Law Department Management

Combine partners from two firms to create a powerful team

For some matters that require outside counsel, one law firm doesn’t have all the horsepower you need. For example, after a series of major lawsuits were filed against it starting in 2003, Johnson & Johnson created a blended trial team. As described in the Nat. L.J., Vol. 29, July 16, 2007 at S4, J&J created a virtual team of an antitrust expert, a senior partner at one large firm, and a litigation star, a senior partner at a second, equally prestigious, firm.

Expect some friction and competition from the virtual firm’s members if they are of that pedigree. But if you can manage the prancing stallions, you can get good results from the virtual law firm (See my post of Dec. 5, 2005 on Cisco and its virtual firms; Jan. 4, 2006 on Halliburton; June 5, 2006 on why virtual firms are not more common; Nov. 6, 2006 on virtual law firms during a crisis; March 4, 2007 regarding Chevron’s views; and Dec. 3, 2006 on five nuances of the term “virtual law firms.”).

Personality disorders among general counsel

Lord Acton’s famous saying haunts general counsel, “Power corrupts and absolute power corrupts absolutely.” Bullying and unpleasant behavior can afflict leaders of the legal pack (See my posts of Aug. 4, 2007 about “jerk” behavior; and Dec. 31, 2006 on the “imperial” general counsel; June 28, 2005 on Gallup’s findings about disengagement; and Jan. 17, 2006 on passive-aggressive behavior.).

Worse, general counsel are not immune to alcoholism, drug dependency, depression, or paranoia. Any such affliction hurts them personally as well as members of their department (See my post of Jan. 13, 2006 on a trio of consequences of managerial incompetence; and March 18, 2007 on general counsel who are bad managers.).

To reduce the likelihood and consequences of personality or psychological disorders, some general counsel would benefit from a personal coach (See my post of April 14, 2005 on coaches for top lawyers; Sept. 25, 2006 on coaching compared to other forms of assistance; and July 9, 2007 and references cited.). More severely troubled ones may need therapy or medical intervention.

Contest for ideas on how to improve this blog!! Win one of my books – Part I

What would improve this blog? I want to give away three or four of my books – on law department benchmarks, client satisfaction, or law department administrators – to the three or four best ideas to increase the effectiveness of what I produce.

Several people have already asked me to create hyperlinks to referenced posts and others have urged me to write longer posts or more of them; I am looking for other suggestions and welcome everything from the minute to the massive.

Email me, please, at Rees Morrison.

A barebones, outside-counsel cost database in Excel

A down-and-dirty tracking system for outside counsel costs would enable a general counsel in a small department to track and report on fundamental information using nothing more than Excel. The data to be tracked would be law firm, matter type, internal client, invoice amount, and date of service.

Five or six fields of information, that’s all it would take. In a spreadsheet that tracks law firms down the left-most column and the other fields across the top, you would have at very low cost a basic picture of what is spent on outside counsel. Some law departments might want to elaborate and track corporate cost centers and responsible in-house attorney.

Pivot tables and sorting can handle as much reporting as is needed, and graphics capabilities are plentiful. A home-grown database can’t compare with the fine matter management systems out there, but for some limited purposes, this simple spreadsheet will do.

Wetter to drip-drip training on technology or use the full-bucket-at-once method

The best way to train in-house counsel on software applications is not to run a single, long, intensive session once the system is ready, and then let them go thereafter. Rapid exposure leads to rapid decay; the deluge of knowledge runs off and does not soak in. Usually, after a heavy duty immersion, people usually retain a very small percentage of what they were presented.

As recommended in MIT Sloan Mgt. Rev., Vol. 48, Summer 2007 at 52, it is far better to host a series of one- or two-hour sessions on important skills every two to four weeks. During the days in between lawyers can rehearse, apply, and more personally learn the new techniques and capabilities. At the next session they can even ask questions about problems they encountered. Research also shows that to the degree training sessions resemble the real world and use actual examples, learning increases.

Patents, one area where law departments can influence their work load

Unlike much of the work that comes to a law department, the patent group has considerable influence over its own workload. I thought about this unusual aspect in the midst of reactivity when I read that "Hitachi Ltd. has boosted profits by pruning its patents. It scaled back its number of patent applications beginning in the early 1990s -- and still managed to more than double its licensing income. Before Hitachi files for a patent, the value derived from the innovation must be clearly defined, whether from licensing to earn direct revenue, cross-licensing to obtain critical freedom of action, or to secure strategic alliances or exclusive use in its own products."

The quote is from the MIT Sloan Mgt. Rev., Vol. 48, Summer 2007 at 16, and value-setting alludes to the fact that internal patent counsel have much say over whether an invention is patentable and how widespread should be the patent protection, both of which decisions bear on workload. In contrast to their brethren in the law department, patent lawyers determine to a large degree whether the company should proceed to apply for patents and how broadly to do so.

Referrals dominate as the means of identifying outside counsel beyond US borders

An ALM survey in May of 2006 (coupled with interviews in early 2007) looks at how US companies select international outside counsel. Of 17 tools and resources the participants could select to explain how they identify and select outside counsel in another country (pg. 13), six of the top eight were referrals. Referrals from outside counsel in the US dominated the selection list, since 87 percent of the participants chose it. Other referrals came from outside counsel in the overseas region (63%), in-house lawyers in the US (56%), in-house lawyers at other companies (45%), in-house lawyers oversees (34%), and company management (32%).

Since firm interviews, the fourth most commonly selected choice really take place after the law department has identified a potential firm, the only top-eight method of identifying firms was "firm's website.” That method came in second at 66 percent. To shout out the point, therefore, marketing internationally is all about word of mouth.

Infrequent use of foreign law firms (excluding IP) by US law departments

A study conducted by ALM in May of 2006 (released in the Spring of 2007) looks at how US companies select international outside counsel. The study gathered survey responses from 219 senior lawyers and many of them participated in interviews six months later. Somewhat over half of the companies had revenues in excess of $1 billion but a quarter of them had revenue of less than $100 million. This mix of large and small companies makes a difference because the smaller the company the less likely it is to need overseas counsel.

One chart (pg. 6) shows that 42 percent of the respondents had fewer than five matters that required hiring outside counsel in another country in the past 12 months. Another 29 percent hired outside counsel for five and 10 matters in the past 12 months.

The survey indicates later that 67 percent of the matters involved patent or trademark issues so the results overstate the demand for international law firms to handle significant litigation or transactional matters. Many patent and trademark retentions are required by national laws, but the firm does relatively little substantive legal work. With that caveat, the data suggest to me that the need to find a firm oversees is for most US law departments very infrequent.

These law departments may be using one US law firms with offices in a foreign country to meet their needs (See my post of Jan. 3, 2007 about US firms with branch offices in France.).

How to prove savings from a fixed-fee arrangement

Here is a way to calculate and prove savings that are promised by a fixed-fee arrangement. Start with historical data for at least the past three years about spending in the area that will be handled for the fixed fee. With that data, it is easy to extrapolate expenditures for the period of time covered by the fixed fees. The difference between what would have been spent on an extrapolated basis and negotiated fixed payment represents the savings. For example, assume a law department spent in 2004 $1 million on some kind of legal representation, then in 2005 $2 million and in 2006 $3 million. On those amounts, the extrapolated spend for 2008 and 2009 would be $5 and $6 million, respectively, for a total of $11 million. If the winning firm’s proposal were to handle that representation for $10 million, the savings would be $1 million 9.1% of the otherwise expected expenditure.

To my mind, saving calculated this way is a much more provable and reliable figure than savings from discounts to hourly billing rates (See my post of Nov. 26, 2006 and 19 references cited on discounted billing rates.).

One objection to fixed-fee arrangements: a risk that quality of work may decline

Often when I recommend a fixed-fee arrangement for a law department, someone will worry out loud that the law firm might shirk if it looks like the money will end before the matter. The quality or quantity of work may decline as the firm nears its fixed-fee ceiling. I disagree, and for three reasons.

First, if you have chosen a reputable law firm, it is full of capable, ambitious, and proud lawyers. By nature, training, and firm culture they strive to do well and it would be anathema to them to short-change a good client – the arrangement presumably has given the firm a fair amount of good work – just for dollars. After all, unless every lawyer is fully billable, there is no actual cash loss from written-off time. To cap the point, only the partners might feel the economic pinch; associates want to win at any cost.

A second reason is that the law firm presumably would like to re-enlist for a second round of legal services or cross-sell other services. If the first arrangement lost money, the firm will try to renegotiate more lucrative terms but in general if the bolus is large enough, it’s likely that the law firm wants to continue. No firm wants it known on the street that they did not succeed with the client.

Finally, the fixed-fee agreement behind can provide for performance milestones. The milestones help assure that the law firm devotes to the matters appropriate resources and obtains quality results.