For many plaintiffs’ lawyers who sue companies on a contingency-fee basis, the litigation rewards them with Croesusian sums. One scholar has “estimated that contingent fees in tort cases are generating upwards of 22 billion dollars in annual income and are increasing at a substantial rate.” The law professor, Lester Brickman, in “The Market for Contingent Fee-Financed Tort Litigation: Is It Price Competitive?,” Cardozo L.R., Vol. 25 at 68 (2003) cites this awesome flood of funds, much of it flowing from corporate defendants. As canny law firms invest those billions in more lawsuits, and the many satellite activities that sustain such lawsuits, law departments will face more and better litigation (See my post of Aug. 24, 2005 on the flow of funds to law firms in securities cases.).

Brickman states one other jaw-dropping fact. “Over the past 40 years, the average effective hourly rate of the contingent fee bar has increased, in inflation-adjusted dollars, by 1000 percent to 1400 percent” (id. at 69). Lucre like that will draw in talent and encourage investments, all to the detriment of law departments.

We who care about the effective management of in-house legal functions bandy around the term “processes.” What is a law-department process?

A process is a series of related activities repeated to achieve an understood goal. Law departments consist of hundreds of substantive processes: review promotional material; analyze trademark clearance searches; decide whether a document is protected by a privilege; determine the completeness of coverage in a non-disclosure agreement, etc. Administrative processes are almost as numerous: review and approve invoices, enter data into the matter management system; interview candidates, etc.

A process can be described in a flow chart, a process map (See my post of Aug. 28, 2005 on process maps.). A process can be studied, as compared to a one-off, singular activity. A process can be standardized, streamlined, and quantified (See my post of Nov. 14, 2005 on Six Sigma.). A process can be assigned to one or more people, and resources linked to it. For instance, knowledge management fills the sail the most when there is a process that the knowledge applies to

The term “process” can be taken at so many levels, it can lose usefulness (much like the word “system”). Is “provide legal counsel to clients” a macro process? Sure, if you describe the steps in that all-encompassing process as “learn the facts, apply legal analysis and judgment, then deliver conclusion,” but the level of abstraction is nosebleed.

You will live longer if you give some thought to this statement: “brain health is now known to be the number one indicator of longevity….” Neuropsychiatrist Richard Restak, writing in the American Scholar, Vol. 75, Spring 2006 at 16, urges courses “aimed at teaching students ways of maintaining optimal brain functioning over their lifespans.”

Presumably, law departments that stimulate the brain health of their staff (See my post of Oct. 18, 2005 which allows that most of us don’t continually seek rocket science work.) will perform better or at least have lots of old alums.

IBM has decided to invest in scientific analysis of services, according to Consulting, Vol. 8, March/April 2006 at 26 (by Alan Radding). Robert Morris, vice president of assets innovation at IBM Global Services, defines “services” broadly: “an instance of a provider-client interaction that creates and captures value.” Service as defined that way is exactly what in-house counsel should render.

The article claims that “[A]cademics are starting to jump on this new services approach and its application of science to what has traditionally been considered human-to-human interaction” (id. at 30). “Modeling, simulation, abstraction, measurement and metrics, and process design and analysis will emerge as core disciplines of science-based services.” “Abstraction?”

A previous post collected some economic concepts that pertain to aspects of running a law department (See my post of March 26, 2006 with 14 other concepts beloved by economists.). Since my supply and your demand are not in equilibrium, I will move up the output curve.

Beta and levels of risk – “any portfolio of cases may be evaluated in terms of levels of risk—a measure that is analogous to the ‘beta’ measure of stock portfolios” (Lester Brickman, “The Market for Contingent Fee-Financed Tort Litigation: Is It Price Competitive?,” 25 Cardozo L.R. 65, 82).

Comparative advantage – even if a more experienced lawyer could do everything that a junior lawyer could do and do it better, comparative advantage says that the junior lawyer should do what that junior lawyer does best.

Marginal cost – if an in-house lawyer works one more hour in a year, there is no marginal cost to the company. It costs nothing additional for that hour. This is why law firms are enthusiastic about squeezing as many hours out of their associates as possible; the marginal cost to the firm is nothing (setting aside possible bonuses for performance), but the incremental cost to law departments is really something.

Monopoly power – if you are the largest firm in Tegucigalpa, Honduras and one of your partners was the former head of the country’s patent and trademark department, you have virtually monopolistic pricing power when it comes to foreign law departments seeking IP services. “Rents” are the term for excess earnings that monopolies and other restrictions on competition bestow on their beneficiaries.

Price elasticity – a senior partner who never discounts her billing rate of $650 per hour demonstrates price inelasticity. If nearly all contingency firms charge 30 percent of the recovery, that is inelasticity. Where firms negotiate on their fees, and commonly grant discounts of varying amounts, there is substantial price elasticity.

1. Send the vendor a summary of your relevant facts. Ask them whether they need to know more facts to do a good presentation and try to supply them.

2. Tell the vendor what you want emphasized in the demonstration, rather than let them trot around their accustomed bases. For example, if reports are most important to you, don’t let the vendor monopolize the time showing data entry screens. Ask the demo person to show you how to do what is important to you.

3. Choose the five or six characteristics that should enable you to choose among the competing packages. Make sure those who attend the demonstration pay attention to those characteristics and grade the package on each of them on a scale.

4. Be active, ask questions and make observations. Doing so will push the vendors to show you what is important to you and will articulate for them and your colleagues what you are thinking.

5. Don’t schedule three demonstrations on the same day. It is too fatiguing and causes the systems to blur. If you do compress your pace of demos, be sure to leave enough time for people to write down their impressions about the package they just saw.

Law firm partners face jolting changes when they join a law department at a senior level. Major disparities between partners’ experiences in a law firm compared to the department that they join relate to prestige, compensation, organization, communication, and management. The following are three interesting comments excerpted from Hildebrandt’s research interviews:

• "By comparison to the firm I left, this department is very segmented. We have no idea what other legal groups are doing, and there is very little overlap. We operate as silos."
• "There is a bell curve applied to performance distributions because there is internal pressure from corporate to suppress rankings. There is no clear way of moving up on the scale, and they never move people down. This results in many long-time department members being over-rewarded in compensation, purely based on years of service, somewhat paralleling the old days of lock-step in law firms."
• "We are incredibly resource constrained - in terms of technology, support staff and professionals. We are dealing with too few lawyers and a backlog. Secretaries act as our messenger service, running documents all over the company. And we don't have half the technology available in a law firm.

Law departments that recruit a partner need to empathize with what the new hire goes through. They need to recognize the many cultural and organizational differences and frustrations one can encounter in transitioning to in-house.

Some tests, such as the Minnesota Multiphasic Personality Inventory (MMPI) screen out unwanted candidates, such as those who indicate a proclivity toward substance abuse or psychopathology, according to Business Week, April 14, 2006 at 89. Other tests screen in desirable candidates, as does the California Psychological Inventory.

Some tests gauge dependability, stress management and motivation (See my post of June 28, 2005 on Gallup’s test of engagement.). The five main personality traits assessed by such instruments are extroversion, agreeableness, emotional stability, conscientiousness, and openness to experience. (For more on psychometric instruments, see my posts of April 18, 2005, Aug. 21, 2005 and Oct. 21, 2005 on the MBTI; April 9, 2005 on Hartman-Kinsel; Feb. 7, 2006 on the Group Development Questionnaire; Feb. 7, 2006 on values assessments; and Jan. 1, 2006 on building on personal strengths.). The article claims that 30 percent of employers use a version of personality tests for hiring, so many law departments must be able to draw on them if they want.

Ron Friedmann, on his PrismLegal blog (March 31, 2006) suggests that law departments can look to their firms not just to draft but also to manage contracts. For its law department clients, a firm can keep track of all contracts, including their expiration dates, obligations and rights, renewal options, payments and risks.

Friedmann cites a LegalIT report that credits DLA Piper Rudnick with having streamlined contract management and having teamed with Affinitext to implement its “contract navigation system.” Here is an example of a benefit from a law firm that law departments might not have considered, although the cost may be high unless the firm transforms the traditional law firm model of service delivery.

A law department that wants to choose a matter management system can look to ASPs – software hosted by the vendor on its servers – or at self-hosted packages on the corporation’s servers (See my post of March 26, 2006 about IT departments and ASP’s in terms of support.). Into that decision inevitably come information technology staff. They might, for example, decree that the company favors or frowns on ASP systems, for concerns over data security, durability of the infrastructure, cost, or other reasons.

The inherent tension, however, is that IT staff may say they will support a self-hosted system, but a law department has no completely persuasive way to test that claim or enforce it later. IT may want to control all applications, but what if they are enmeshed in larger, enterprise-wide implementations? What if they are short-staffed or lack necessary skills? For these reasons, the corporate technology support available to the law department is not a disinterested party in the decision between third-party hosted and self-hosted software.