Matter budgets: inside accountability and the principal-agent tension

One problem with matter budgets is how to have inside counsel negotiate tight budgets when they will later be judged on how closely they hit those budget numbers. Perhaps one solution is to uncouple the two efforts. The lower the budget the law firm signs off on, the better, and to some extent play down whatever happens thereafter. Maybe what law departments need to do is hire lawyers from temporary staff agencies to review budgets. This would be analogous to law firm bill auditors.

An inherent tension is between the desire of an in-house litigation management lawyer to resolve the case successfully and the desire of the general counsel to hit a budget number for the department. The line lawyer may give lip service to cost control, but down deep would just as soon open the taps and bring in a successful defense or recovery. Actually, the same principal-agent conflict afflicts a general counsel: It’s no good to tell the CEO that we lost the case but we saved $150,000.

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