Most law departments these days have some lawyers dedicated to business units and the others, legal specialists like litigators, employment and environmental lawyers, support them. Should those specialists report to the head specialist lawyer – the AGC Real Estate Law – or to the head business unit lawyer – the AGC Widgets? Dual reporting is another choice, and one I favor.

For example, trademark lawyers in Europe might co-report to the company's head TM lawyer and to the head business lawyer in Europe. This makes sense.

But the law department must state clearly what it means to “co-report.” Who prepares evaluations? Who decides on bonuses? Who decides to change titles or relocate someone? Who can fire a bad performer? In general, the nearest person directs day-to-day activities and priorities, while the other supervisor (the head specialty lawyer) manages professional development, quality, and the personnel functions.

Law departments tend to exaggerate the rates at which they believe firms bill them, or at least to mis-state them. The top rates of senior partners stick in the mind, but the blended rate isn’t considered. Be sure to calculate the overall rates you are paying correctly.

A survey of 257 U.S. law firms in 21 major metropolitan areas finds that 65% of partners bill their time between $235 and $474 per hour. Approximately 20 percent of partners have billing rates of more than $500 per hour, which is an increase of nearly 5 percent over last year.

The national average for first-year associates is $167, while first-year associates in Chicago, Los Angeles, New York, San Francisco, and Washington, DC were billed out from between $190 to $259 per hour. www.helderassociates.com, 2005 as reported in Hildebrand Headlines (July 29, 2005).

A study by the UK-based firm, Lovells, disclosed that, on average, China's top 100 companies spend 0.02 percent of their total revenues on legal costs, compared to 1.0 percent for the Fortune 100, and 0.7 percent for big European companies. [That figure for the Fortune 100 is probably three times higher than reality, at least as found by many benchmark surveys. Typical spend is .3% to .4%.]

The firm found that the risks faced by Chinese companies were under half those that faced by Americans, yet the spending was one-fiftieth. I would be fascinated to learn how Lovells calculated legal risks faced by companies, let alone generalized those risks to such large and diverse companies. Financial Times, July 28, 2005 as reported in Hildebrand Headlines (July 29, 2005).

The U.K.-based law firm, CMF (Cameron McKenna), recently surveyed senior executives (presumably in Britain). According to the Financial Times (July 14, 2005) “one-third of senior executives said that while the Chief Executive has overall responsibility for corporate social responsibility, in-house lawyers come second. More than half the respondents said in-house lawyers should take a lead on corporate responsibility.”

With good reason, I believe, many general counsel would balk at this added responsibility. The corporate social responsibility mantle reaches all manner of social, environmental, and business practices. For one, it encroaches on the proper work of a compliance group. Not every demand of society should be legalized, including adherence to ethical standards, nor all forms of risk management. The law department’s role should be to interpret, negotiate, and defend, not to promote and enforce the ambitious agenda of corporate social activism.

It all sounds so surgical and chic, this e-neat business of using the internet to trawl for the low-cost firm. . GE gave the technique cachet (Financial Times, May 12, 2005 at 9). Dutch auctions, they are called, where bids go lower and lower. But, somewhere the dikes gave way.

A gaggle of companies sprang up to meet the much-touted need, but the actual consuming market, the law departments of this land, didn’t see it to their advantage to post work on bulletin boards and receive bids electronically. The e-billing trendlet washed out to sea.

No matter what the e-billing vendors say, their software primarily checks mathematics and small stuff. The software cannot make judgments about the cost of a particular task in relation to its value to the company.

While checking math, controlling fax costs, disclosing multiple time keepers at meetings, and challenging hours beyond ten billed in a day, the software is still looking through the small end of the telescope, at microbes, rather than at the universe of value received for cost.

In a previous post (July 30, 2005), I discussed outside counsel fees that are borne by insurance carriers and that do not show up on a law department’s budget. Other expenses are kept off-budget when a project’s legal costs are capitalized, such as when there is an acquisition.

My view is that all cash laid out by a company to law firms should be included in the law department’s budget. Accounting treatments, tax considerations, reserve management, and the payments of other functions to law firms – claims and risk management, tax, human resources, for example – should not conceal or mislead total spending by a company on law firms. Otherwise, how can a company know and manage end-to-end its total legal expenditures?

Some law departments do not count in their outside counsel spending those fees paid on their behalf by insurance carriers who are defending claims. This off-the-books treatment continues, even though the company’s premiums may well currently or retroactively reflect such costs.

Other law departments, faced with large product liability claims and finite insurance coverage, want to be able to guide how their carriers spend defense dollars, because fees paid reduce the total available for indemnity. The first group misleads as to the company’s spending on legal matters; the second group takes more accountability. My view? Include all external legal expenses in the department’s comprehensive budget.

I have recently worked with two global companies that want to pinch outside counsel fees. What holds them back, however, is a manifest fear of alienating their preferred law firms. These main brand companies’ top lawyers worry out loud that if they push to save a few percent on their outside counsel bills, the firms they really want representing them will walk.

I just can’t accept that this risk is worth worrying about. To the individual partner in charge of the relationship at one of the firms, this major, lucrative representation is far too important to walk away from.

There may be a very few law firms that say to brand name clients, “Pay our full freight, or ship off,” but I think it is rare. I recommend that law departments push for economies even from their prestige firms

For several years I have thought that law firms would grant their significant clients discounts of five to ten percent without batting an eyelash. Even more do I suspect this to be true after finding out that a large British firm, having disclosed its financials, battens on a profit margin of 36 percent. [See my post of July 20, 2005]

To my surprise then, when in a recent project we looked at the total fees paid to the 25 law firms paid the most, we found that a major company obtains an overall discount of a measly two percent. Two-thirds of its primary firms had granted no discount whatsoever during 2004. Were this law department to mandate a mere five percent across-their-board discount, it would save well over a million dollars. Not that I subscribe to discounts as the panacea for cost excesses, but the mathematics are quite simple.