Articles Posted in Outside Counsel

In an RFP process, a consultant recommends to tell all of the law firms the same thing: “Talk with anyone you’d like to discover how best to meet our needs, and we will answer questions in confidence.”

Ron Pol, writing in the ACC Docket, Vol. 25, Sept. 2007 at 23, disagrees squarely with my advice to funnel questions through a single point and publish the answers to all the firms (See my post of Oct. 24, 2007: 7 tips for better RFPs and the PDF of my article

.). He believes that with the controls I advocate no one will ask meaningful questions, firms will be less able to unearth and focus on your needs, and they will have their creativity stifled (See my post of March 30, 2008: RFP with 22 references.).

According to an Incisive Media article, Greenberg Traurig worked hard in 2006 to win Alcoa’s original contract for patent work. The firm went through several interviews and submitted a lengthy written proposal with biographies of its key IP attorneys.

The term I want to emphasize, however, involved a transfer of staff. “Greenberg Traurig agreed to bring in several in-house Alcoa attorneys the company was preparing to let go. That move placated Alcoa’s scientists, who had grown comfortable with their own attorneys.” Whenever a law firm agrees to handle millions of dollars of work over a period of time, it may be mutually advantageous for the firm to hire some of the in-house staff who had previously handled the work.

If you have several firms that handle similar kinds of matters, use their performance against budget to allocate work in the future.

The performance of each firm against their original budgets on matters should influence the likelihood of their being chosen to handle more matters. For example, if on a rolling average for the past three months one firm comes in 20 percent above budget, then their odds of being chosen for the next matter should shrink by 20 percent. The point is, if a firm manages costs well, it should get more work.

Managers of outside counsel will gag at this proposal. It will seem bizarrely quantitative, a bull in the china shop of what they see as their intuitive, subjective, multi-faceted artistry of selecting the right firm.

For years I supported convergence, but my enthusiasm has waned lately. Inevitably, larger firms remain after a pruning and they charge higher billing rates (See my post of Jan. 3, 2007: increased rates with firm size.). In addition, with electronic billing, the administrative hassle of dealing with scores or hundreds of law firms has shrunk considerably. The measure is not total numbers of law firms used by a department but how many an individual in-house lawyer can effectively oversee. At the lawyer level, numbers of matters counts for more than numbers of firms.

My latest thought is to urge law departments to reduce the number of law firms they retain so long as they maintain their pre-convergence, average firm size.

In a further divergence from my former opposition to discounting, the department that converges should obtain appropriate volume-related discounts. Insisting on discounts of 5 percent should be relatively straightforward; 7.5 percent seems about standard for $500,000 of fees; 10 percent at $1 million; and 12.5 percent or more at $2 million and higher.

In its campaign to change the basis on which corporate counsel pay law firms, the Association of Corporate Counsel has seized on the lodestar of “value.” ACC defines value as a law firm “returning a desired outcome in a matter which corresponds to its appropriate cost and worth.” This definition comes from the ACC Docket, Vol. 26, Oct. 2008, at Value Challenge 2, and deserves deconstruction (and possibly destruction).

“Desired outcome.” A verdict against a client could rarely be a “desired outcome,” yet a law department should pay the firm that represented it in the litigation. Perry Mason can’t win a case with horrible facts. Some acquisitions fall through; sometimes polluters settle with the Environmental Protection Agency.

If “desired outcome” really means the “best outcome a reasonable person could have hoped for” we are closer to reality but no closer to an unarguable, quantifiable conclusion regarding how much to pay. Given people’s propensity to rationalize and manage perceptions as well as to revise history, it’s like painting a target around the spot where the bullet hit the barn. A retrospective decision about what to pay is highly suspect (See my post of Oct. 22, 2008*5: cost-benefit analysis.)

It is simply not true that senior lawyers in corporations view the law firms that vie for their work as interchangeable. At least for the work those lawyers understand well, as buyers they do not at all perceive the firms who do it as fungible. Law firms that do some other kind of work may appear to be all the same in capabilities, but that is ignorance and at the remove of 30,000 feet (See my post of March 6, 2007: law firms and fungibility; Oct. 5, 2005: myths cherished by firms; Aug. 24, 2006: Manhattan Project of GE; Oct. 30, 2006: little selection in specialized domains; and July 30, 2008: much legal work seen as commodity.).

Nor by any means do law firms as sellers picture clients as all of a kind. Each client opportunity is unique to the partner pursuing it, full of complexities, background, differentiators, pros and cons (See my post of Dec. 4, 2006: differences in what clients have to offer firms.).

Small wonder, then, that the costs of legal services roam all over the map. Standard supply-and-demand-curve economics assumes that all buyers are equal, and are the same in all important regards to sellers. Neither end of that classical assumption holds on the legal marketplace ground.

A previous post wonders whether some general counsel, called as a reference for work done by a partner at a law firm, give less glowing reviews than are deserved, because they do not want their access to that partner to be diluted. Why praise, and risk access to, someone you perceive as a proprietary resource (See my post of Feb. 6, 2007: withheld good references.)?

Yet, many law departments willingly share the names of their go-to firms (See my post of Nov. 11, 2007: different viewpoints on disclosure of most-used firms.). Perhaps a difference lies between naming a firm, which may teem with hundreds of partners, and naming or discussing a specific partner. Either word can leak back about what was said or the partner can surmise. Additionally, a partner may feel it proper to call the reference before the call, and that can be awkward.

Few law departments keep close to the vest the vendors they use, but that is because generally they appreciate the network effects of enlarging their vendors’ user bases (See my post of Nov. 13, 2007: network effects and law department management.). Software to an economist is a network good, the value of which rises the more other people use it. A solid law-firm partner is a rivalrous service, to be enjoyed by only one person at a time (See my post of July 31, 2006: non-rivalrous goods and services.).

I have written from time to time about the capabilities of law firms that complement their lawyers’ abilities (See my post of Oct. 21, 2005: Faegre & Benson litigation support group; Oct. 17, 2005: a few British firms’ on-line offerings; and Nov. 18, 2007: 7 examples of services offered by law firms.).
A striking example of a strong offering comes from the ABA J., Vol. 94, Oct. 2008 at 57. The US litigation firm, Shook, Hardy & Bacon, has an in-firm team of research analysts and para-professionals to support its attorneys. “That team – which includes more than 100 experts with advanced degrees in biochemistry, neuroscience, electrical engineering, toxicology and other fields – helps create trial exhibits, prepare witnesses, formulate discovery and trial theories, and evaluate complex scientific and technical issues.”
A law department could like that expertise!

What inspired general counsel first insisted on a budget from a law firm? Who first received an invoice electronically? When did the first law department appoint an official administrator? I do not know these milestone dates and specifics, but I wish I did.
I have managed to dig up a few historical points (See my post of Dec. 31, 2006: pre-1900 references in the NY Times to law departments; Dec. 31, 2006: historical information on law departments; Feb. 19, 2006: eras of law department management; Feb. 23, 2006: books, including one from 1907 on a law department; July 18, 2006: Sears’ law department formed in 1946; April 8, 2007: first university IP department; and March 1, 2008: another book on the NY City Law Department.).
Because no historical narrative traces the roots of law-department management practices, I was interested to read that in 1962, Shook, Hardy & Bacon was retained by Eli Lilly, and “went on to become Lilly’s regional counsel – a new concept at the time.” Aha, a glimmer of history regarding one piece of law department management. The quote comes from the ABA J., Vol. 94, Oct. 2008 at 55.

“What clients want and need: high-quality legal services that deliver solutions at a reasonable cost.” Would that we could all pay merely reasonable amounts for high quality! Pause on this declaration in ACC Docket, Vol. 26, Oct. 2008, at Value Challenge 2.

In real life, high quality generally commands high prices while reasonable quality deserves lower prices. Clients may want high for medium, but top-flight talent commands top-shelf prices. To expect a change in that age-old equation is to fly in the face of all economics. Dialog won’t persuade capable, experienced, and smart lawyers to give away their prowess for less than the market will pay. And the market of law departments will pay handsomely (See my post of Oct. 19, 2008: we might underpay partners who make a significant difference.)

You generally get what you pay for, which means if you pay a lot you deserve a lot. You don’t deserve a lot if you pay just a reasonable amount. To get good legal services at a reasonable cost, In-house lawyers just have to say “no.” “Partner X, do not do that task with those timekeepers at this time.”