Articles Posted in Outside Counsel

Kevin O’Keefe, an expert in all things having to do with lawyers online, disputes part of my post about LinkedIn and its law firm members (See my post of Jan. 20, 2009: find out more about law firms through LinkedIn.). I thank him for pushing me to review what I wrote, as my post suggests there had been an over-statement regarding information on LinkedIn about law firms and their profiles. Kevin took me up on that characterization.

I searched a few minutes on LinkedIn. Under the company category “Law Practice” there are 3,105 listings, pages and pages of law firms and without doubt all the AmLaw 100s, 200s and 500s you want. When I searched “Cravath Swaine” I found that 1,055 members of LinkedIn have identified themselves with Cravath in some form. That is, they may be practicing law there now, or working there in a support role, or once worked there, or had some other connection. Skadden Arps has 3,797 hits and my alma mater, Weil Gotshal has 2,036 hits. But the hits are for individuals, not for a firm-submitted profile (We should have a Wikilexpedia for law firms.).

I looked at some heavy-hitter law firms under “Law Practice” and Clifford Chance, for example, has a short paragraph on it being a huge global firm that practices in all areas of law. So did Jones Day, but Baker & McKenzie only said “Global Law firm.” The firm information includes dribs and drabs of “comparable firms,” related links, and offices – the latter compiled I believe from the individuals who listed the firm, but I am not sure.

The 2005 issue of Robert Half Legal’s Future Law Office report, “Client Service: Challenges and Strategies,” at 9, cites a Canadian article on business intelligence software (BI software) used by law firms. The article says “many law firms are adopting business intelligence software to run their practices and identify new revenue opportunities.” In the listing that follows of BI software’s data-mining powers for law firms, the final sentence packs a wallop.

“In addition, some systems can be used to generate fixed-fee quotes when clients ask for bids.” The referenced article is by Beppi Crosariol, “Lawyers Work on Taking Care of Business,” The Globe and Mail, May 2, 2005. I could not find the article without payment to the Globe and Mail, but I am deeply curious about business intelligence software for law firms that purports to examine time and billing data and construct a plausible fixed fee. That would be an impressive feat!

It is now four years after that article. If the capabilities were on offer then, how have they morphed and improved?

A post of November 24th on Kevin O’Keefe’s excellent Lexblog praises LinkedIn. “LinkedIn [has attracted] hundreds of thousands of practicing lawyers and corporate counsel. Every major law firm in the country has a LinkedIn profile providing detailed demographic information.” A touch exaggerated, but it suggests that LinkedIn has penetrated the legal community deeply. Since LinkedIn is free, this represents not only a way to find out more about law firms, but also a way to establish very narrowly defined communities of practice. Invite all your fellow international, nuclear-plant tax aficionados to gather online – both of you!

I have a group on LinkedIn, that close to a hundred in-house lawyers have joined, on the fascinating topic of, well, can’t you guess (See my post of Sept. 22, 2008: social networks such as LinkedIn, with 7 references; Oct. 12, 2008: survey data on networks; and Jan. 7, 2009: Xing.)?

Earlier I argued that a fully loaded in-house counsel hourly rate of $200, as reported in a survey, might actually be considerably higher if we could dig into its derivation and calculation (See my post of Jan. 16, 2009: attack on cost per inside lawyer hour.).

What then about the validity of that survey’s figure for outside counsel hourly costs? A typical figure in benchmark surveys hovers around $350 an hour. This particular survey defines its figure as “the average amount paid to law firms by hour,” which leaves uncertainty regarding whether the figure includes or excludes disbursements. Assume the $350 figure wraps in law-firm disbursements, the number may be based on estimates by those who completed the survey.

Estimates are notoriously influenced by such psychological traps as recency and salience. What we really need is for a group of law departments to each divide their total outside counsel payments (fees plus disbursements) by the total of the lawyer hours billed them. I would bet that the resulting figure for US law departments is less than $350 an hour. Maybe 10-15 percent less.

According to a recent survey that collected 2007 data from several hundred law departments, their median fully-loaded in-house cost was slightly over $200 an hour. The report explains that it calculated this figure by dividing total inside spending per attorney for each company by the average annual chargeable hours per attorney for the company.

Since most law departments do not force their lawyers to record hours, the survey used the median figure for annual chargeable hours submitted by respondents that do track their attorney’s time. As with most surveys, less than 20 percent of the law departments in this one track their time. It cannot be determined from the report whether the submitted annual chargeable hours are goals, estimates, or actual.

Nor can we be sure that reported chargeable hours are not higher in those law departments that track their time than hours would be in law departments that do not track time, if we could measure them unobtrusively. If you measure it, people manage to it, and hours may be padded internally (See my post of Feb. 17, 2008: chargeable hours might be more like 1600 a year than 1,850.).

In the ACC Docket, Vol. 26, Nov. 2008 at 34, the author states his conviction that his company’s retention of plaintiffs’ firms to bring lawsuits against other companies has been groundbreaking. Put modestly, it “can also be seen as a signal moment in a major legal profession trend, in which more corporations are now breaking down the barriers between the defense and plaintiffs bars when it serves their interests to do so.”

True, law firms that have honed their skills suing big companies may be psychologically and culturally primed to sue on your behalf. Yet, won’t many of them have conflicts of interest? Even if the conflicts are not strictly legal, what about issue conflicts? Or what if they get to know your strategic posture and style of litigation? You may be educating the enemy. What if they change sides later. If you play with fire you will get burned (See my post on litigation funding (See my post of Sept. 29, 2006: several hedge funds lending to law firms; Jan. 6, 2009: funding for plaintiff’s firms; Aug. 24, 2005: billions in funding for plaintiffs’ bar.).

A long article in the ACC Docket, Vol. 26, Nov. 2008 at 30, thunders that a law department fares better in litigation if it “makes winning in an out of court the fundamental priority in dealing with all – repeat, all – cases that lack merit.” Joseph Speelman, joseph.speelman@lyondellbasell.com, the head of litigation at LyondellBasell – the world’s third-largest independent chemical enterprise, pounds home his conviction that “both self-interest and justice precluded settlements based solely on the ‘cost of litigation’ or because the matter is pending in a difficult or unfriendly forum.” In case you missed the point, “Any other approach only invites and encourages overwhelming, vexatious, baseless, exorbitant, and destructive litigation” (See my post of Oct. 22, 2005: little frivolous litigation occurs; June 6, 2006: judges find small numbers of cases frivolous; May 8, 2007: Ford Motor won’t settle.).

Maybe the three little words “that lack merit” allow sufficient flexibility for settlements to occur.

Speelman lists several firm partners who admire his macho “culture of confrontation” that will fight to the death “legal banditry.” Not surprising. His mantra is “We pay our own attorneys, not the opposing attorneys!” And pay he must, since what all litigators adore is a fight to the death, fees be damned, it’s the principle of the thing!

LyondellBasell has agreements with certain outside firms to pay them a “negotiated annual fee for handling all litigation in specified areas such as toxic tort and personal injury litigation,” as further described in an article in the ACC Docket, Vol. 26, Nov. 2008 at 35. The firms and the company reconcile at the end of the year, if a major problem develops.

I endorse the technique: “Compelling outside counsel to perform below the flat fee – and thus make more money only if they are more efficient—is the best way to reduce litigation fees and expenses” (See my post of March 1, 2008: fixed or flat fees with 36 references.).

In the midst of a paean to “millions for defense, not a penny for tribute,” an article by Joseph Speelman in the ACC Docket, Vol. 26, Nov. 2008 at 34, quotes a litigation partner: The company ensures that he has “all the resources and support” he needs to “assess the case” but also that outside counsel will not be second-guessed” when the company decides to try a case.”

Second-guessing, that’s a harsh accusation. Does that mean the law department won’t poke its little nose into the big-dog law firm’s tactics and strategy? Does it mean the law department will clap its hands whatever the result of the trial? Are lessons learned and post mortems “second guessing”? Does it mean that business considerations play second fiddle to discovery, briefs, and closing arguments?

I have arduously compiled, organized, commented on, indexed, and back-referenced 471 of my posts on outside counsel management. The 290-page PDF blook, which you can find much more about here, costs $75.

The six chapters cover (1) when do you need outside counsel, (2) how do you find them, (3) what billing arrangements make sense, (4) how do you manage them, (5) how do you evaluate their performance, and (6) what other considerations apply. Within each chapter, the posts are organized according to a two-level taxonomy. Write me with any questions you have about the blook.