Articles Posted in Outside Counsel

The labor theory of value maintains that work makes worth. The germ of this post comes from Jane Kamensky, The Exchange Artist (Penguin 2008) at 34. Karl Marx made this belief a pillar of his system but others have questioned (or rejected) the notion that the amount of time invested in a product or service has any essential or privileged bearing on its value.

Hourly billing by law firms borrows from the labor theory of value, someone might propose, because it assumes that the legal services provided are worth the amount of time put into them (multiplied by an hourly rate).

That proposition is false. It may be a workable expedient and a facile proxy for value, but it misjudges the basis for what creates and delivers value to a client (See my post of Oct. 31, 2011: value in use.).

An article in Sloan Management Review, Fall 2011 at 66, explains the term “value in use.”

The notion is a measure of “value in terms of how a given asset provides benefits to a specific owner under a specific use.” Assets themselves have no inherent value; they generate value only when they offer specific benefits to their users.

This speaks to the much-discussed topic of value delivered by law firms. Value in use instructs us that the value of what a law firm does depends completely on the particular company it counsels and the particular time and circumstances of that advice. Absolute value has no meaning; only circumstantial value.

I came across this description of a service available from Macleod Dixon, a UK firm soon to join Norton Rose.

“Technology Consulting and Support: In-house legal departments’ technology needs are often quite different from the technology needs and solutions in their business units. Macleod Dixon provides technology consulting to clients in the following areas:

• Legal technology application development and evaluation

A practice that is expressly authorized by most states’ ethics rules, and often referred to as unbundled legal services, means representing a client on a limited basis. According to For the Defense, April 2011 at 41, such circumscribed legal roles include to defend a deposition, appear at a hearing or mediation, or draft a pleading. The model rules of practice permit unbundling “as long as (1) the limitation is reasonable under the circumstances, and (2) the client gives informed consent to the limited representation.” Law department lawyers could and do unbundle many legal services.

All you readers may know about this definition of unbundling, but I did not and it struck me as another way for law departments to cherry-pick the services they want at the price they are willing to pay. The fly in the ointment is that to unbundle takes thought, time, and management – all in short supply inside.

Gibbons, with 230 attorneys, runs an in-house training and educational platform called Gibbons Academy. All of its productions qualify for CLE credits and an article in the Met. Corp. Counsel, Oct. 2011 at 41, describing it briefly, leaves the impression that legal department lawyers who are clients of the firm can avail themselves of the professional development training. Free CLE through law firms can be both cost-saving and quality enhancing for a department.

It is also worth noting that Gibbons offers clients, at no charge, “kmAlerts System,” which “monitors news, case law, business and legal issues, industries and docket events, delivered via custom reports.” Sounding like the firm has melded tools available for Internet searches and customized newsletter assembly, this creates an additional value for legal departments who can take advantage of it (See my post of May 28, 2010: Pinhawk assembles customized e-newsletters.). As with free CLE, law departments benefit from efforts like this update system from a law firm.

You can read a full account of the arrangements between Levi Strauss and two firms it selected to handle large swathes of its work on a fixed fee (Orrick, Herrington & Sutcliffe for corporate and commercial work and Kilpatrick Townsend for IP work). The article in the ACC Docket, July/Aug. 2011 at 77, explains the background and current workings of the global deals (See my post of Nov. 25, 2009: Levi Strauss and almost-complete convergence.).

Of particular interest and the topic of this post is that Levi Strauss started the program with a “big swoop” of training. In each of three global regions, the law department invited “all firm and department lawyers working on matters that would be covered by the relationships” to participate in a full-day session. Led by in-house lawyers, the sessions were as practical and open as possible so that the two law firms could come up to speed as quickly as possible and know their colleagues inside the company. This would be a good step for all law departments that start a major partnering arrangement with a law firm.

According to an article in the Met. Corp. Counsel, Oct. 2011 at 41, the U.S. law firm Drinker Biddle & Reath, with approximately 650 lawyers, “became the first major law firm to hire a chief value officer.” Law departments that care about the value they obtain from their outside counsel – what departments don’t? – might ask whether their key firms have done something akin to this investment. The Drinker CVO is “charged with incorporating the value concept into the firm’s philosophy and culture: analyzing engagements to determine whether and how they provide clients value; and strategizing long-term value solutions.”

This is all the article states. The cynic in me must be tamed because Drinker at least has its heart in the right place, although I imagine it is extremely difficult for someone even to question the value delivered by partners of a major law firm let alone suggest how they might increase the value they produce. Even if the firm’s action were mostly optics and PR, it gives general counsel a concrete basis to ask about key law firms’ tangible efforts to produce more value.

“In 1330, the Florence Commune introduced the first sumptuary laws: limits on what kind of fabrics could be worn, when, in what styles, by whom, only so many buttons, no fancy patterns, only so much jewelry, not more than so many dishes at dinner parties, restrictions on spending for weddings and funerals.”

This effort to control ostentation and spending reminded me of guidelines for outside counsel: limits on limo service, weekend meals, first class flights, hotel courtesy bars, lawyers at a deposition, and photocopying on colored paper, and wasted paperclips.

As explained in the London Rev. of Books, Sept. 22, 2011 at 22, theological beliefs about sobriety, waste and conspicuous consumption drove the sumptuary restrictions on the populace of the Italian city-state. Likewise, secular theologies animate restrictions on the profligate ways of prodigal law firms.

It’s often unfortunate for both a law department and a firm when the department stops using the firm; it’s worse when a department takes away pending matters from a firm but sometimes transitions are justified; it’s downright disastrous when a law department sues a firm for malpractice.

That is what happened eight to ten years ago, as related by Starwood Hotels & Resorts General Counsel, Ken Siegel, in SuperLawyers, Bus. Ed. 2011 at 76. The suit created new law because Siegel claimed breach of contract – “the first time anyone had done so to try to prove legal malpractice.” I wonder whether law firms that sign to indicate their agreement to outside counsel guidelines have accepted contractual risks that had not been present before (See my post of Nov. 8, 2009: malpractice of law firms with 8 references.).

“Over the years, the cost differential between external and in-house lawyers has narrowed.” This statement by Peter Turner, with no empirical backup, is found in Benny Tabalujan, ed. Leadership and Management Challenges of In-House Legal Counsel (LexisNexis Australia 2008) at 6.

To assess this claim, we need data to support the assertion by Turner, the former CEO of ACLA and general counsel of Fosters. Various surveys that calculate the fully-loaded costs of in-house lawyers, primarily US and Canadian, suggest that internal costs per lawyer hour have been keeping pace with inflation or thereabouts. It is unlikely to me that law firm rate increases have not matched; indeed, I believe hourly billing rates have climbed at a faster pace.

If this gap-closing were true, companies would shift toward more use of outside counsel and that has not happened (See my post of Sept. 28, 2011: my article comparing year-over-year changes in staffing.).