Transcript A Small Law Department`s Guide to Working

Working Effectively with
Outside Counsel
Erik Feig, General Counsel MRIS
Steve Bell, CMO, Womble Carlyle
John Rider, Director of Practice Mgt., Womble Carlyle
Eileen Kett, Sr. VP and General Counsel, Club Med
WMACCA Small Law Department Initiative
December 5, 2013
What’s up at law firms?
Things have gotten, ahem,
complicated.
Cash Accounting
• Few hard assets
• No cushion
• Investments (i.e. change) challenging at
best
• Revenue declines felt instantly and must
be addressed IMMEDIATELY
Law firms are horizontal
• Multiple owners, each with a “say”
• Sometimes resembling “line” businesses,
but to an extent resembling co-located
individual proprietorships
• Complete consensus difficult
• Management by dictate untenable
Market economics are real
• Reduced buyer demand since at least 2008
• Supply increasing every year
• New-normal competitors (e.g. LPOs,
technology) adding still more pressure and
variety on the supply side
• New business formats focused on new
metrics (e.g. triple bottom line) creating new
expectations about sharing and collaboration
Buyers of legal services feeling
increasingly pressured/empowered
• C-Suite resolve
• Focus on value
• Adaptation of manufacturing quality
initiatives
• Diversity
• Pro Bono
• Social responsibility
So, law firms talk about
• In the context of client delight:
– PPP
– Maintaining Rates
– Cost Control
– Leveraging the fixed costs
– Revenue
– Becoming more businesslike and corporate
– Differentiation
Outside Lawyers
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Devoted to clients
Resistant to change
Justifiably proud
Guardians of professionalism
As a generality, lacking in sophisticated
business acumen and entrepreneurialism
And by the way
• Most IHC were once outside counsel
• Not exactly the optimum crucible for
creativity, boldness and positive change
Examples of law firm
adjustments
• PPP
– Process Management
– Project Management
• Maintaining Rates
– Focus on “client experience”
– Focus on relationships
– Adding value not billed
Examples of law firm
adjustments
• Cost Control
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Paperless
Technology
Staff ratios
Physical space
Out-sourcing, farm-sourcing, all kinds of -sourcing
• Leveraging fixed costs
– Mergers, roll-ups, vereins
– Engagement staffing models, including
paraprofessionals, contract lawyers, nonlawyers
Examples of law firm
adjustments
• Revenue
– Law-related businesses
• Document review
• Obscure specialties such as immigration
– Ancillary businesses
• Building ownership
• Economic Development incentives
• Management/technology consulting
Examples of law firm
adjustments
• Becoming more businesslike and
corporate
– Account managers
– Pricing specialists
– Business service provision
• N/C for costs once billed (postage, telephony, etc.)
• Strategic communications
How law firms are adjusting
• Differentiation
– Segmentation
– Openness
– Relationships
– Connections to clients (e.g. Sharepoint,
OnRamps)
– “Best” adherence to IHC/client social values
– Flavor of the month
Alternative Fees
Sharing of Risks/Rewards
A few concluding thoughts
• IHC have leverage
• IHC have not yet learned how to fully apply this
leverage
• Law firms working hard to fill the gap and have
created a number of tools. (Do IHC know about
these tools and how to utilize them?)
• Law firms acknowledging client rights
• IHC have created their own tool kits, e.g. ACC
• What other tools are needed?
• How can we work together to do so?
Working Effectively with
Outside Counsel
A Small Law Department Perspective
Eileen Kett, Esq.
Senior Vice President, General Counsel
Club Med Management Services, Inc.
[email protected]
Association of Corporate
Counsel
• 30,000 in-house lawyers from over 10,000
companies (and 75 countries)
• Value Challenge launched in September
2008
• Everyone agrees there must be dialogue
and change on both sides
The Problem
In recent ten-year period, costs to U.S.
companies went up 20% . . . except legal
costs, which went up 75%.
Legal expenditures constituted .4% of GDP
in 1978 . . . and rose to 1.8% of GDP by
2003.
Client satisfaction is declining
• Only 31.4% recommend primary law firm
(down from 35.9% in 2012, 42.3% in 2011)
• Clients give the following reasons (actual quotes):
1.
2.
3.
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Secondary law firms now provide substantially better client
service than my primary law firm.
Primary firms do exactly what is asked—nothing more.
Primary law firms are married to their own ways of doing things
and won’t change.
My law firm used to be much more flexible….
I am trying to change my approach to managing the legal
department; my primary law firm does not seem as excited as I
am in getting the changes done.
Source: BTI http://www.btibuzz.com/buzz/2013/6/25/after-5-year-upward-march-client-satisfactionplummets.html
In-house counsel say
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82% - Employ AFA’s (94% of firms say they use AFA’s)
75% - Requested discounts
71% - Firms aren’t responding to client business needs
68% - Shifted to regional and boutique firms
68% - Requested alternative fee arrangements
61% - Dissatisfied with outside counsel rates (Fortune 1000 GC’s)
49% - Shifted law firm work to lower priced firms
47% - Moved more work in-house
41% - Using alternative fee arrangements
36% - Reduced total amount of work sent to outside counsel
Sources: Consero Group 2013 Spring GC Survey; 2012 Altman Weil CLO survey and Corporate Counsel reports; December 24,
2012 National Law Journal; 2011 ACC CLO survey; other
3 main objectives for using
Alternative Fee Arrangements
1. Reduce legal costs by 25%
2. Provide high predictability
3. Improve outcomes
While firms maintain and even enhance profitability…..
You’ve got to meet at least one objective to stay in the game.
You will need to accomplish all three to win.
It hasn’t always been by the hour
• Until 30 years ago, legal work was done at fixed
prices, contingency fees, long-term retainers
and similar arrangements
• Firms often functioned as client’s general
counsel
• Billing legal work solely by hours
is a recent invention
Hours are inherently contradictory
Perform two competing functions:
• Monitor production
o How many hours needed to perform the work
o Goal should be to reduce both the hours needed and the cost of each hour
• Generate profits
o Firm benefits by increasing hours for a task or matter
o Likewise benefits by regularly increasing hourly rates
AFA’s bring this longstanding tension to the forefront.
Concepts that need to change
• “The only thing firms have to sell is hours”
– Should be selling expertise and skill instead
– Focus on the three Value Challenge targets (reduction in
cost, predictability, outcomes)
• Stop using shadow hours
– Inherently lose-lose
• If would have been less with hours, client thinks got bad deal
• If would have been more, firm management says AFA’s don’t work
– Focus instead on the three Value Challenge targets
As a small law department:
How do I work more effectively with Outside
Counsel and how do AFA’s fit into the picture?
• Focus on Adding Value (Huron Chart)
• Ensure your legal spend is being used on the
right matters
• Use AFAs: Start with law firms you have an
existing relationship or a defined scope of
work.
Key Component is TRUST
Small Law Department
Challenges
• Typical Small Law Department Objections:
– We don’t have the leverage to influence the
law firms
– My CFO thinks fixed fees are too expensive
– How do I price the work?
– How do I know if it was successful?
I don’t have any leverage…
• First step is to make sure you are using outside counsel for
the correct matters.
• Work with senior law firm attorneys who have the expertise
you need AND a business mindset.
• Avoid the TRAPS:
– Asking for a discount on hourly billing; or
– Requesting the law firm to assign a lower price attorney
You will pay for it eventually in your own
management time
• Bundle work together to make it interesting to the firm
• Try a Pilot Program and agree to re-evaluate and adjust
periodically during course of the matter
Some examples of
Value Based Fee
Structures
Real estate development project for condohotel project, including bundle of services
such as letter of intent review, drafting of
agreements, and filing for regulatory
approvals.
• Project based pricing set out in phases, including initial
phase of LOI and due diligence, governmental
approvals, drafting of agreements and title work.
• Includes targets for government subsidies and
concessions.
• Able to shift costs into time frames necessary to meet
budgetary constraints.
Retained services agreement for general
advice and scope of work for geographic area
(e.g. Mexico).
• Annual fixed fee retainer, payable on a monthly basis.
• Client is entitled to certain services (e.g. telephone call advice,
corporate filings, simple contract review) each month under the
retainer.
• Matters that pass a threshold (e.g., labor matters that proceed
beyond Labor Board level) get kicked out of the retainer umbrella
and are tracked and invoiced separately.
• Periodically review new services that are being provided and adjust
retainer on an annual basis (e.g. increase in labor costs versus prior
year).
Lead law firm attorney is part of my “in-house team” and
participates in monthly legal meetings with
operations, human resources and legal department
Immigration services including application and followup for visas and permanent residency (green cards)
• Simplified flat rate for all major visa categories from initial
questionnaire and filing of application (including
responses to requests for additional information) and
consulate appointments.
• Flat rate is charge back to company department as a
“cost of hiring” similar to a recruiter’s fee.
• Only additional costs billed are the government filing fee.
• Also includes limited phone calls for general immigration
questions.
Remember – there are 3
objectives
1. Reduce legal costs by 25%
2. Provide high predictability
3. Improve outcomes
• Focus on adding value – are you allocating
internal and external resources correctly?
• Strategic and regular use of AFAs
You have the leverage – NO excuses –
just GO FOR IT.
Thank You and Additional
Resources
• Thank you to:
Michael Roster – Co-Chair of the ACC Value
Challenge Steering Committee
Catherine Moynihan – Director of Legal
Management Services at ACC
Huron Legal