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For a group of insurance companies, litigation in the past 12 months dropped or held steady

Whether people sue more or sue less when the economy declines ought to be a well-understood empirical fact. Managers of in-house legal teams should be able to plan based on the correlation or lack of correlation to the general economy (See my post of July 19, 2009 #1: expected increase of litigation during recession; and Jan. 14, 2011: patent litigation in decline.). Unfortunately, no such clear-cut picture can be drawn.

Therefore it interested me that a recent report, based on data mostly from large U.S. insurance companies, found that 40 percent of them reported a smaller inventory of litigation in the 12 months preceding October 2010. Another 45 percent reported the same inventory level. The Council on Litigation Management commissioned Revere Advisory to conduct the study of litigation in the United States and this finding is on page 4 of its report. You can request a copy from Taylor Smith.

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At a SuperConference session on litigation management, a lawyer from CapitalOne said that his department allocates a portion of its spend on outside counsel to firms that are not on the preferred partner manifest. He said “It’s partly training them and partly assessing them to see if they might become a preferred firm.” Those are good reasons. Reasons with more bite could be added.

As I see it more competitively, no law firms deserve to feel entitled to a flow of work, locked in, guaranteed a place at the trough. Legitimate competition waiting in the wings keeps everyone honest. For that reason, give some work to contender firms.

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For the most part, the general counsel’s team can and does decide which law firm makes sense for a particular matter. Sometimes, it must be admitted, that exclusive privilege bends a little – or a lot – if others with more power or influence want to direct the retention. My latest article in the National Law Journal, June 13, 2011, discusses three pressures that can change the course of a retention. Download the selection pressure article here.
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In the May 2011 Harvard Business Review, one article (at 85) argues that the biggest roadblock to work productivity is that “People don’t capture stuff that has their attention.” They commit to do something, “but they don’t write it down and it goes into a black hole.” Worse, they don’t determine the goal they want to achieve or the next action to take toward that goal. If you create a list you understand better the lay of your work land, you pick more wisely which task on the to-do list is most important to tackle, and you haul to earth the free-floating anxiety that manifests itself as feeling overwhelmed. “Your head is for having ideas, not holding them.” Workers of the world, create lists!

So, dutifully, I have listed my blog posts on lists (See my post of April 8, 2005: distribute a to-do list after a meeting; April 18, 2005: the power of to-do lists; Nov. 7, 2007: relieve stress with prioritized lists; Jan. 8, 2008: 8 ways to organize tasks to be done; Oct. 10, 2008: tools to help set and follow priorities; Jan. 6, 2011: write down and attack the six most important tasks you face; and June 26, 2008: priorities with 6 references.).

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Law departments institute many practices to handle the torrent of contract review, drafting and negotiation. In the past 18 months or so, this blog has cited nearly two dozen practices that deserve consideration.

For several references I have cited the company that was the source of the practice (See my post of Sept. 21, 2009: use offshore staff to keep contracts in order; Jan. 7, 2010: have clients request contracts through a portal (Catholic Healthcare West); Jan. 10, 2010: use a contract assembly database; March 16, 2010: observe nine rules for contract drafting; April 20, 2010: run software that matches contract terms against the other party’s terms; July 15, 2010: treat contracts differently than purchase orders; Aug. 10, 2010: employ contract specialists (Discover Financial Services); Aug. 17, 2010: reduce the number of forms of contracts (Microsoft); Aug. 22, 2010: LG Electronics and solid steps for contract management; Sept. 4, 2010: agree to three priority levels for contracts handled by law departments; Sept. 6, 2010: adeptly use contract management software; Sept. 9, 2010: set up global delivery centers for contracts (IBM); Oct. 28, 2010: clarify approvals and obtain electronic signatures (Cisco); Nov. 17, 2010: reduce the number of form contracts, but with client assent; Nov. 27, 2010: deploy a contract management system (Royal FrieslandCampina); Nov. 29, 2010: set and record limits on negotiation rights; Nov. 29, 2010: focus on five key provisions that need legal review if changed; Dec. 19, 2010: obtain services from law firms for a fixed fee (Bell Canada); Dec. 28, 2010 #2: have a lawyer review every contract; Jan. 24, 2011: understand a framework in which to group your contracts; April 11, 2011: automate linkage between contracts and email; May 25, 2011: maintain a contracting and negotiating guide (Aerojet); and May 31, 2011: require contract request form and procurement’s involvement (eBay).).

In a later post I hope to mine the previous metaposts for more practices (See my post of May 5, 2006: contracts with 15 references; and Sept. 2, 2009: contracts with 48 references.).

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Every year legions of lawyers and the claims specialists who work with them handle tens of thousands of claims. Insurance companies especially care about this onslaught, what with the billions of dollars they spend each year on claims coverage, defense, and resolutions. Other companies also have claims functions when they face a relatively large and constant flow of allegations or suits..

A fair number of posts on this blog have addressed claims management, although not nearly in proportion to their impact. In part this is because the claims group often operates outside the legal group (See my post of Aug. 21, 2005: tension between lawyers and risk managers on notification of claims; Nov. 14, 2005: partner with law firms on claims management; Nov. 15, 2005: $1 billion+ annual legal spend on claims and performance management at AIG; April 23, 2006: metrics on claims that result in litigation; May 21, 2006: NYC and management of tort claims; April 6, 2007: McDonald’s and management of claims; June 26, 2008: self insurance by large US companies has moved claims to law; March 13, 2008: Council on Ethical Billing; Feb. 11, 2010: publication oriented toward claims management; March 22, 2010: legal privileges and separation of claims from legal; March 29, 2010: Home Depot and changes in claims management; and Sept. 1, 2008: insurance with 12 references.).

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I looked at data from 272 law departments that had participated so far in this year’s the GCM benchmark survey (with full data) and the 114 that identified their matter management system. Having described the dispersion of those named systems as well as the eight most common (See my post of June 13, 2011: 63 departments in total), I went a step further with the 63 users of the “big eight.” I calculated the total legal spending as a percentage of revenue (Revenue Spend) for each of those 63 legal departments and then by software package.

For all 272 companies, the average was 0.85 percent while the median was 0.40 percent. For all but one of the software packages, average Revenue Spend was less than the average for the entire group. (When I removed those 63 from the group, the averages and medians hardly budged.}

Conclusions will become stronger as hundreds more law departments take part in the survey, but from this preliminary analysis, one could argue that these well-known matter management systems help their users reduce their total legal spend as compared to the average of law departments that have not chosen to license one of them.

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A recent survey’s report on law department value ends with a strange twist. “In summary, the more the legal department can free up attorney time to focus on revenue-generating activities, the better it will serve the client and the better the business will perform.” If “revenue generating” comes down to completing sales contracts, that leaves little justification for lawyers who specialize in litigation management, environmental law, or real estate. They don’t bring in money, or not nearly as directly as commercial transaction lawyers.

In limbo too would be HR lawyers – arguably you have to have employees to generate revenue – and export/import lawyers – if you source or ship internationally they become important. Even if some legal work goes on far removed from cash registers jingling, my bottom line is that all lawyers in-house are equally instrumental to the success of the company.

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Robert Pozen practiced law, among his many distinguished careers in business, government and academia. He was a partner at the Washington, D.C., law firm of Caplin & Drysdale, where he led its banking/securities department from 1981 to 1986.

Pozen wrote an article in the Harvard Bus. Rev., May 2011 at 127, about six principles for a more productive work life. Under principle 2, “It’s Not the Time You Spend But the Results You Produce,” he urges readers to recognize that “Your success should be measured by the results you produce, not the number of hours you log.” Sounds like grist for the AFA mill.

Then Pozen recounts how he realized at his law firm that charging clients for hours worked made no sense. In his words, after a few years, once his clients knew he was efficient, he tried a new tack. “I sent them a letter explaining that in the future I would bill them for double the time I actually spent on their work – unless they objected. Not one client did.”

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A speaker from Baxter Laboratories said at a SuperConference panel that they have instituted some disciplines to keep matter budgets relevant. Every month outside counsel must certify that the matter is on budget and inside counsel must do something similar to show that the budget is on track.

Certification can be a rubber-stamp exercise with no meaning or it can be a genuine reflection that thought was given to the assumptions and circumstances. Even more striking to me is Baxter’s insistence that inside counsel must be accountable; they must keep up with the progress of the case and the associated costs; they must use budget review as a tool to manage the case; they must do something affirmative to show this level of attention.