Articles Posted in Outside Counsel

“When lawyers left [a law firm] to join a prospective client, the likelihood that their former employer would receive new business from that company increased.” This finding comes from a study reported in the MIT Sloan Mgt. Rev., Vol. 49, Summer 2008 at 32, on the movement of patent attorneys into and out of leading US patent law firms over a period of six years.

The study calculates the amount of patent work the law firms in the study received from Fortune 500 corporations after they gained or lost lawyers. For in-house lawyers recently arrived from a firm to turn to that firm, where they know the strengths and weaknesses of the lawyers, makes sense (See my post of March 7, 2006: how fares the former firm.).

The study also found that “when a firm hired attorneys away from a competing law firm, it typically received additional business from that competitor’s clients.” This finding demonstrates that loyalty typically attaches to a partner more than to a firm (See my post of Aug. 4, 2008: enduring relationships with 6 references.).

This broad topic – anything law departments do deliberately to change how their law firms operate – has been touched on in many posts (See my posts of Jan. 10, 2008: legitimate requests by legal departments of all law firms with 4 references; Jan. 10, 2008: requests that are fair only for primary law firms with 17 references; and Jan. 13, 2008: unfair interventions with 19 references.).

Shortly after this trio of posts and their total of 40 references, I published an article that knitted together them and their predecessors and extended my analysis. If you would like a copy of the article, click here and drop me an email.

Since my article came out in Legal Times on several problems with discounted billing, I have posted more.

Three have appeared (See my posts of April 8, 2008: freeze billing rates rather than negotiate discounts; April 13, 2008: discounts and law-firm margins; and May 11, 2008: prompt-payment discounts and 10 references.).

In April of this year I published an article about how to alleviate some of the concerns law departments and law firms have regarding fee arrangements that deviate from hourly or discounted hourly billing. Click on the following link for a PDF of the Rees Morrison article on alternative fees.

Meanwhile, I kept churning out supplemental blog posts (See my posts of March 24, 2008: business intelligence in law firms and fee alternatives; April 6, 2008: partner premium coupled with associate discounts; April 27, 2008: just because the matter is big, don’t pass on alternative fees; May 11, 2008: monthly flat fees; and July 27, 2008: bonuses and references cited.).

This finding comes from Inside Counsel, July 2008 at 49, from its recent survey of law department satisfaction with law firms.

Loyalty rates of law departments to law firms suggest otherwise, and incessant fee increases by lawa firms suggest otherwise, and the infrequency of competitive bids suggests otherwise, and the rarity of fixed fees suggests otherwise, and slow adoption of offshoring suggests otherwise, and stymied document assembly suggests otherwise, and soaring profits per partner suggests otherwise, and proliferation of mega-firms suggests otherwise …

But what’s your point, Rees Morrison?

One question in a recent survey about satisfaction with law firms, from Inside Counsel, July 2008 at 47, asked in-house counsel to rank on importance at least 10 criteria they apply when hiring outside counsel. In order, the eight highest-ranking criteria were responsiveness, industry experience, creative solutions, billing rates, reputation, preventive counseling, multiple practice areas, and alternative fee arrangements.

Three of those eight criteria come into play when a law department decides whether to keep using a law firm, but they have little to offer during the initial decision to hire the firm. No one a law department can evaluate law firm responsiveness much even by a competitive process, nor creative solutions, and especially not the firms adeptness at preventive counseling. Once a law firm has represented a company for a while, the members of the legal department can have views on those three attributes – responsiveness, creativity, and preventive counseling – but among a group of unfamiliar law firms, no input is available.

The in-house counsel responding to the survey also feel that “national reach and international reach are the least important factors when general counsel are selecting a firm” (See my posts of July 13, 2008 and July 27, 2008: a claim that global forces drive law department agendas.).

Year after year, InsideCounsel reports that law firms give themselves A grades for the services they deliver much more frequently than law departments give those law firms A grades. Specifically, in the latest survey from Inside Counsel, July 2008 at 47, 17 percent of the law departments gave their firms an A while 43 percent of the law firm respondents thought they deserve an A.

One reason that gap will persist forever is that law departments see the delivered work product and can’t know very well what blood sweat and tears went into its creation. As a management consultant to law departments, the reports I deliver may look straightforward and logical and to be expected, but like sausage and legislation, no one should see what went into their complicated production. Similarly, partners know well the effort they went through and that the job they did was quite good under the circumstances; they believe they deserve an A. The lawyer in the legal department who hears the advice, analyzes the final memorandum, or reviews the pleading can all too easily take for granted the work that was done, ignore the toil behind it, and go beyond it in their expectations. This leads to giving the firm a B grade. End products look easy and inevitable.

The same imbalance applies to clients of the law department. They are ignorant of the energy and skills that went into the advice and outcome they see, so they can easily criticize it and wish for more. The bestowal of A’s and the B’s are inevitably asymmetrical.

It is easy to say: “Set up bonus incentives for our law firms to motivate better performance.” Sometimes the goals of the company that will earn a law firm a bonus are tangible and straightforward to articulate (See my posts of June 20, 2008: reduce the number of lawsuits for and against client; Aug. 4, 2007: example of success-based bonus in litigation; and Nov. 2, 2006: payments based on Total Cost of Resolution.). Often, however, a bonus depends on subjective and discretionary decisions by the law department.

Bonus arrangements have drawbacks and have met resistance from in-house managers (See my posts of Sept. 28, 2007: be wary of incentives; Nov. 7, 2007: reluctance by in-house counsel to enter into success-bonus arrangements with firms; and Oct. 29, 2007: data on the unpopularity of this technique.). Time constraints and strategic flexibility are among the challenges (See my posts of Nov. 6, 2007: time needed to structure the terms deter alternative fee arrangements; Feb. 26, 2008: bonuses can unravel if client changes strategy; and Feb. 16, 2006: fly in the ointment of incentives for counsel on transactions.).

Few law-department managers think through whether the bonus plum will be worth it to the client (See my posts of Sept. 5, 2007: alternative fees ought to target desired outcomes, and in proportion to their odds; Nov. 8, 2007: ask for probabilities of scenarios to help decide bonuses; and Oct. 15, 2007: an improvement on bonus deliberations by a law department.).

Along with a relationship partner at your primary law firms (See my post of Dec. 3, 2005: have a relationship partner at each of your key firms.), you might also want to designate an engagement partner for each major matter. The engagement partner will be the principal contact at the law firm for everything regarding that particular matter. The law department should agree which partner serves as the engagement partner (See my posts of Oct. 8, 2005 and Dec. 21, 2005: successor relationship partners; Jan. 10, 2008: law department interventions in law firm operations.).

Neither kind of partner should bill you for time spent on nurturing and maintaining the relationship. They should bill only for substantive legal work and direction of those who are doing substantive legal work. The partner should add value as a communicator and arbitrator and focal point (See my post of March 31, 2007: single points of contact – SPOC’s – and three references; Sept. 22, 2005: Wal-Mart and diversity of its relationship partners, April 27, 2005: Cummins and quarterly meetings with them.).

The concept has analogues (See my posts of Sept. 17, 2006: analogue to client-service teams; and May 18, 2007: inside counterpart appointed for each major firm.).

Are there techniques to lessen the risk of taking the bait of stellar lawyers at the final presentation, but working thereafter with a switch to earthly types? This question occurred to me when GC New England Mag., 4th Q. 2007 at 27, used the term. I think of bait-and-switch as empty promises of the attention and expertise of an individual, like the eminent senior partner of the firm. Then the third-year associate shows up.

A broader meaning, however, is what the general counsel quoted in the article means. “He sees a mismatch between the assurances made by the team that sells the deal and the resources available to actually do the work” (See my posts of Aug. 4, 2007: separately meet the associates proposed for your matters; and May 30, 2005: pros and cons of beauty parades.). Not just one person is paraded but then disappears; the broader capabilities of the firm are touted but then disappoint.

All I can imagine for the individual sleight-of-hand is to offer some kind of premium for the time of the eminent lawyer and threaten a deep discount on other people’s time.