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Could lack of alternative fee arrangements (AFA) breach a fiduciary duty owed by a general counsel?

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Jeff Carr, the general counsel of FMC Technologies, held forth on a panel at the SuperConference yesterday. In the context of billing arrangements by law firms other than hourly billing (and discounted hourly rates), Carr speculated out loud.

He wondered whether a general counsel who has not actively explored and tested some of the performance-based payment methods might be derelict in the obligation that executive has to steward the company’s funds and resources. Might there be a breach of fiduciary duty to the company, he asked the audience?

Seeking authoritative guidance of what this might mean, I found US Legal.

“A fiduciary duty is an obligation to act in the best interest of another party. For instance, a corporation’s board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust’s beneficiaries, and an attorney has a fiduciary duty to a client.” Surely a general counsel must act in the best interest of the company and its shareholders. To miss opportunities that reduce legal costs and improve quality might, over a period of time, breach the fiduciary duty of a general counsel to the client employer. But I am nervous even writing this…..

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5 responses to “Could lack of alternative fee arrangements (AFA) breach a fiduciary duty owed by a general counsel?”

  1. Steven B. Levy says:
    May 26, 2010 at 11:37 am

    In the corporate world, I was responsible for P&Ls (budget) for my department. I had an absolute corporate obligation, reflected in my objectives and tested at my reviews, to be the best possible shepherd of corporate funds. And as a manager, if one of my reports had a distinct P&L within my own, I held his or her feet to the fire on effective spending.
    The “stick” here should be held by whomever the GC reports to. Spend ineffectively, and get no bonus and a poor review… or even be replaced… like anywhere else in the corporate world.

  2. Richard says:
    May 27, 2010 at 3:27 am

    I disagree with this approach. I don’t think the effectiveness in results or actual savings have come anywhere close to being proven. I can hire a lawyer for $200 an hour or $1000 an hour, the price is not the fiduciary issue, the quality, the skill and the results are. It might be a P&L issue, fair enough. But fiduciary? Not in my book.

  3. Richard says:
    May 27, 2010 at 3:27 am

    I disagree with this approach. I don’t think the effectiveness in results or actual savings have come anywhere close to being proven. I can hire a lawyer for $200 an hour or $1000 an hour, the price is not the fiduciary issue, the quality, the skill and the results are. It might be a P&L issue, fair enough. But fiduciary? Not in my book.

  4. William E. Culton, Jr. says:
    May 28, 2010 at 11:51 am

    Looking at legal fees and costs incurred by the company in a vacuum/as a measure of whether in-house lawyers are fulfilling their fiduciary responsibility to the Company is inappropriate. As the prior comment mentions, the real fiduciary responsibility relates to results obtained, risks avoided and/or mitigated, etc., all of which goes way beyond (and has no direct correlation to) legal fees paid. If I decided (unilaterally, based upon a misguided “fiduciary responsibility to shareholders” theory) that I wouldn’t give business to our best outside counsel because he wouldn’t agree to an alternative fee arrangement, and instead engaged someone less qualified in order to save some legal fees, I’d soon be looking for a job elsewhere. Contrary to what many of my in-house colleagues want to believe, legal services aren’t always a commodity.

  5. William E. Culton, Jr. says:
    May 28, 2010 at 11:51 am

    Looking at legal fees and costs incurred by the company in a vacuum/as a measure of whether in-house lawyers are fulfilling their fiduciary responsibility to the Company is inappropriate. As the prior comment mentions, the real fiduciary responsibility relates to results obtained, risks avoided and/or mitigated, etc., all of which goes way beyond (and has no direct correlation to) legal fees paid. If I decided (unilaterally, based upon a misguided “fiduciary responsibility to shareholders” theory) that I wouldn’t give business to our best outside counsel because he wouldn’t agree to an alternative fee arrangement, and instead engaged someone less qualified in order to save some legal fees, I’d soon be looking for a job elsewhere. Contrary to what many of my in-house colleagues want to believe, legal services aren’t always a commodity.