… “so, there’s got to be better firms than them out there,” assessed the GC, based on the recent performance of one of the company’s primary law firms.

The last six years have been a sellers’ market, evidenced by law firms’ steady and dramatic raising of their billing rates. During this period, firms have been so busy (and often so focused on their own advancement, e.g., opening an office in China), that many service errors must have occurred on existing clients’ work. And in some cases, these firms have luxuriated in such overflowing economics that they’ve even taken some important clients (your company?) for granted.

If you’re not getting A+ work from your A-list law firm providers, then you should initiate some changes. A few ideas: (a) Gather and summarize your evaluation of each primary provider, including specifics about what they’ve done well and where they’ve slipped, invite in their lead partners for a little get-together and have them later reply formally as to how they are going to rectify the situation in the future; (b) If their response to your issues are not met with changed performance in a reasonable amount of time, start marginalizing their role by spinning off work to other law firms (and telling them when you do it); (c) If this still doesn’t do the trick, issue an RFP and swap out any B+ firms for the A-players you deserve.

By guest author Bruce Heintz

“ … as opposed to [our primary law firm’s] approach of having a meeting with six people just to debate the issue,” contended the General Counsel.

While this General Counsel is facetiously overstating the situation (or, maybe not), how can a law department ensure efficient delivery of advice as opposed to the legal group-grope described above?

Some ideas: (a) Tell the law firm that legal “answers” should in most cases be delivered by an individual attorney, even if prior consultation with others in the firm are appropriate; (b) Where cross-disciplinary considerations are required to solve a legal issue, ask the firm to provide attorneys who possess familiarly with both, or all, of the disciplines, e.g., know both contract law and the client’s industry; (c) Set a rule that no matter how many of the firm’s attorneys are in any meeting, a limit of only two will be paid for.

By guest author Bruce Heintz

Quite a few posts here tell something about typical charge-out rates of outside counsel (See my post of April 8, 2005: compare billing rates of your key firms to peer firms; Sept. 5, 2005: European law departments at about $220 an hour; Sept. 10, 2005: rates of top three firms; Jan. 16, 2006: some billing rate comparisons; Dec. 11, 2007: UK partner rates; Dec. 31, 2006: cost of living and partner rates; Feb. 21, 2008: a UK figure of about $151 an hour; Nov. 16, 2008: quartile rates for firms; and Jan. 16, 2009: possible gap of 30% between inside and outside costs per hour.).

More specifically, a series of posts have offered typical rates paid for US firms at intervals over several years (See my post of July 30, 2005: data on US partner and associate rates; 65 percent of partners bill between $235 and $474 per hour; Nov. 16, 2005: $190 an hour; Aug. 14, 2006: estimate of $270 an hour for effective rate; Sept. 25, 2006: average of $185 an hour according to survey; and Feb. 23, 2008: median rate of $225 an hour.).

The series of figures hardly allows a confident extrapolation, but a possible figure for 2009 looks to be in the range of $250-$280 an hour.

For once I side with law firms: most-favored-nation agreements (MFNs) are unfair, ineffective, meaningless, and unenforceable.

Otherwise, they make sense.

My entreaty on most-favored nation agreements seeks multilateral disarmament. Do away with them! General counsel should not ask for and law firms should not agree to fictitious arrangements whereby firms promise to bestow their “best rates” on the general counsel’s matters (See my post of Oct. 30, 2005: MFNs as quixotic quicksand; Nov. 21, 2005: MFNs - from problematic to impossible; Jan. 25, 2006: difficulties with MFNs; Nov. 13, 2006: MFNs only apply to hourly rates; July 19, 2007: administrative obstacles when partners seek to grant rate dispensations include MFN commitments; Oct. 31, 2007: one of ten bad practices for cost control; Jan. 20, 2008: PDF of my article on most-favored nation agreements; and March 20, 2008: if legal groups shared data, they could better enforce MFNs.).

Of the 33 covenants, 21 of them are ho-hum, sporadically rolled out, always paid lip service to, and modestly adhered to in most law department-law firm relationships. Guidelines for outside counsel (and perhaps some engagement letters from law firms) state most of the covenantial desiderata. Of the remaining group, none are novel, and yet any one of them would be significant, but only if the client or the law firm carries them out in good faith and diligently over a period of time. Most of them are aspirational, honored far more in the breach.

As a client, we will:

1. “Use value-based terms to reward success and efficiency.” This hoary exhortation can be significant if law departments move significantly away from hourly billing and discounts to hourly bills, but it has been talked to death. Do not hold your breath.
2. “Evaluate your performance fairly and regularly.” Law departments have shown little inclination to abide by disciplined review processes. And I could not help but note the hint of snark in “fairly.”
3. “Conduct ‘after-action’ reviews at the end of each matter to help continuously improve performance.” Maybe clients will do post-mortems on major projects, but I doubt even that.
4. “Designate one lawyer to serve as our relationship manager.” This only makes sense if a law department works extensively with a law firm over time and over a range of projects.
5. Provide training opportunities for your associates by discussing creative arrangements up front. I have no idea what the drafters contemplated by this, but these opportunities will be novel (See my post of Jan. 23, 2008: secondees with 8 references.). http://www.lawdepartmentmanagementblog.com/law_department_management/2008/01/lessons-learned.html

6. “Assist your firm to better collaborate with other lawyers and law firms.” Most law departments could not care less about this. It is a DuPont-like idea of have a panel of preferred firms (See my post of April 11, 2009: services of law firms that can be separated out with 12 references and one metapost.). http://www.lawdepartmentmanagementblog.com/law_department_management/2009/04/unbundle-use-specialists-firms-for-tasks-outside-counsel-have-traditionally-done.html

7. “Help nurture an enduring relationship with the firm, not just individual lawyers.” Most law departments probably feel that if enduring relationships happen, fine, but they won’t spend time and money to facilitate it (See my post of April 29, 2009: hire the law firm or the partner.).

As outside counsel, our firm will:

1. “Give honest feedback on whether your objectives in a matter are realistic and attainable.” Most firms just dig in and work, believing that there is little reward in honesty, knowing sometimes their perspective is no more accurate, feeling objective-testing is not what they are paid to do. “Ours is not to reason why, ours is but to bill and die.”
2. “Use the most appropriate staffing and tell you if we don’t have the needed expertise.” Partners believe they staff matters properly; partners rarely doubt their ability to serve a paying client.
3. “Designate one lawyer to serve as our relationship manager, whose time will not be billed for this role.” Same comment as on the client side: only sensible in large-scale relationships over years.
4. “Proactively offer value-based alternative fee structures.” Law firms think they are “proactive” when they boldly say “We are glad to talk with you, client, about alternatives to hourly billing.”
5. “Seek to reduce our costs creatively and constantly, and share those savings with you.” In your dreams, clients!

Do some law firms charge different rates in different cities for partners who have the same levels of experience? I have heard that some law firms have offered to implement a cap on the rates of their higher-end partners (See my post of Dec. 31, 2006: cost of living and partner rates.). More appropriately for this blog, what would the repercussions be if a general counsel decreed that the law department would not pay more than the median billing rate of any group of similar partners?

A policy such as this might incur higher travel costs, assuming distant partners with lower rates chip in, but that is a small price to pay (See my post of Sept. 21, 2005: law departments can internally arbitrage compensation differentials; and June 15, 2006: the use of associates from lower-cost cities.). To start this technique, ask for the rates of comparable lawyers in different locations.

Look, give me a break! I am trying hard to be topical.

A survey conducted by OfficeTeam asked 522 office workers how frequently they go into work when they are feeling sick. “Very frequently” was the response of 45 percent of those surveyed and “Somewhat frequently” by 30 percent.

Hold on. 150 managers, asked how often they think employees come to work when they feel sick said “Very frequently” only 17 percent of the time; “Somewhat frequently” 57 percent.

If this data holds for law departments, staff struggle in frequently when ailing, but the general counsel doesn’t think that happens much at all. This comes from The Lawyers Competitive Edge, Vol. 11, April 2009 at 8. It’s hard to tell whether medicine or psychology is more at work.

As a survey methodology gourmand, I note that the sample of employees “is post-stratified and balanced by key demographics such as age, sex, race, religion and education.”

Firm managers try to grapple clients to the entire firm: “BigCorp is a client of BigFirm!” Firm partners strive to become the trusted advisor of a person: “LitAGC turns to me for BigMatters and Small!” General counsel come down on both sides of the debate: sometimes firms, sometimes partners. Note that the ACC Covenant with Counsel sides with the firm managers: “[Clients will] help nurture an enduring relationship with the firm, not just individual lawyers” (See my post of April 27, 2009: exegesis on the Covenant.).

General counsel favor big name law firms (ergo, big firms) for big matters. Non-lawyers are more likely to be impressed (and if things go wrong, possibly consoled) by a name-brand law firm than by an individual partner. Admittedly, a handful of partners reach marquee stature, but in general, to pick the firm over the partner plays to the small number of law firms that executives, Board Members, and institutional shareholders recognize. The well-known choice plays best for major league matters.

Efforts to cement an institutional connection between a firm and a department start on the law firm’s side with the relationship partner (See my post of July 26, 2008: relationship partners with 8 references; and Feb. 19, 2007: fire law firms with 8 references and my article.). Efforts to cross sell, if the general counsel buys, depends on the allure of the law firm more than the charms of an individual lawyer (See my post of Feb. 20, 2009: cross-selling by law firm partners with 7 references.).

Incumbent firms build advantages, not the least in competitive processes (See my post of April 16, 2009: incumbent firms with 11 references; and March 16, 2009: rigged competitions with 6 references.).

Even so, once the well-recognized firm gets the nod on a crucial matter, the general counsel still has to select a partner to lead the matter. More commonly, when matters are not so high profile as to tip the selection toward a name firm, it is the individual partner who draws the attention of those who select counsel (See my post of June 12, 2005: partner or firm; June 13, 2006: function of familiarity; Dec. 16, 2007: endless debate; and Dec. 3, 2005: first hire the lawyer, then cling to the firm.). So long as the firm’s infrastructure is judged sufficient to handle the matter, it is the brain, style, experience, and judgment of the partner that makes the most difference.

As proof, if a respected partner leaves a firm, even in the midst of a major matter, most general counsel will transfer matters with him or her, accepting the disruption, nodding to the new firm, and demonstrating faith in the partner (See my post of Aug. 4, 2008: loyalty to law firms with 6 references; and Sept. 12, 2008: transfer matters to new counsel with 8 references.). The partner, not the junior lawyers let alone the other resources of the firm, makes all the difference (See my post of May 11, 2007: complaints about associates with 13 references.).

"I see an increasing desire on the part of boards to participate in the hiring of a general counsel. I think that the board needs to be more and more involved. This is in keeping with the recommendation of the ABA's Cheek Committee which recommended more board involvement in the hiring, compensation and retention of the general counsel." This vision of increased Board involvement comes from Met. Corp. Counsel, Vol. 17, April 2009 at 17, by Norman Veasey, the former chief justice of Delaware and now a partner at Weil Gotshal.

With all due respect to Judge Veasey, it may be that his perceptions are influenced by the focus of his legal counseling. He advises Boards, I believe, and therefore may be more likely to agree with ideas that strengthen their power.

For my part, unencumbered by facts although self-interested in a different direction (I support general counsel, in case you haven’t noticed), I feel CEOs ought to freely choose the senior lawyer they want at their helm. If they choose poorly, the Board can remedy that mistake. For Boards to intervene in bonus decisions and aspects of the general counsel’s remit is to micromanage inappropriately and to divert time from strategic issues unwisely.

What will happen to Sun's hefty legal department, which listed 170 lawyers in 2006 after Oracle acquires it? Consider the axe orgy after Oracle’s acquisition of BEA in April 2008. Of the 20 or so lawyers and eight legal staffers that worked in the BEA legal department, only two staffers and one lawyer based in Sweden have jobs at Oracle now, according to Zusha Elinson, The Recorder, April 24, 2009 That means 95 percent of the lawyers in the acquired company were cut down.

"Unless they have a very unique area of expertise where there might be a need for Oracle, I would suggest they would start looking for jobs," said a former BEA lawyer in the article. "A year after the thing closes, my guess would be, less than 10 percent of the Sun legal department will be left" (See my post of Jan. 16, 2009: layoffs after mergers with 9 references.).