“Most favored nation” (MFN) rates from law firms – quixotic quicksand

Law departments, especially those with big budgets and brand names, like to thump their chests and demand from their firms the best rates the firms give. Setting aside my mistrust for rates-based billing (See my posts of May 4 and August 24, 2005 savaging discounts on hourly rates and Sept. 5, 2005 on Citicorp’s GC and discounts.), this is a delusional quest.

A law firm can distinguish any client from any other client, and honestly (though disingenuously) swear that “your company gets the best rates of all our clients like you.” And, how can a law department find out what a competitor is being billed by the firm, in part because matters differ so much in staffing, complexity, prior familiarity, write offs, billing policies, availability of law firm resources, urgency, partner personality, firm compensation systems, and a host of other dimensions.

You can be sucked into the quicksand of focusing on rates, and tilting at the mirage of MFN rates, but Sancho Reeso says that effort is only for crazy squires.

Administrative time in-house squeezing out substantive lawyering time?

An article in Law Firm Inc. (Vol. 3, Sept./Oct. 2005 at 18) by the General Counsel of ACC (Susan Hackett) dropped in a provocative sentence.

“Our surveys suggest that in-house counsel are increasingly concerned about the amount of time they spend on their management duties (relative to the time they are able to spend cultivating their own substantive practice experience.”) (See my post of Sept. 25, 2005 on presumed 1,850 chargeable hours per year.)

I have not heard this complaint, nor seen any support for it in surveys. More fundamentally, I doubt it is true.

Senior lawyers in large departments may provide much value to their employers through being effective managers, getting the most from those who report to them. Second, the company is not paying its employee lawyers to “cultivate their substantive practice experience.” They are paid to help the company reach its goals, and if managing people gets to that end result, who cares if their legal acumen frays a bit. Finally, it may be that a rising tide of hours lifts all boats, management and substantive practice hours, but that is to be expected. Given the generally under-managed state of most law departments and increasing workloads, I would be surprised to find that disproportionately more time has been going to running the departments.

Request a summary on large outside counsel bills of the major cost drivers

Consider asking your major firms to state at the top of sizeable bills the handful of activities that accounted for most of the bill and the total amount of each of those activities. “Reviewing documents from the Oak Plant, $11,000; researching memo on EPA pre-emption; $7,000; appearance at Oak Zoning meetings, $12,000.” The summary should also state where the matter is against its budget: “We are about 40% through the agreed-to budget.”

A piece in GC New York, Oct. 11, 2005 at 15, by Geoffrey Parnass, supports this suggestion. “In complex matters with lengthy time charges, it is helpful to have the invoice accompanied by a letter spelling out the cost of specific elements of the representation so the company can see the actual costs of the parts and link these with the benefits.

Bumbles that get law firms fired (expensive, silent and stupid)

Seven characteristics of “least successful outside counsel” showed up in Fulbright & Jaworski’s Second Annual Litigation Trends Survey (Full report at 84). From respondents at 103 companies with revenue of $1 billion or more, here were the black marks that can blackball a firm (with the percentage of law departments mentioning it in parenthesis; respondents could give more than one in their open-ended replies and in fact averaged 2.35).

“High cost” (62%); “poor communication” (44%), “incompetence, lack of knowledge” (40%), “non-responsive” (25%), “don’t know our company” (21%), “slow, late” (16%), “unreliable” (13%). It could be that not knowing the company encompasses lack of industry knowledge. (See my post of Oct. 29, 2005 on the value of industry knowledge.) Only one of the seven rests on knowing the law; the other six turn on bedside manner and a discipline of client service.

Charging back external counsel costs falls short of creating market discipline

Progressive law departments charge back to a business or staff unit all costs of external counsel incurred on behalf of the unit. Sharing the pain is supposed to impose some market discipline on outside spending. But if often doesn’t.

One reason is that the executive getting the chargeback didn’t cause the ruckus that now costs so much, so shrugs off the message of the charge. (See my post of March 18, 2005 on lag times for legal costs.) Another reason is that the client who registers the cost doesn’t know enough to judge it high or low. A low-level finance person simply records the cost. Third, the time delay for clients to learn of legal costs stretches even longer than the time law departments learn about a cost. As a fourth reason, some clients can be intimidated by lawyers, or comments from them such as “quality costs,” or “would you like us to default?” Then too, the legal fees and expenses may be aggregated at the client end so that no one can link legal costs to business goals. Finally, clients might assume (or hope) that the law department has vetted the bills, so why should the clients presume to question amounts?

Nine low-cost morale boosters (no kidding)

Worried about cheerfulness in your law department? Try one of these low-cost tactics guaranteed to boost morale or double your lost respect back, as described with a straight face in the Manager’s Intelligence Report (Sample issue in Oct. 2005, at 2) (See my post of Oct. 29, 2005 on morale as a symptom.)

Sponsor a “Noon Movie.” Once a week, set up a VCR in the lunchroom and show a funny movie – perhaps the courtroom scenes of A Few Good Men, North Country, or To Kill a Mockingbird?

Set up a Humor Corner. Pick a funny-bone spot, and encourage people to post cartoons, jokes and other hilarious material – perhaps the latest management initiative memo, or law firm marketing material?

Get out of the office: “Whenever possible, hold meetings outside the office—at the coffee shop down the street or at a local restaurant – perhaps close the deal at Starbucks with lawyers on TMobile?

Liven up your memos. “Buy a book of one-liners, and include a joke at the bottom of your memos.” A corporate lawyer walked into a bar and …

Run a “Guess the Baby contest. Ask the lawyers and staff to post baby photos of themselves in one place (the nursery wall?) and award a free lunch to the employee who can guess who’s who – perhaps then use the pictures on the law department’s intranet site?

Have “Lose an Hour” Days. Once a month allow the depressed members of the department to arrive an hour late on Monday morning or leave an hour early on Friday – and ignore those days’ time cards of the lawyers.

Take pictures! Ask aspiring paparazzi to take candid shots of employees, and add them to the Humor Corner. No legal risks here, no way.

“Bring your smile to work.” “You’ll be surprised at the difference it makes” – a brilliantly ambiguous endorsement.

Play with the dress code. Hold an “Ugly Tie,” “Ugly Pants,” or “Ugly Sweater” day. This is the clothing idea from Manager’s Intelligence, possibly an oxymoronic title.

Low importance on client satisfaction scores could result from poor performance

Clients might rate an attribute, such as training, low on their relative scale of importance, yet that rating may be dragged down because the law department trained poorly . If so, clients might not understand how valuable and important training can be.

If management of outside counsel expenses comes back as having low importance scores, it might be that the department hasn’t given clients a clue about the cost of external counsel. (See my post of Oct. 26,2005 on client satisfaction surveys and making a gap analysis.)

The learning from this is that a department should not take at face value low scores from clients on satisfaction. Assure yourself that the clients are able to make an informed decision.

Contrarian ideas on the value of outside counsel who have industry experience

Most surveys that ask law departments to rank the criteria they use for choosing outside counsel report in the top two or three criteria “industry experience.” In-house counsel like working with external lawyers who know their industries’ issues, terminology, history, and business models.

Yet Geoffrey Parnass, a New York City lawyer writing in GC New York, Oct. 11, 2005 at 14, holds the belief that “[I]ndustry knowledge doesn’t have to be deep. In fact, too much knowledge can be counterproductive.” He gives no rationale for this contrarian view, and I completely disagree with him.

In the following paragraph, Parnass writes, “But don’t expect too much industry knowledge in outside counsel. Look instead for lawyers who have a broad knowledge of several industries. … Like bees moving from flower to flower, outside counsel with experience in a number of industries can bring new ideas and solutions.” My view: if you retain someone who lacks familiarity with your industry, you are much more likely to get stung.

“Better to light a candle than curse the darkness” – metrics are better than none

When I present benchmark metrics to a law department, some lawyer inevitably attacks the non-comparability of the other companies, the lack of rigor of the definitions, the vagaries of data collection, the inter-relatedness of the numbers, the bad faith of the participants, the methodological impurity of the process.

Granted, metrics have flaws. The consistent clamor for benchmarks, I have to point out, belies these charges. Many metrics are inputs (what the law department does, such as filing patents, reviewing 8-Ks) rather than outputs (achieving the results the business clients want, such as opening a store, making the sale, buying the goods).

Better to make a good faith effort to collect and analyze metrics than to stumble around in the dark, bumping into unpleasant surprises. Light a metrics candle instead of wandering through Stygian management.