Law Department Management Blog

Some hard-nosed general counsel snort that project management counts as overhead and partners should not charge for the likes of those people. Like practice support specialists at UK firms, they are overhead.

Others, who have witnessed the plus side of project management or are more in tune with the benefits touted by law firms from skilful management of resources, may be amenable to some costs being passed on. They might find a fixed surcharge acceptable or a percentage of the fees charged. They might let a law firm apply the new skills and agree to pay what they – the inside managing counsel – deem to be the incremental value.

The broader question sweeps in all timekeepers other than paralegals and lawyers. Should e-discovery professionals bill their time? Should research and knowledge experts show up on invoices? What about graphical experts for trials?

According to a speaker at a recent conference from the law department of Office Depot, that department opened 7,489 matters in 2010 of which outside counsel assisted with a mere 2.4 percent! That ratio of inside to outside matters seems very low (See my post of May 24, 2011: 30% at The Williams Companies.). Slip-and-fall litigation in the multitude of Office Depot stores would on its own seem likely to drive that percentage much higher.

Maybe its internal lawyers open matters at the drop of a hat, perhaps because they are evaluated partly on how many matters they handle. More likely, I think, the number of matters handled by outside counsel is lower than one would expect, for several reasons.

One is that Office Depot’s law department might open multi-case matters, such as all slip and falls west of the Mississippi. Maybe it has assigned large groups of similar matters to one or more law firms and therefore does not open individual matters for them. Perhaps some other function at Office Depot supervises multitudes of small matters such as nuisance suites through Risk Management, small claims through the insurance group or single plaintiff discrimination suits through HR. Or perhaps an insurance company that covers the company with an EPLI policy does the chore. Maybe a matter need not be opened if outside counsel handles it below a modest sum or an aggregate spend by type of case (slip and falls in May).

What if a law department took the 12-to-20 law firms it most commonly turns to and calculated the percentage of the firm’s revenue that comes from the department? You know your spend and you can estimate the firm’s revenue from league tables or extrapolations from them. If a firm has hundreds of lawyers, even a seven figure spend might be only a small part of its revenue – not much clout (See my post of Feb. 20, 2008: Latham & Watkins as $2 billion revenue.).

If you were being aggressive on cost control or other requirements, you can lean more on the law firms that depend on you the most. I have not heard of any law department that explicitly quantifies and exploits its leverage in such a way, but the concept may have applicability.

An article describes a fixed-fee basis arrangement between Brunswick Corp. and K&L Gates. ‘Following the first year of representation, the fixed-fee contract had to be modified in order to provide more protection for the law firm.” Brunswick and K&L Gates agreed to set “a ceiling on fixed fees” and to switch a case to hourly billing if that ceiling is met.

I read into this brief reference several points to note. A ceiling on fees and the switchover operates somewhat like a collar (See my post of Dec. 7, 2005: collars to prevent injustice.).

Note that the two parties let a year go by so that they could spot the kinks and figure out improvements.

Two of my friends, Bruce Heintz and Nat Slavin, both experts in interviewing corporate law departments and clients, reacted to my post on client interviews on behalf of law firms (See my post May 19, 2011: pros and cons of partners or consultants.). I have merged and shortened their comments and avoided individual attribution.

Both consultants strongly disagreed with my comment that consultants might not know much about the business of the client being interviewed. They both stressed that professional preparation for such interviews dictates that they bone up extensively on the client. They might, indeed, better understand the industry and its environment than would law firm partners. Moreover, “We, as consultants actually have a much broader experience in interacting with business and tend to know about a multitude of industries than does the typical law firm partner.”

There was also disagreement with my view that a consultant might “aggregate” or “conceal” the specifics learned in interviews. One of them, particularly, takes great pains to “relay all of the law department’s concerns, with specific attribution, back to those individuals at the firm who can take remedial action.” He then added: “In contrast, after a busy partner of the firm completes his/her interviews (possibly scattered over a long period of time), the ‘message’ to the correct recipient partners may get shortchanged.” The other chimed in: “A partner has inexperience, little training and no systematic approach or methodology to delivering the information, and also has biases that come through. They also don’t have accountability to deliver clear and precise messages that an outsider does.”