Articles Posted in Outside Counsel

Survey findings in Law Firm Inc., Vol. 6, March/April 2008 at 19, include data from 70 chief financial officers of the Am Law 200. One chart reports on practice group profitability. The three practices ranked as most lucrative were “Litigation” (44% picked it as most profitable), “Corporate/Transactions” (33%), and “Intellectual property” (9%).

The least profitable practice groups were “Labor and employment” in a tie with “Bankruptcy” (15% picked each of them as least profitable). Next, in a three-way tie were “Intellectual property,” “Environmental,” and “Real estate” (each at 9%).

Big litigation frightens executives so they leave the spending taps open. Also, litigation work is very delegable. Likewise, to buy a major company or to be attacked by a would-be purchaser sets the stage for bills gone wild. IP litigation is notoriously expensive. Oddly, some chose IP as low profitability, but probably because their firm does prosecution work (See my post of May 23, 2007: commodity prices yet strategic assets.).

An article in Legal Week, Vol. 10, March 6, 2008 at 13, makes the point that general counsel play down how useful legal directories can be. The author ascribes their putdowns not to the weaknesses of directories as much as to large doses of defensiveness. Good directories, the author suggests, undercut the power of the top lawyer. “Any chief executive or chief financial officer with access to a fully comprehensive guide to a legal market could quickly undermine one of the chief roles of a general counsel – the selection of outside counsel.”

I disagree. Picking outside counsel is not one of the general counsel’s “chief roles” (See my post of May 30, 2005: involvement of the general counsel.). For major matters, yes, but those are infrequent. More so, how the law firm is directed and the strategic decisions taken are more crucial. Second, the selection of significant outside representation is a delicate, thoughtful balancing of many considerations and no static and dated directory, written for all to read, can replace experience and judgment.

Invoking the specter of procurement professionals independently using directories of external firms, the article continues: “Legal directories which give a reasonably accurate view of the market could empower people other than in-house lawyers to pick their counsel themselves.”

In-house counsel who select law firms for matters always talk about the importance of chemistry. “We want to like the people we work with,” they inevitably intone. No one can deny that if all things were equal, it is more pleasant to labor with those you like. And those you like are more likely to think like you and share your values (See my post of Feb. 6, 2007: look for chemistry.). So what are my quarrels?

What worries me is that you are hiring counsel to achieve your goals, not to be your buddies. If you assume talent is equal, then by all means choose nice people. If you want your company to succeed legally, however, it may be better to hire a less pleasant lawyer who is more effective. I also worry that the vague concept of chemistry disguises all kinds of subjectivity and even favoritism (See my post of Sept. 22, 2006: factors that erode rational selection.). Undue stress on chemistry can also be a device to improperly cosset incumbent firms – “we get along so well….”.

Whenever law firms submit metrics in a competitive bid, you can rank the firms on those metrics. For example, if you ask each firm to tell you how many lawyers they have practicing in a certain area of law, then under the assumption that all things being equal more lawyers equals more talent, you can rank those firms from one on up to as many firms as propose. The last step is to add each firm’s ranking on each question and thereby establish an overall rank order.

Since ranking positions each firm exactly the same distance apart there is an improvement you can try (See my post of Oct. 17, 2005: ratings compared to rankings; June 10, 2007: a better way for surveys to rank; March 10, 2005: setting priorities; and April 8, 2007: ranking compensation by practice area.). Add the total number of lawyers stated by the firms and divide each law firm’s number of lawyers by that total. Each law firm will then have a percentage of the total.

If you have several quantitative questions in your RFP and in a like manner you calculate a percentage for each firm, when you add all the percentages for any particular firm you will see bigger differences between the firms than when you merely add their rank numbers.

I have derided notions that there is a conflagration of firings of law firms (See my posts of Feb. 28, 2008: lack of responsiveness; and June 18, 2007: references cited.). I went so far as to publish an article about this urban myth. Click here to see a pdf of my article.

That said, however, it is likely true that a couple of management trends account for some number of law firm terminations. Competitive bids and RFPs would be one of the trends (See my post of March 30, 2008: Requests for Proposal and references cited.). Some incumbent firms lose out when they compete with new firms to do work. You could say that the formerly used firms are fired.

The second cause of terminations would be convergence projects, where law departments trim the number of law firms they retain (See my post of April 2, 2006: counterpoints to convergence.). The whole purpose of convergence is to fire some number of law firms.

A thoughtful article in Legal Week, Vol. 9, Dec 6, 2007 at 26, sorts through some of the difficulties of so-called value pricing. One is that the few words of the wise counsel may bring tremendous value, but many general counsel balk if asked to pay for what seems to be such a brief contribution. Another difficulty is when a law department tries to argue for some percentage of the transaction’s value. An unimpressed general counsel can reply that any one of several other law firms would have been as willing to help, “so what particular value did you lawyers contribute?” This is a problem with this line of approach; “it ends up focusing people on the search for unique or exceptional contributions, which by their nature are going to be rare.”

The article also points out that large law firms with a likelihood of getting future work are more able to agree to success premiums and failure discounts because they can bear the risks, which is a quite different that for a small firm with no less assurance of future work.

A post by David Hobbie about an International Legal Technology Association (ILTA) session on Aug. 22, 2007, describes some of the initiatives of Liberty Mutual’s law department. That department handles 1,600 law firms that submit electronic bills, yet they it still receives up to 6,000 hard-copy invoices every month. According to Mike Russell, Strategic Legal Technologist at Liberty Mutual, his team followed Six Sigma to improve processes that surround the deluge.

They use Documentum WebTop to capture key information about the invoices and Adobe Acrobat Standard (6.0 Professional) to annotate and handle the invoices. Staff scan all invoices into PDF and import them into Documentum. They also track invoice information in Excel.

The law department ships the original invoices to a vendor with a bar-coded cover sheet that describes what is in each shipment. The vendor destroys the invoices after 90 days. In other words, Liberty Mutual legal function, with the assistance of internal IT resources, re-purposed its document management system to treat bills as documents.

A number of posts on this blog have addressed aspects of convergence, but none of them have explained how best to accomplish it (See my post of Feb. 18, 2008: reprise of convergence and references cited.). Here are seven steps that cover one set of choices.

1. Start with a list of all the law firms your department paid during the most recent fiscal year (See my post of Aug. 21, 2005: what drives up the number of firms retained.). Then gather the amounts paid to them and in a table break out those amounts by areas of law.

2. Ideally, create the same table for the previous two fiscal years (See my post of Aug. 21, 2005: consistent use of law firms over time.).

Here are some of the ways to find success with single-matter budgets by law firms.

1. Have a couple of examples of budgets available to send to law firms (See my post of Dec. 15, 2006.).

2. Develop budget requirements differently for litigated matters and for transactional matters (See my post of Nov. 6, 2005.).

A profile of the new chairman of ALFA International, published in Law Firm Inc., Vol. 6, March/April 2008 at 19, caught my eye and adds to my collection of law-firm networks and associations (See my post of Feb. 21, 2008: references cited.). The piece states that ALFA has a membership of over 9,000 lawyers in 125 firms. Currently the organization has a roster of 85 domestic firms – within the United States – and 40 international firms.

Wise readers, ponder two questions and email me rwmorrison@hildebrandt.com your experience and views. Do law departments know if the firm they have retained seeks advice from a network firm? Is the time of the network lawyer recorded as an expense or as a timekeeper of the original firm?