed amount, which includes disbursement write-downs. At the other end, the other third reduced bills by nine percent or more.

The other lessons learned are that (1) readers will respond to polls and (2) I need to give them more time to do so.

“ … that is, he works our organization and the personalities to his own advantage to get more business for his Firm. So, at times, people are suspicious of his motives,” noted the GC.

Law firm partners are under tremendous pressure to expand work and cross-sell additional services. Especially now, in these recessionary times. In this regard, some partners are above board and, in looking out for the company’s best interests, are discriminate in “picking the spots” where a sale is attempted. Others, unfortunately, are more like the partner described above.

What would you do if you encountered a law firm partner who behaves like the one described here?

“ … instead of thinking like a businessman. He tends to be very technical and focus more on the minute aspects of the matter rather than the bigger picture of what is the right strategy for us,” observed the Associate General Counsel.

The partner referred to here is the lead partner for large law firm’s relationship with a major company. A lead partner is supposed to function as a general business advisor, understand where your business is going and be proactive in pointing out and anticipating issues that your company will have to address.

Yet, this partner has worked with the company for years and possess intimate institutional knowledgeable. If your company faced this situation, would you suggest that the law firm consider a change such as augmenting or replacing this partner?

The cost advantages of sending work to so-called regional law firms can be startling. The ACC/Serengeti Managing Outside Counsel Survey found that the average hourly rates (after discounts) paid by the ACC members for work performed by partners/associates handling litigation range from a low of $228/$201 in Denver to a high of $523/$316 in Washington, DC. Thus, the partner rates were almost one-half and the associate rates were one-third in the regional firms of Denver (See my post of April 8, 2008: definition of regional law firms not in the rim.).

The data comes from the ACC Docket, Vol. 27, April 2009 at 18. This single comparison, if representative of similar rate gaps between regional firms and metro powerhouses, teaches that all the swingeing discounts in the world don’t match the savings of using a firm that bills at much lower rates. It also teaches that rate differentials are larger for partners than for associates. Finally, at least according to this example, we learn that the Big Apple has no monopoly on the worm of high charge-out rates.