Articles Posted in Outside Counsel

Eversheds report, “Law firm of the 21st century” at 8, has a curious finding. “The majority of clients (58%) emphasised that trust would continue to be of absolute importance in the client-lawyer relationship, more so than in other professional advisory relationships.”

What does this “trust” consist of? The term as used has a whiff of parent-child, of less-skilled, less-experienced in-house lawyers looking up to the great and good omniscience of the Law Firm Partner who will shepherd them through the Vale of Legal Death. “Trust” smacks of blind faith, of a one-way reliance by in-housers on what the wise elder guides them to do.

The more fundamental notion should be one of mutual respect and reliance: “This partner and law firm have the competence to help us skillfully and cost-effectively achieve our purposes. In turn the firm relies on us to know and apply the business of our client and to make the right strategic decisions.”

As part of its arrangement with Tyco International, the law firm Eversheds has incentives to meet specified measures of client satisfaction. According to an article in Met. Corp. Counsel, Vol. 16, June 2008 at 71, the company and firm agreed to conduct a regular audit, “with bonuses calculated by how much Eversheds equals or exceeds stipulated measurement levels.”

One example given is that “Bonuses for proactive litigation avoidance will be determined by the percentage reduction in proceedings against Tyco, or proceedings brought by Tyco, compared to 2007.” Tyco will also reward Eversheds for reaching a range of diversity targets. Any large-scale partnering arrangement ought to include performance benchmarks and performance milestones.

“AOL reported that the solutions provided by DataCert save the global web services giant $7.33 million within the first year of implementation,” explains an item in Met. Corp. Counsel, Vol. 16, June 2008 at 52

The source for this statement is a case study on DataCert’s website. It offers some details, four parts of which (A-D) I will discuss. “During its first year using DataCert’s AIMS technology, AOL billed approximately $33.8 million in legal invoices. Since implementing the solution [A], the Internet company has identified nearly $4.35 million in invoice entries that were either outside of its billing guidelines [B] or which had been billed to the wrong matter [C]. AIMS also enabled the legal department to realize and track nearly $3 million in negotiated rate, early pay, and other discounts [D].”

A. I assume this means in the first 12 months, but the first two sentences leave some ambiguity.

Six firms in the United States serve all the considerable real estate legal needs of Starbucks. The company has negotiated fixed fees with those firms based on a fairly predictable volume of work that arises from expansion. For quite a while, hundreds of stores have been opened in the United States every year. This is a classic example where it makes sense to work out a fixed-fee representation: high volume, relatively predictable, extending over several years, and fairly standard services (See my posts of March 1, 2008 – 36 posts on fixed fees; and June 8, 2008: standardized legal work.).

In addition, all law firms that work with Starbucks on real estate matters in United States are invited to periodic conferences, which are held about every 18 months at the company’s headquarters.

Internationally, according to ACC Docket, Vol. 30, June 2008 at 46, Starbucks engages more than 30 law firms for its real estate work. Three firms handle the company’s real estate work in the United Kingdom alone. Given that real estate acquisition is a core competency of Starbucks, it makes sense for the law department to converge on a few good real estate practices.

Sabine Chalmers, chief legal officer of InBev, writes in ACC Docket, Vol. 30, June 2008 at 14, about the “sticky area of whom the law firm should accept instructions from.” She notes that being clear on what the law firm should do if a client reaches out to the firm directly – not through the law department – “is especially important in organizations where the business people have a habit of contacting external counsel directly. Agreeing up front on how to deal with such situations will ensure that misunderstandings and ill feelings do not arise further down the road.”

A CEO can’t justifiably hold a general counsel responsible for legal expenses – let alone results – if clients on their own can hire law firms. All law firms should understand that they should notify the law department if clients reach out to the firm independently (See my post of Aug. 30, 2006: law department should control retentions of law firms.).

A consultant, quoted in InsideCounsel, June 2008 at 66, asserts that “work that involves discretionary spending would be more prone to the RFP process than litigation work, where nondiscretionary spending is a given.” Adding more, the consultant claims that “Spending around compliance training for employees, litigation readiness, content management and document management systems are all better candidates for the RFP process than nondiscretionary spending where you want to find the best qualified candidate and spending isn’t critical.”

Even if there were some sense in which litigation expenditures are nondiscretionary, in-house lawyers still have an obligation to steward the money of their client. Spending is still critical. An RFP process is a tool for cost management. And, contrary to the view expressed, an RFP may well be even more desirous for huge and expensive matters such as major lawsuits.

Praising the law department of Qwest Communications, Corp. Counsel, Vol. 15, June 2008 at 96, mentions that last year the department, winner of the magazine’s award for Best Legal Department of 2008, aspired to handle as much as possible of its client’s work in-house. For instance, “they resolved 61 percent of litigation matters and 76 percent of employment matters without using outside counsel.”

That is a little-seen metric, percentage of adversarial matters resolved in-house. I like the direction in which it is moving. Quibbling just a bit, however, it is true that resolutions can be good and bad, that the definition of a matter may be somewhat flexible (See my post of March 26, 2008: definitions of matters and 14 references cited.), tracking the metric may change the decisions lawyers make regarding when to bring in outside counsel, and that not all adversarial matters present equal legal difficulties. Putting aside those ankle-biting reservations, the essence of that metric — we can do it ourselves just as well — deserves consideration by all law departments.

At a recent speaking engagement, I heard of a technology company that has retained a law firm to prepare assessments of litigation cases early in the case, even though the firm is not the chosen litigation counsel. It seems like a wonderful idea. The firm looks across a range of cases and develops a sense of the risk of the entire portfolio. The firm has no economic interest in how it assesses the likelihood of settlement.

Perhaps you could pay the same firm to submit a budget for the first six months or to review carefully and expertly a budget proposed by the trial firm, especially if the name of the trial firm were kept secret.

If some firms serve as discovery counsel, and some firms serve as appellate counsel (See my post of June 4, 2008.) and some firms serve as national coordinating counsel, why not ECA and budget counsel?

In contrast to those law departments that seek through a Request for Proposal one or more firms to handle the work in a given area (See my post of June 10, 2008: Exelon’s process.), some law departments send our RFPs for individual projects.

InsideCounsel, June 2008 at 64, describes how Votorantim Investimentos Industriais, a Brazilian holding company, sent out RFPs in 2007 for about 20 projects, averaging three per project. The article quotes the general counsel as saying that RFPs are “effective for acquisitions [M&A], bond issues, large corporate transactions and mass litigation.”

I agree. Law departments can do an RFP-lite for any kind of project whose legal fees justify the effort.

InsideCounsel, June 2008 at 63, reports that Exelon Corp., the utility company, recently sent RFPs to 44 law firms and all but two of them responded. Some surveys have decried low rates of responses by law firms (See my post of May 9, 2007.), but this 95 percent rate shows otherwise. Possibly it is because many recipients of Exelon’s RFP already represented the company (See my post of Jan. 27, 2006: endowment effect.). Possibly, as mentioned below, it is because Exelon has done this before and many of the recipients know that.

Also, since Exelon rewarded 35 of the 42 responding firms (83%) with positions on its preferred provider list, it may be that the firms understood that they were likely to be selected and that spurred a high participation rate.

A third observation is the massive size of the RFP process. The law department would have had to deploy a team of people to put specifics into the RFPs and to review the outpouring of responses. In my experience, five to seven invitees is a more normal number.