– By Ed Poll
In theory, there should be little professional distinction between lawyers in a law firm and lawyers practicing in-house at a corporation or other private business. The reality is that both partners and general counsel are lawyers, but they practice law in very different worlds. Whether the issue is hourly rates, cost cutting, work-life balance, or other measures, corporate culture is focused on organizational performance and values, while law firm culture is primarily individualistic and focused on personal performance.
This dichotomy drives the Association of Corporate Counsel’s ACC Value Challenge, a concerted effort to better integrate law firm billings with corporate clients’ perceptions of value. ACC members are seeking to align lawyer training and cost management with what corporate clients want and need: value-driven, high-quality legal services that deliver solutions for a reasonable cost. The ACC’s proposed Value Index will enable corporate counsel to assess and apply statistical rankings to such law firm performance metrics as responsiveness, adherence to budget, staffing ratios, frequency and thoroughness of communication, credentials and results. This need not be a confrontational process. The fact is that there are many broad areas of collaboration by which both law firms and their corporate clients can benefit. Three examples illustrate the likely future direction of law firm-corporate client relationships.
In many cases, GCs are increasing the size of their legal departments as one way to control legal costs. They can “purchase” legal talent at wholesale (as an employee of the legal department) rather than retail (law firm associate or partner). For this reason, from the in-house counsel’s perspective, who the law firm has working on a matter is significant. Is it a partner with a higher rate but greater experience who can rip through the analysis and work? Is it a young associate who will take longer to get up to speed but whose rate is lower? And what is the fee arrangement that encompasses all the lawyers on the matter, a blended rate, pure hour or a variation alternative fee? These are factors that general counsels increasingly feel they should direct.
However, when clients impose strict guidelines on the law firm in terms of staffing, the law firm may not wish to adjust within the parameters set, particularly for a flat fee. The firm’s belief is that once a corporate client gets a fixed fee, that client should no longer care about anything but receiving a quality final product. The firm can handle the intricacies of how to do that.
To the extent that in-house counsel do care, the law firm can address their staffing wishes by a formal checklist that defines exactly what is expected of the law firm in terms of staffing. The checklist should cover both qualitative issues and procedural details in such a way that clearly defines the client’s fundamental satisfaction so far as staffing. For example:
- Stipulate that the firm shall staff each matter with attorney and legal assistant experience appropriate for the circumstances, giving due regard for expertise, efficiency and cost.
- Designate, up-front, the individuals assigned and their billing rates.
- State that there should be no start-up costs for educating new team members.
- Specify that, if the firm does need to make a change in staffing or to add attorneys or legal assistants, it should be in consultation with in-house counsel.
By such an approach the firm does give up total control over staffing. But it addresses an important client concern, and also enables the firm to be more structured in its staffing approach in a way that can meet cost objectives.
Another example of the kind of collaborative thinking that can enhance law firm-corporate client relationships is an engagement planning checklist. In-house counsel, above all, hate surprises in their legal bills and their legal processes. They budget on an annual basis and must explain budget variances to their superiors, the C-suite officers. Effective outside counsel recognizes this and promote quality communication that creates a predictable, mutually positive relationship, one that is cost-effective for the client and yet profitable for the firm.
Whether the relationship between corporate counsel and their law firms is a new one or one of long standing, every new matter involves the opportunity to establish a dialog that can support a collaborative relationship. By making clear all expectations and objectives right at the start, outside counsel should obtain as much information as possible about the goals and desires of the client. In-house counsel can further this understanding by bringing to the table a formal checklist that defines exactly what is expected of the law firm. The checklist should cover both qualitative issues and procedural details in such a way that outside counsel clearly knows how the client defines fundamental satisfaction. That should include clear statements of:
- The goal of and the budget for the engagement
- The means and frequency by which outside counsel will keep the corporate client informed
- Staffing levels, and identification of specific lawyers to be used
- Work product confidentiality and ownership
- All aspects of billing, fees and ancillary expenses.
That final point is especially important. It should include stipulating alternative billing arrangements, trust account provisions and retainer fees. Stipulating payment rates and terms up front is the best way to avoid future disputes, and thus to maintain and grow the relationship toward the collaboration objective. It goes hand-in-hand with ongoing budget assessment, which should begin for each matter immediately after engagement and continue with periodic reviews. That assessment should evaluate risks, assumptions, options for handling the matter, likely timing and sequence of steps, and projected cost for each phase.
This kind of documented relationship roadmap allows outside and in-house counsel to develop a proactive, interactive engagement approach. It recognizes the leverage that GCs have today to control legal costs. Collaboration through adherence to a checklist that documents how to provide greater value in legal services produces more effective representation at a lower cost to the corporate client without discounting either the value or the per hour fee of the lawyer.
A third area for law firm-corporate client collaboration is technology. Undeniably there is a trend among corporate clients to view certain legal services as a commodity, and to apply standardized rates or flat fees where appropriate. And there is no question that online technology accelerates this trend. The Industrial Revolution long ago demonstrated that the more equipment used to make a product, less labour was required, and the lower the price. However, with a lower price, volume increased, and profits likewise could rise. With electronic technology the principles are the same as in the industrial world; only the pace has changed. Increased machine power reduces labour, which tends to reduce cost, which tends to reduce price, which increases volume… and profits. The key to higher volume for lawyers is partnering with corporate clients to understand what they need and provide it. Such partnership can show clients how they can reduce their legal costs (without reducing the lawyers’ per unit fees) and can develop strategic plans for meeting legal challenges. Effective use of technology to provide greater value in legal services produces more effective representation at a lower cost to the client without discounting the creativity or judgment of the lawyer.
Corporate counsel have made it clear that their objective in today’s legal service marketplace is not to reduce law firm revenue, but to make their own legal costs more predictable and manageable. Corporate clients recognize the importance of and are willing to pay a fair fee for value. They do not want to pay too much – to pay for inefficiencies, duplications, or unnecessary services. The skills of a lawyer and the way in which services are delivered to the client must coincide with what the client wants and needs to have. In a word, the desire for both sides should be performance. Performance is a factor of many different things: communication, understanding and focusing on the corporate client’s business objectives, use of technology, and specialized knowledge. When these are present, law firms and their corporate clients will thrive together.