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Trenton, New Jersey, accepted $22 million in state aid because of the deep budgetary hole it was in. That lifeline from the state came with a number of restrictions. Bloomberg Businessweek, Dec. 5, 2011 at 38, mentions that one of the constraints is that the state’s Community Affairs Department now has the right to approve the “hiring of outside contractors such as lawyers.”

There must be a law department for a city the size of Trenton, and this degree of oversight and approval drastically restricts the managerial authority of its top lawyer and the other lawyers in the department. The article suggests that other states are imposing similar limitations on cash-strapped cities that tap state funds. I would imagine that if the state agency takes the responsibility for approval seriously, the process of Trenton retaining outside counsel will significantly slow and complicate.

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Fronterion’s recently released Top Ten Trends for Legal Outsourcing in 2012 is worth reading. One point it makes relates to the increasing frequency with which law departments will retain LPOs and insist that their law firms rely on the work of the LPO. Law departments will butt into their law firms’ concerns about quality and professional liability.

“In the coming year, however, in-house legal departments will increasingly contract directly with legal vendors creating conflicting concerns for law firms. For example, how can law firms oversee, and be responsible for, services provided by a vendor with which the firm is not even contractually engaged? These new structural relationships and resulting work products are often beyond what the law firms’ insurance policies were designed to cover.”

Neither concern, I submit, either quality of work or insurance coverage for it, will slow the trend. The full version of the report is at Fronterion’s website.

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An informative article co-authored by the general counsel of Alfa Laval appears in the ACC Docket, Nov. 2011 at 39. One portion discusses “risk tolerance,” and gives the edge in risk tolerance to companies that (1) have the money to absorb the worst-possible outcome and (2) encounter the situation repeatedly, so that probabilities bear out. A small company facing a claim of patent infringement might not be able to pay (or settle) a nightmare amount and it won’t face more suits in which to balance out the large payment against many non-payments. Large companies, however, can play the odds and take some big hits. They know that the law of averages will hold in their favor over time, which means that their legal costs will be more moderate since they can be bolder, take more risks, hire more appropriate law firms, set up fee arrangements and systems – reduce total legal costs. Insurance against extreme outcomes can help as might third-party funding.

The authors also note that repeat players, law departments that over time see a number of similar instances, become more adept at estimating the probabilities and consequences of the various outcomes (See my post of Dec. 12, 2011: expected value.). The article treads lightly on the statistical tools that give specificity to variance. As a standby, it suggests column charts or scatter-grams to show the distribution of possible outcomes.

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Release 4 goes out this week, bulging with key benchmark metrics from 740 law departments. That marks quite s a jump from 530 legal departments in October’s Release 3. Many more will take part in this epic benchmarking effort before it closes in January – and I hope you do too. There is no cost and only six pieces of data need to be entered on the secure online survey: your staffing numbers, internal and external legal spend, and revenue.

Companies that take part will also be eligible for two exciting products to be announced early next year. GC Metrics will send them Insights, an innovative report on matter management systems, as well as findings from the combination of two years of data – more than 1,200 law departments!


Click here to take General Counsel Metric’s seven-minute survey and receive your report of 65 pages in mid-January. It will cover at least 24 industries.

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In an article about how to integrate two law departments when their companies merge, there is a list of “Twenty-Five Key Areas of Focus for Legal Department Integration.” The list appears in the ACC Docket, Nov. 2011 at 62. The first eight areas highlight management of the operations of the merged department, three more areas cover a significant component of operations and administration, but the remaining 14 all concern substantive legal services that need to be addressed.

What I consider squarely in the realm of managing the law department would be these eight, as listed: “legal personnel, knowledge management, budget and forecast, technology support, invoice management, records retention, outside counsel management, and litigation management.” Three areas listed after them involve a fair amount of law department management. “Patents, trademarks and other intellectual property, forms and templates, and contract management” all straddle operational issues as well as the provision of legal services. The remaining checklist items, the majority on the list, go to a general diagnosis of the needs of the merged company for various legal services, not to how the merged department functions and is managed.

Aside from that, not on the list are some operations topics that a general counsel of a merged law department ought to consider: facilities, locations of lawyers, reporting structure, and software.

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Last year there was news about law department consulting offered by Eversheds and several law firms tout their consulting skills regarding e-discovery. Recently I saw another instance of a law firm that wants to consult to law departments.

An ad in the ACC Docket by Seyfarth Shaw promotes how its “team of lawyers and consultants helps Global 2000 companies re-engineer their internal legal processes and manage complex internal legal projects.” SeyfarthLean™ Consulting draws on its internal experience with Lean Six Sigma (See my post of June 9, 2011: Lisa Damon presentation on firm’s use of Six Sigma tools.).

I wonder whether general counsel retain a law firm to consult on operations without being aware that the firm’s advice might be tinged by some self interest. It’s a similar pressure to a technology consulting firm that recommends a strategy for a law department all the while being more than eager to implement that very strategy.

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The general counsel of Alfa Laval co-authored a solid article in the ACC Docket, Nov. 2011 at 39. The authors discuss a common method to describe possible outcomes: expected value. Each outcome that has a monetary result is expressed as the percentage of the particular outcome multiplied by the money.

Try this technique on the odds you estimate that a regulatory agency will impose a fine. A 50 percent chance of paying a $1 million fine has an expected value of $500,000; a 30 percent chance of a $2 million fine has a value of $600,000; a 20 percent chance of a $3 million fine has a value of $600,000. Together, the overall expected value of a penalty is $1.7 million, the total of each of the three odds-adjusted outcomes. It is all the results weighted by their likelihoods (See my post of July 15, 2005: three ways to reach expected value more realistically.).

Beware, caution the authors, that you don’t just tell clients the overall number. You need to convey the range of outcomes-with-likelihoods that constitute it.

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“[M]aking a prediction in terms of probability simply does not fit well with predicting an event that will happen only once.” A lawyer who tries to give a client the likelihood as to whether something will happen – for example, the odds that the Department of Justice will oppose a proposed merger – by stating a percentage (“75% chance this will get by”) is really saying that if this identical deal happened 100 times, for 25 of them the DOJ would step in and stop it. A good article in the ACC Docket, Nov. 2011 at 40, makes this point.

The authors recommend that lawyers use “natural frequencies” to express probabilities, such as “in 25 out of a 100 instances like this, anti-trust objections will kill the deal” (See my post of May 5, 2011: natural frequencies compared to percentages or decimals.). Otherwise, if the likelihood given the client is more than 50 percent, the client tends to remember that as a prediction that this time it will happen.

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In 2010, a major division of Royal Dutch Shell decided to use zero-based budgeting to reset its cost structure (See my post of July 16, 2007: zero-based budgets; Jan. 2, 2009: advantages of zero-based budgets; March 29, 2009: five steps toward more reality in budgets; April 22, 2009: zero-based staffing decisions by general counsel; and Aug. 11, 2009: along with just-in-time budgeting.). Describing the effort in strategy + business, Winter 2011 at 20, the author sees “continuous improvement in a big corporation as necessary in what I would call managing cost creep: reducing the 3 to 5 percent in additional costs or waste that most large companies seem to generate every two or three years.”

If large companies lard on budget fat at that rate, their functions are doing so. How would a general counsel put the department on a scale and measure the “additional costs or waste” that has built up. Obviously, some costs rise from inflation, but “waste” is a subjective, normative judgment. Someone’s additional subscription; another’s new propensity to take a car service to the airport instead of driving; some laxness on bill review; a subsidy for a new espresso machine; PDAs issued to paralegals, theater tickets added to the All Lawyers’ Conference – what is waste and what is investment or legitimate expense? A budget that defers to no sacred cows and scrutinizes all expenses as if there were no history behind them would be a salutary discipline.

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OMC released a report in November that pulls together a formidable amount of data and analysis on legal process offshoring around the world. London-based OMC specializes in advising law firms and law departments on opportunities to have services provided in lower-cost jurisdictions.

Page 15 of the OMC report lays out 32 routine tasks in 6 practice areas that OMC sees as particularly amenable to offshoring. Some tasks use UK jargon that is not familiar to me, such as “SDLT tasks” and “21 day filings” but otherwise it seems to be a comprehensive and understandable list. If you would like to see the entire 16-page report, please write David Ellis.