Articles Posted in Outside Counsel

Ann Page and Richard Trapp, Managing External Legal Resources (ICSA 2007) at 43, describe how Carillion’s legal department holds “improvement workshops – joint workshops with network firms concentrating on improving specific aspects of the way we work together” (italics in original). That is the only mention of the workshops, but it set me to thinking.

Mostly, when law departments invite their primary firms to gather for a conference, the topics have to do with the business of the company, developments in the law, or new procedures to be rolled out by the department. The information flow tends to be one-way (See my post of; Dec. 3, 2005: Wal-Mart used conference to announce diversity efforts; June 19, 2006: another discussion of a law firm gathering; Dec. 10, 2007: suggestions on conferences for firms; Feb. 21, 2008: Sainsbury conference; Sept. 28, 2008: cost cutting discussion at Burger King; and Dec. 14, 2008: Pfizer and diversity initiative.).

Instead, to share ideas about accessibility, knowledge capital, decision making, staffing, joint evaluations of lawyers, collective training, billing issues, and leverage – among the myriad topics that pertain to how firms and departments can coordinate effectively – offers many advantages

Previous posts have disagreed with the ideas of Bo Yancey, Director of Professional Services at Redwood Analytics, on March 9, 2009, about RFPs. Here is my third disagreement with Yancey.

“In the end, firms and clients are best served working closely together to understand each other’s needs and values, and arrive at pricing structures that fit up with the value delivered. This can only be achieved over time, with commitment from both sides. It can’t be accomplished through concepts like RFP’s, which measure only cost and work best when applied to commodity products. While RFP’s are supposed to allow those using them to compare “apples to apples” with cost as a differentiator, not all businesses sell fruit. Service levels, client-specific knowledge and “win-win” pricing can’t be achieved or measured through an RFP.”

Yancey must not see what I see in my consulting projects: every kind of service in the legal orchard has been put out to bid by requests for proposal. To clarify that metaphor and emphasize the point, law departments have selected law firms through an RFP process for every legal service imaginable – it is a management technique most fruitful.

“The best way to deal with RFP’s is to avoid them altogether, and the stronger and deeper the relationship with a client, the better chance a firm has of doing just that. Redwood Analytics has conducted research that indicates, not surprisingly, that clients with more than one senior partner who are actively engaged with a client are much less likely to stop working with that firm.” The quote comes from Bo Yancey, Director of Professional Services at Redwood Analytics, on March 9, 2009.

An RFP process does not necessarily mean dissatisfaction with the incumbent law firms. RFPs test the market, gather alternative ways to handle the work, and keep everyone on their toes (See my post of Dec.16, 2005: complacency among entrenched firms; and March 16, 2009: survey data from Altman Weil on RFPs, success rates and costs.).

Law firm partners widely dislike RFPs, unless they by getting one they have an opportunity to secure work from a new client. If firms only see RFPs as bludgeons to shrink their margins, as the following quote asserts, they would have more justification for their animus.

“Of course, a primary reason for companies using RFP’s to begin with is to get the lowest price across all parties—which means that the ‘winner’ of the RFP may not be getting profitable work. In an RFP process, it’s not a guarantee that the lowest price will get the business, but it’s nearly certain that ‘bidders’ with pricing substantially above the lowest prices will be eliminated quickly from consideration.”

The querulous quote (with its sarcastic “winner” and “bidders”) comes from Bo Yancey, Director of Professional Services at Redwood Analytics on March 9, 2009. Yancey, however, is off base. RFPs go far beyond billing rates and care more about non-cost information. Cost is probably third or fourth on the list of attributes that RFP processes collect, analyze and decide on; clients care about expertise, knowledge of the industry, and bench strength, for example, much more.

Amidst the prevailing frenzy of cost cutting, it is worth emphasizing that general counsel do not want to pinch pennies so much that their spousal firms – the few they are married to — refuse to take on more work.

A law department might be willing to retain a firm to do something on loss-making terms because the firm hopes to break in and demonstrate its prowess or to stand in line for a shot at lucrative lawsuits, investigations, or M&A that come later. Strategic or accommodation services at bargain prices are all part of the game. But continued services at what firm management deems to be unacceptable margins is bound to lead to divorce. Managers in law departments do not want to squeeze that hard.

A presenter at a recent conference on intellectual property showed a slide that sourced research by Martindale Hubbell. The pie chart on the slide had 10 slices, one for each of nine practice areas and “other.”

Litigation 37%

IP 11%

Caution: a sharp-elbow post! The following assumptions, cherished beliefs in fact, addle the minds of quite a few in-house lawyers. I tried to list them according to their perniciousness, but that is too hard to do. Furthermore, the more informative speculation might be how frequently the illusions exist and warp behavior. All very pessimistic, I grant, but it is helpful to try to confront and disabuse ourselves of what may be commonly-held delusions.

1. “We choose firms based on merit.” With all the irrational impulses we are subject to, no one can believe that objectivity reins supreme (See my post of March 15, 2009: cognitive traps with 21 references.).

2. “The law firm partners we have chosen are significantly better than other partners” (See my post of Aug. 24, 2006: many law firms are viewed as fungible; July 30, 2008: view that many services are commodity; and Nov. 17, 2008: only at high-level are firms seen as similar.).

In the summer of 2008, Asian-Counsel surveyed law departments in Asia and the Middle East. One question asked in the http://www.pbpress.com/index.php?page=index&block=article&id=INIV3VX-OSHVGLZ-KFQMJNG-U49E8GJ survey was “Which issues have you found to be of concern when dealing with outside counsel?”

I estimated from the bar chart that depicts the percentages of the five issues that got the highest responses from the respondents.

“Excessive fees” (58%)

Pacific Business publishes Asian-Counsel, which published the results of a survey in the summer of 2008 of its survey of law departments in Asia and the Middle East. One question asked in the survey was “What three factors most influence your choice of outside counsel?”

A bar chart depicts the overall percentages of responses for five attributes that got the highest percentages, but gives no precise numbers so I eye-balled them. Note that two other attributes were “relationship between the company and the firm” and “personal relationship between in-house counsel and external counsel.”

“Expertise in a specific area” (75%)

This post is not about the use of “local counsel” to mean counsel hired in another country. One particular form of that includes firms privileged to practice before a country’s patent and trademark office (See my post of Aug. 7, 2007: IP specialists in foreign countries; and April 10, 2006: patent and trademark counsel overseas.).

Instead, this post is about the term “local counsel” used within the same country. The most common domestic use of “local counsel” is in litigation, where a law department retains a large firm to handle most of the substantive legal work and a smaller firm near the courthouse to handle administrative matters such as filings and to share insights about the judge and opposing counsel and even the jury (See my post of Oct. 24, 2005: litigation counsel for FMC retains local counsel in their budget; Feb. 18, 2007: ethical rules and the cost-effective retention of local counsel by national counsel; April 10, 2006: benchmark figures for total law firms retained ought to exclude purely local litigation counsel; Dec. 4, 2008: local counsel may distort data on hiring new firms and firing firms; and July 16, 2005: multi-sourcing is another term for this arrangement.).

The term local counsel can also refer to firms that a law department selects because of their proximity to a non-litigation matter (See my post of Aug. 21, 2005: local environmental counsel.).