Law Department Management

Software interests law departments and law firms almost equally

In February 2007, Edge Legal Marketing surveyed online people who had attended LegalTech New York. Eleven percent of the respondents were from law departments. One of the questions asked respondents to mark all of the software categories that they “checked out at Legal Tech.”

Of the 51 choices, all but 11 of them would be applicable to both law departments and law firms. The firm specific ones include “accounting/finance,” “client relationship management,” “debt collection,” “docket/calendar/conflict of interest” (which law departments might consider for docket and calendar functions, though few do), “document accounting solutions,” “metadata removal tool” (a conceivable package for law departments that have sophisticated litigation support facilities), “networking communications equipment,” “networks security,” “software leasing solutions” (which is not really software) and “tax” (which someone in the tax function might use).

Hence, if you set aside the software that a law firm needs because it runs its own computer system, the law firms and departments might equally license most of these kinds of software. Some software, not necessarily listed, could be law-department only (See my post of March 31, 2007 on software unique to law departments.).

How to define strength of relationship between firm and department

Most people would describe a strong relationship as one where over several years a law department has paid a law firm a pile of money. Revenue is certainly one gauge of the strength of an attorney-client relationship.

Another measure, however, is the importance of matters for which the law department turns to the law firm. Each retention may be a year or two apart, but if it is a very important lawsuit or transaction and the law department routinely turns to the same firm, revenue is not the only measure of the bond.

A third measure could be share of client’s wallet. If 100 percent of the work in a particular practice area goes to one firm, one would have to say that the firm has a strong relationship with the law department.

Another indicator might be the number of touch points between the law firm and the law department. One firm might get several million dollars of work a year from a law department but it is through the personal relationship of a single partner. Another firm, with less revenue, may have five or six lawyers who are favored by the law department and its clients.

All of these are different indicators of the strength of the relationship between the two sides.

Four generations of knowledge management efforts

I recently heard a veteran legal technologist describe what he saw as the three stages in law departments by which knowledge management. I will boldly add one more.

First there were simply tools installed, mostly databases and document repositories. Next firms and departments went beyond technology and content to gather insights and material about processes within specialty areas and practice groups.

According to him, as knowledge management has evolved into the third generation, it has become based on search technology. Tools are available within law departments to enable lawyers and paralegals to find material even though it has not been organized in a database or controlled with a taxonomic structure (See my post of March 5, 2005 on Google desktop; Dec. 10, 2005 on implicit search software; June 30, 2006 about new search tools; Feb. 19, 2006, May 14, 2005, March 6, 2007, and April 4, 2006 #4 about concept-search software; and Feb.25, 2007 about enterprise search capabilities.).

My sense is that the fourth generation of knowledge management in law departments will incorporate the internet and the vast accumulation of material about the practice of law that will be available free and on-line (See my posts of Nov. 15, 2005 about online resources; Jan. 10, 2006 on Google searches; and Jan. 13, 2006.).

Law departments should encourage law firms to conserve and recycle

I felt I drove beyond my headlights when I included in my list of RFP criteria a law firm’s position on environmental protection (See my post of Feb. 6, 2007.). But the high beams went up when I read about Morrison & Foerster’s IT recycling programs. Anthony Hoke, the thousand-lawyer firm’s global technology purchasing/asset manager, provides in Law Tech. News, April 2007 at 39, some startling statistics about his firm’s conservation achievements.

Over the past four years, the firm has replaced all cathode-ray tube monitors with liquid crystal display (LCD) monitors. That substitution, among its many benefits, has saved roughly 619 megawatts of power each year. The law firm has consolidated its physical servers and has thereby saved an additional 830 megawatts a year. Those two programs save enough energy to power 136 US homes for a year!

A third achievement, through Redemtech, has been to recycle nearly 80,000 pounds of obsolete CPUs, monitors, keyboards and other hardware. They went to non-profit organizations (6%), were resold (65%), or were completely recycled (29%). As a fourth initiative, the firm remanufactures its printer toner cartridges. Last year, using Advantage Enterprises, the MoFo re-claimed 7.2 tons of empty toner cartridges from its US offices. This year the firm plans to standardize and enforce power conservation settings for printers, desktops, and notebooks.

Law departments should encourage similar efforts for themselves and in their law firms.

Outsourcing does not equal offshoring

By contributing author Brad Blickstein, Blickstein Group, on legal service providers:

It’s become clear that more and more legal work in areas such as document review is going to be outsourced. The economics are too good for routine legal work. There are a number of legal service providers set up to do this type of work in India (NovusLaw, Office Tiger), the Philippines (SPi) and now Israel (PowerLegal).

One important distinction is the difference between outsourcing and offshoring. Offshoring means “moving business processes or services to another country to reduce costs.” Outsourcing is obtaining “services from an outside supplier or source”. (Both definitions from dictionary.com.) They are not synonymous. Technically, most legal work is already outsourced—to law firms.

Law departments who want a fraction of the economic benefits of offshoring, but are not yet comfortable overseas, may want to consider outsourcing the work to a non-law firm service provider that manages routine legal work in the United States, such as Barrasso Consulting, Huron Consulting Group or IE Discovery. The economic benefits might not be as great as off shore, but they still exist from better management and personnel costs in certain domestic geographies.

What’s the best mix of compensation elements to elicit top performance?

MIT Sloan Mgt. Rev., Winter 2007 at 8, has a provocative article about how best to allocate base pay, merit raises, and bonuses to motivate employees. Based on research on about 700 employees who worked in the US operations of a large diversified corporation, the author – Michael Sturman of Cornell University – arrived at a number of interesting conclusions.

For example, when the research assessed raises and bonuses and their respective effects on performance, “the effect of a 1% raise was about equal to that of a 3% bonus.” As the article puts it, “the enduring nature of raises makes them, in the long run, more valuable.” Unexpectedly, however, "tying pay to performance for merit raises seemed to have no effect. In other words, making raises more contingent on performance did not appear to spur employees to do better at their jobs."

Bonuses, by contrast had a strong link to performance. In fact, "[I]f all managers were to tie bonuses strongly to an individual's performance, the company would theoretically see an overall 16% increase in employee performance.”

Of course, the hands of many general counsel are tied with regard to decisions on some aspects of pay (think of bonus targets and COLA increases), but the findings deserve thought.

The undiminished value of outside counsel’s proximity

Nothing beats face-to-face. For developing trust, communicating effectively, absorbing the business and its culture, and sharing materials, less personal alternatives such as e-mail, phone, instant messaging, and fax pale in comparison. The law firm that can send a lawyer across the street for a meeting has a leg up on any distant firm (See my post of March 23, 2007 on proximity and knowledge exchange.).

True, much can be done remotely – especially after people have met at least once. But I would not be surprised if many law departments spend a third or more of their outside counsel dollars on law firms that have offices only a few minutes away. My book, Law Department Benchmarks: Myths, Metrics and Management (Glasser LegalWorks 2001), has a chart on percentage of dollars spent by proximity, which backs up this supposition, and I suspect that even in this age of ubiquitous telecommunications that the data on physical closeness still holds true.

The success of cross-selling depends on a department’s view of a law firm as a whole

It is my belief that most law department lawyers hire a partner first and think of the partner’s firm second. Were I to quantify my impression, I would give 70 percent to the determining influence of the partner. Most in-house counsel who select outside counsel practice in a particular area, such as employment or environmental, so they have little occasion to meet a partner from the same firm who specializes in a different area.

On this logic, therefore, there has to be receptivity to cross-selling at a higher level in a law department. The general counsel, for example, has to consider another partner from the same firm and be willing to give that partner a try. It also suggests that the attractiveness of retaining a broader selection of partners from a firm depends on an overall impression about the quality of the law firm. If Partner A is good, her partner in another area is probably also good.

Thus, cross-selling implies that the ratio between attractiveness of the firm and attractiveness of the partner shifts, say to 50-50 between partner and firm. There is also the latent idea in using a firm more broadly that if the firm obtains more work from a law department – across a spectrum of practices – the firm will collectively know more about the client’s business and may also be amenable to billing arrangements more favorable to the law department.

For any given management initiative, a four-part description

Hard as it may be to identify in a consistent and collectively-agreed upon way the meaning of “management initiatives” (See my post of March 11, 2007 on management initiatives compared to processes.) there is at least some hope that within any particular initiative set, one can describe the variations on a four-part scale: none, some, a fair amount, and progressive. Let’s take knowledge-management to see how the scale might play out.

A department that does nothing in any formal organized way to collect and disseminate knowledge could be described as a “one.” A department might be described as a “two” that has tried a few aspects of knowledge management, such as to install a document management system and push people to use it. Moving up from such a basic level, an intermediate law department warrants a “three,” perhaps because it has studied knowledge management, put in place several programs such as to collect work product from outside counsel and generally values the collection and distribution of legal knowledge.

A sophisticated law department that has invested significantly in an intranet site, appointed a lawyer in charge of knowledge management, enlisted law firms, and taken other progressive steps would earn the highest number on the initiative scale: a “four.”

All this is to say that for any management program in law departments there is a spectrum from laissez faire, to basic, intermediate, and advanced. In the coming years there will be an accepted taxonomy for law departments to place themselves on, perhaps on a scale something like this four-part one, and eventually law departments will be able to benchmark themselves on management undertakings. Even more promising is the prospect of correlating staff and spending metrics to management efforts.

Possible misinterpretation of data on mid-size European companies and their law departments

Data from a recent study by LexisNexis Martindale-Hubbell deserves a quizzical quantitative qualifier. The study focused on how midsize companies in Europe select and review their legal service providers, and is reported in Of Counsel, Vol. 26, March 2007 at 8. The study defines "midsize" companies as for-profit organizations that employ approximately 50 to 600 full-time employees. One of its findings is supposed to excite amazement.

"According to the study, a surprisingly large proportion of European midsize companies have no dedicated internal legal department, with only 30 percent of respondent organizations employing in-house lawyers."

Is that finding jaw dropping? The median number of US attorneys per 1,000 US employees in large law departments is 1.5 (See my post of Jan. 27, 2006.) so if that metric holds even approximately among European midsize companies, even the largest respondents in the LexisNexis study would have had but one lawyer. Yet the survey population included 78 companies (41%) with only 50 to 100 employees, 61 (31%) with 101 to 250 employees, and only 55 (28%) with more than 251 employees. With such a heavy bias toward small companies, if the benchmark holds then very few companies would sustain an internal lawyer.

Upon analysis, therefore, what is surprising is how many of the sample, skewed toward small companies, have an in-house lawyer!