Articles Posted in Outside Counsel

An article on Requests for Proposals, from InsideCounsel, June 2008 at 64, includes a graphic based on the ACC/Serengeti Managing Outside Counsel Survey. The graphic shows “the number of legal departments practicing convergence” as reported in surveys each year from 2000 to 2006. The percentage hovers between 27 and 31 percent, with no discernible trend.

If we take that data as representative of US law departments, is it noteworthy that each year about a third of the respondents say that they want to reduce the number of law firms they use? Isn’t it likely that at any one point in time about one-third are content with the size of their outside counsel roster and one-third anticipate that they might increase the number of firms they use?

In other words, for such big topics as investments in technology, emphasis on professional development, or improvement in knowledge management, isn’t it plausible that on a snapshot roughly a third of all general counsel want to do more, a third less, and a third stand pat?

In January of this year, John Lipsey, VP Corporate Counsel Services at Martindale-Hubble, surveyed thousands of corporate counsel in the U.S. – without regard to whether or not they had a known relationship to Martindale. Some 730 responded. He wrote about the results on the Martindale-Hubble blog.

The lawyers ranked in order of importance various resources they use when hiring outside counsel. More than 90 percent of them picked personal referrals from colleagues as the most important (See my post of Aug. 5, 2007: internationally, referrals dominate.). Next came Martindale-Hubbell, with 42 percent of the respondents ranking www.martindale.com as being important in the hiring process. Google came in a distant third with 18 percent of the respondents viewing it as an important resource (See my post of Jan. 28, 2008: how hard it is to locate a specialist lawyer.).

Closing out the resources drawn on – as listed by Martindale-Hubble – were Best Lawyers (9% of respondents viewing it as important), Chambers (7%), SuperLawyers (6%), and Law Dragon and Avvo with less than 1% each (See my posts of July 4, 2006: ranking sources of guidance on prospective law firm retentions; and Nov. 11, 2005: referrals and networks of firms.).

Only rarely does the decision of a trial court warrant a law department either filing or responding to an appeal. Even then, most general counsel stick with the firm that litigated the case below to represent them on the appeal.

Once in a blue moon, however, strategic wisdom persuades a general counsel to bring on a firm that has a specialized appellate practice. Even so, according to a profile about such a practice at Sidley Austin, appellate counsel typically partner with trial counsel from the original firm, Corp. Counsel, Vol. 16, May 2008 at 19 (See my post of Aug. 10, 2007: virtual teams and references cited.).

An interview of two Eversheds partners, published in Met. Corp. Counsel, Vol. 16, May 2008 at 27, contains the following statement: “At the end of each dispute we handle that involves fees in excess of £40,000 [about $70,000] we bring in an independent research firm that interviews our clients concerning their experiences and our handling of their cases.” The firm has conducted such satisfaction surveys over at least the last two years.

The fee threshold seems quite low, but this is still a commendable practice, one that clients and law departments should appreciate and respond to frankly. Would it not be even more valuable if the Evershed’s lawyers who worked on the dispute compiled a counterpart satisfaction survey? How did the law department handle the case? The input from that could help the law department better manage outside counsel and litigation and should solidify the relationship between it and the firm (See my post of March 24, 2007: Reed Smith and its program to interview clients.).

I sent the above to one of the co-authors, John Heaps, who replied: “The importance of feedback for everyone involved at the end of an assignment and for that matter as it progresses cannot be overstated. The sort of review you suggest happens at present informally as part of the ongoing dialogue we have with our clients. It is an important element of our partnering approach. The advantages of a more formal system are obvious as specific issues can be addressed, so long as the feedback is handled with sensitivity.”

The Magic Circle firm Eversheds recently gathered responses from “the top international law firms as well as 50 of the world’s most prominent businesses.” In a summary of the latter group’s views, published in Met. Corp. Counsel, Vol. 16, May 2008 at 62, the firm found that “over half (55%) believ[ed] that the current growth in law firm fees was not sustainable.”

Let’s deconstruct that quote. It is unclear whether “clients” means chief legal officers or business executives. I hope it means the former, lawyers who manage outside counsel, and believe that it does because at the start the interview refers to canvassing “the profession in its entirety.”

It is likewise unclear whether “law firm fees” refers to the total revenue of law firms or to their hourly billing rates. I hope it means the latter, because what reason could there be to think that mega-firms will cease to add lawyers.

“We may want to get to know our clients socially. In fact, many of our client relationships are the result of years of social relationships, through sports or charitable organizations.” Two ideas seem mashed together in this quote by two law firm partners, from Met. Corp. Counsel, Vol. 16, May 2008 at 10.

Once you have retained a lawyer, do you want to spend time with him or her other than on business? Is it a purely professional transaction or also a personal friendship? The trick is not to let personal feelings over-ride effective management of the relationship.

The second idea has to do with how partners find clients: sometimes they meet through an activity unrelated to legal business (See my post of April 17, 2006: golf outings and tickets.).

A cause of law-firm vulnerability, where a client wields too much clout, is law-department power. Here is what a small item in Law Firm Inc., Vol. 6, May/June 2008 at 14 offers as a way to think about this dynamic, based on the comments of an Altman Weil principal. Ward Bower was giving two yardsticks for the survivability of a firm, but I think the points apply to client clout.

(1) If your law department accounts for more than four percent of a law firm’s revenues and (2) your fee arrangements result in below average profitability per partner in the practice areas you draw on, you have the heft to push that firm around (See my posts of July 31, 2005 and May 28, 2006: additional services law firms can provide.). The trouble is, no general counsel has any visibility into either of these indicators of leverage. It would not be hard to ask your primary firms for this information (See my posts of Jan. 10, 2008 and Jan. 13, 2008: how much is fair to ask of your law firms.).

Large law firms, those that have handled many matters of a similar kind, ought to realize that if they extract and analyze cost and timing data for those matters, they will have an edge. The edge would cut on competitive bids, on budgets, on staffing decisions, and on other internal management. The firms that do such an analysis will more precisely and credibly estimate costs for budgets, set fixed fees and explain the amounts; project staffing needs; predict resolution times, and calculate likely profitability.

The marketing edge alone would be substantial.

Why, then, is data mining – where some results are shared with clients and prospects – not prevalent (See my posts of July 21, 2005: data mining by a consortium; Jan. 25, 2007: business intelligence and data mining; and Feb. 19, 2007: does data mining mean anything.)?

At a company I know, roughly sixty percent of the lawyers in the large department manage outside counsel. When I found that out I felt surprised, and realized two things. First, there are no benchmark figures for the median percentage of firm-supervising lawyers. My guess would be that less than half of a department’s lawyers is closer to the norm. Probably we have another manifestation of Pareto’s Rule: 20 percent of the lawyers manage 80 percent of the outside counsel spend (See my post of May 21, 2008: 9 references to Pareto’s Rule.).

Second, I realized I believe that supervision of outside counsel ought properly fall to the most senior, experienced lawyers. If lots of your lawyers have that role and you have a large department, you are likely to have insufficiently experienced lawyers trying to guide veteran law-firm partners.

An admonition in a column of Corp. Counsel, Vol. 15, May 2008 at 72, caught my eye. “Tell your outside providers to get in the habit of analyzing and vetting bills before sending them to you.” Well, yes, of course. Isn’t that bit of advice on a par with “Tell your law firms not to over-bill you?”

Setting aside that snide shot, how would you know that a partner has reviewed the pre-bill unless their bills indicate time written off because it was inefficiently spent? Billing partners always claimed that they scrub their bills, but how many of them state on their invoice the time written off by them?

Ask partners to show specifically what they have written off. You can learn how they assess their own bills and what they think is lower value effort. Or you might find that the firm bills you whatever timekeepers record.